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Monsanto Surpasses Estimates

MON CZZ

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Monsanto Company’s (MON - Analyst Report) fiscal first quarter 2013 (ended November 30, 2012) earnings of 62 cents per share beat the Zacks Consensus Estimate of 37 cents by a solid 68%. Earnings of this company, a leading provider of agricultural products, also grew a whopping 170% year over year, driven by solid top-line growth.

Following the solid first quarter results, Monsanto raised its earnings guidance for fiscal 2013.

Revenue

The company generated revenues of $2.9 billion in the first quarter, an impressive increase of 20.5%, driven by growth in both the business segments. The revenues also surpassed the Zacks Consensus Estimate of $2.6 billion.

On a segmental basis, revenue from the Seeds and Genomics segment increased 14.4% in the quarter to $1.8 billion driven by an increase in corn seed and traits net sales in Latin America and improving trends in the U.S seeds business.

Revenue from the Agricultural Productivity segment increased 30.8% in the quarter to $1.2 billion driven by improving market environment.

Margins/Costs

During the quarter, gross margin was recorded at approximately 47.5%, indicating an increase of 260 basis points, from 44.9% recorded in the year-ago comparable quarter.

Operating expenses were recorded at $888 million, up slightly from $851 million recorded in the year-ago period.

Selling, general and administrative expenses, as a percentage of net sales, were recorded at 18.4% compared with 20.5% recorded a year ago. On the other hand, Research & Development (R&D), as a percentage of net sales, was 11.8%, down from 14.4% recorded a year ago.

Balance Sheet/Cash Flow

Exiting the fiscal first quarter, the company’s cash and cash equivalents stood at approximately $4.6 billion versus $3.3 billion at the end of fourth quarter of 2012. Long-term debt was recorded at $2.1 billion, up from $2.0 billion at the end of the previous quarter.

Net cash provided by operating activities in the quarter came to $1.6 billion versus $1.1 billion recorded a year ago. Free cash flow in the period increased 72.1% to $1.5 billion compared with $856 million a year ago.

Outlook

Management increased its guidance for ongoing earnings per share in fiscal 2013 to be within the $4.30-$4.40 range from the previously announced $4.18-$4.32 per share. Free cash flow is expected to be within the $1.8-$2.0 billion range.

The net cash provided by operating activities is expected to be in the range of $2.9 billion to $3.3 billion while net cash required by investing activities in the range of $1.1 billion to $1.3 billion.

Our Recommendation

Currently, the stock carries a Zacks #2 Rank (a short-term Buy rating) whereas its competitor Cosan Ltd. (CZZ - Analyst Report) bears a Zacks #1 Rank (Strong Buy).

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