Earnings Preview: Monsanto Company

Monsanto Company ( MON - Analyst Report ) will be reporting its first-quarter 2012 financial result on Thursday, January 5, 2012.

The current Zacks Consensus Estimate for earnings per share (EPS) is 19 cents, representing an annualized growth of 828.57%.

With respect to earnings surprises over the trailing four quarters, Monsantooutperformedthe Zacks Consensus Estimate in all the four quarters. Average earnings surprise was 33.42%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Fourth Quarter and Fiscal 2011 Highlights

On October 5, Monsanto posted a loss (excluding restructuring expense) of 22 cents in the fourth quarter of fiscal 2011, better than the Zacks Consensus Estimate of a loss of 27 cents. The company generated revenues of $2,247 million, down 37.4% sequentially but up 15.0% year over year, ahead of the Zacks Consensus Estimate of $2,034 million.

On a segmental basis, revenues from the Seeds and Genomics segment grew 39.0% year over year to $1,351 million. The growth in this segment was led by strong contribution from Latin America and gross profit increases in each of the company's core crops - corn, cotton and soybeans as well as vegetables on a global basis. Agricultural Productivity segment’s revenues came in at $896 million, in line with management’s expectations.

Agreement of Estimate Revisions

In the last 30 days, seven analysts increased the company’s earnings per share (EPS) estimates for the first quarter of 2012, while no one decreased the same. For fiscal 2012, three analysts increased their EPS estimate, whereas none decreased the same. Besides, five analysts showed an increasing trend for fiscal 2013 EPS estimate.

The positive views of the analysts are based primarily on the anticipation of improved U.S. business, especially in corn traits along with the promising price/mixstrategy, which is expected to ensure growth across segments in the upcoming quarters.

Magnitude of Estimate Revisions

Estimates over the last 30 days increased from 13 cents per share to 19 cents for the first quarter of 2012, representing a year-over-year increase of 828.57%.

Estimate for fiscal 2012 decreased from $3.45 to $3.42 over the last 30 days while that for fiscal 2013 marginally increased from $4.02 to $4.03. These estimates represented a year-over-year growth of 15.64% and 17.64% for 2012 and 2013, respectively.

Our Take

Monsanto’s continued product development, consolidation of business segments as well as cost optimization are expected to fetch favorable results for the coming quarters. We believe that the company’s future contracts and hedging mechanism will ensure uninterrupted seed supply throughout all seasons. Moreover, the production strategy across multiple irrigated locations is expected to combat weather fluctuations while increasing yield significantly.

Missouri-based Monsanto Company, together with its subsidiaries, is a leading global provider of agricultural products for farmers in the United States and internationally. Monsanto's biotechnology research and rich product pipeline provide strong competition to its peers, such as The Dow Chemical Company ( DOW - Analyst Report ) , Syngenta AG ( SYT - Analyst Report ) , The Scotts Miracle-Gro Co ( SMG - Snapshot Report ) , and BASF (BASFY).

We currently maintain a long-term Outperform recommendation on the stock. Monsanto has a Zacks #2 Rank, which translates into a short-term Buy rating (1-3 months).