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Monsanto's net sales increase in second quarter
Net sales are $5.1 billion, up from $4.5 billion in prior year.
April 7, 2017
6 Min Read
Monsanto Company announced strong second quarter and first six months results on April 5, 2017.
Earnings per share (EPS) reached $3.09 on an as-reported basis and $3.19 on an ongoing basis for the second quarter of fiscal year 2017. The company's performance was driven in part by strong gross profit growth from its corn and soybean businesses, the absence of the Argentine peso devaluation and benefit from the sale of its Latitude wheat fungicide business.
“We are delighted to have delivered such an excellent first half and strong second quarter, in the face of what is still a tough macro economy for agriculture,” said Hugh Grant, Monsanto chairman and chief executive officer. “While we’re increasing confidence in the outlook for the rest of the year, our emphasis at Monsanto is where it has always been - on bringing innovation to growers. Our proven innovation and unique platform advantages position us well to meet the challenges ahead, as well as make us an attractive, complementary partner for Bayer.”
Results of Operations
Monsanto’s net sales for the quarter increased to approximately $5.1 billion, up from $4.5 billion in the prior year period.
Gross profit for the quarter also increased over the prior year period to $3.0 billion versus $2.6 billion for the prior year period.
For the first six months, net sales increased to $7.7 billion and gross profit was $4.2 billion; significantly outpacing the first half of fiscal year 2016.
For the second quarter of fiscal year 2017, selling, general and administrative costs were $657 million and research and development expenses were $381 million.
The company reported $3.09 EPS for the second quarter of 2017 on an as-reported basis and $3.19 EPS on an ongoing basis, well above the prior year ongoing EPS of $2.42. This growth of more than 28% in both as-reported and ongoing EPS was driven by three things: more than $300 million of gross profit growth from its corn and soybean businesses, the absence of the approximate $180 million Argentine peso devaluation, and the $83 million gain from the sale of the Latitude business recorded in other income for the quarter.
In the first six months of fiscal year 2017, as-reported EPS was $3.16 and ongoing EPS was $3.39 EPS, compared to $1.80 as-reported and $2.25 ongoing in the previous year.
Cash Flow
During the first six months of fiscal year 2017, net cash provided by operating activities was a source of approximately $1.5 billion, compared to approximately $1.4 billion the same period last year.
Net cash required by investing activities for the first half of fiscal year 2017 was $438 million, compared to $483 million for the same period of fiscal year 2016.
Net cash required by financing activities for the first half of 2017 was approximately $494 million, compared to net cash required of $3.5 billion for the same period of fiscal year 2016.
Free cash flow was a source of nearly $1 billion for the first half of fiscal year 2017, versus $900 million for the first half of fiscal year 2016.
As anticipated, the company’s operating expenses increased in the quarter with the return to growth of the business. This was partially offset by continued savings from restructuring and transformation actions. The company expects these savings to continue and to generate approximately $200 million of operating expense and cost of goods sold savings versus the prior year, yielding $500 million of savings by fiscal year 2018 from the fiscal year 2015 base.
Fiscal Year 2017 Outlook
Monsanto updated its fiscal year 2017 as-reported EPS guidance to be at the high end of the range of $3.95 to $4.44. On an ongoing basis, fiscal year 2017 ongoing EPS is also expected to be at the high end of the range of $4.50 to $4.90.
From a gross profit perspective, the company continues to expect the Seed and Genomics segment gross profit to increase mid-single digits as a percent year-over-year. Within its Ag Productivity segment, gross profit is still expected to be in the range of $850 to $950 million, though now at the lower end of the range.
For third quarter, the company expects as-reported earnings per share to be roughly flat.
For the full year, the company now anticipates these earnings to translate to the high end of the range of $1.2 billion to $1.6 billion of free cash flow, reflecting operating cash flow at the high end of the range of $2.4 billion to $2.8 billion and capital expenditures of $1.2 billion for fiscal year 2017.
Overall operating expenses in 2017, excluding the pending Bayer transaction-related costs and restructuring charges, are expected to increase slightly with the growth of Monsanto’s business.
Seeds and Genomics
Net sales for the Seeds and Genomics segment in the second quarter of fiscal 2017 were approximately $4.2 billion, contributing to the first half total of $6.0 billion.
Soybean sales
The company expects to deliver greater than 25% growth in global soybean gross profit. U.S. state approvals are now in place for the key soybean-growing states Monsanto is seeking for Xtendimax Herbicide with VaporGrip Technology, with the exception of Arkansas. The EPA recently approved numerous tank mixes for the chemistry, including glyphosate. With these approvals, as well as strong seed supply, the company now expects 18 million acres of Roundup Ready 2 Xtend soybean varieties to be planted in the U.S. in fiscal year 2017.
In South America, the performance of INTACTA RR2 PROTM soybeans continues to demonstrate the advantage over competing varieties, adding to the company’s confidence in the 45 million to 55 million acre range for the technology in fiscal year 2017.
Cotton demand
Monsanto also continues to see high grower demand for Bollgard II XtendFlex cotton, which is now expected to exceed four million U.S. acres in fiscal year 2017. Overall, cotton gross profit is expected to grow by more than 35%, with the strength of Bollgard II XtendFlex in the U.S. and the return of high-value acres in Australia.
Digital tools
Monsanto also continues to enhance its digital tools for agriculture, with acreage expansions for the Climate FieldViewTM platform, and remains on track to deliver 25 million paid acres this fiscal year. Geographically, experience with the platform is growing in the U.S., Europe, Canada and Brazil and interest in joining the Climate FieldView platform has been strong, and Climate is currently in discussions with more than 25 potential technology providers.
Agricultural Productivity
Net sales for the Agricultural Productivity segment in the first six months of fiscal 2017 were $1.7 billion. Second quarter 2017 net sales for the segment were approximately $888 million. Fiscal year 2017 gross profit for the Agricultural Productivity segment is still expected to be in the range of $850 to $950 million, though now at the lower end of the range. This reflects year-over-year price declines in glyphosate-based herbicides in the first half of the year, offset by anticipated higher volumes and modest glyphosate price improvements in the second half of the year. The gross profit outlook moves to the lower end of the range, because the anticipated benefit from select strategic deals in Ag Productivity shifted to other income, instead of gross profit in the second half of the fiscal year.
Source: Monsanto
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