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Monsanto (MON) Q4 Earnings: Will the Stock Disappoint?


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Monsanto Company (MON - Analyst Report) is scheduled to report its fourth-quarter fiscal 2016 (ended Aug 2016) results before the opening bell on Oct 5, 2016.

In the last quarter, the Monsanto had reported weak results. The company’s quarterly diluted earnings from ongoing operations fell short of the Zacks Consensus Estimate by 9.96%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Higher demand for pioneering biotechnology, breeding, digital agriculture, crop-protection and next-generation agricultural solutions are expected to boost Monsanto’s revenues in the fiscal fourth quarter. Also, the company anticipates generating higher gross margin in the upcoming quarter on the back of increased penetration of Intacta, higher corn volumes and sales of some non-core assets. Even so, by the end of fiscal 2016, Monsanto estimates to accrue savings within the range of $165-$210 million, benefiting from its strategic restructuring actions.

However, we believe that the above mentioned bullish aspects can be partially shadowed by major headwinds such as sluggish global economy, lower investments in agricultural inputs, volatile weather patterns or sturdy competition within the industry.

Monsanto recognizes that certain issues, such as pricing controls imposed for Indian cotton, reduced planted acres and cost as well as share loss related to Round-Up Ready Xtend soybean, might weigh over its aggregate gross profit in fiscal 2016. The company even claimed that dismal pricing conditions of products like glyphosate, lesser number of non-core licensing deals, anticipated rise in commissions & incentives, rise in inflation spend and currency-related issues would continue to hurt its earnings in the quarter to be reported.

Owing to these bearish facets, the company projects to report earnings at the lower end of the range – $4.40–$5.10 per share – for fiscal 2016, predicting currency headwind of $0.85 per share.

Over the last 60 days, the Zacks Consensus Estimate for the stock has been revised downward by 0.2% for fiscal 2016.

Monsanto recently accepted Bayer AG’s (BAYRY - Analyst Report) all-cash $66-billion buyout offer. However, the deal has yet not passed through any regulatory hurdles.

Earnings Whispers

Our proven model does not conclusively show that Monsanto is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. That is not the case here as we will see below.

Zacks ESP: Monsanto currently has an Earnings ESP of 0.00%. This is because both the Zacks Consensus Estimate and the Most Accurate estimate both stand at a loss of 2 cents.

MONSANTO CO-NEW Price and EPS Surprise



Zacks Rank: Monsanto carries a Zacks Rank #3. However, a 0.00% ESP makes surprise prediction difficult.

Note that we caution against Sell-rated stocks (Zacks Rank #4 or 5) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some stocks that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Trinseo SA (TSE - Snapshot Report) , with an earnings ESP of 4.17% and a Zacks Rank #1 (Strong Buy).

KapStone Paper and Packaging Corporation (KS - Snapshot Report) , with an earnings ESP of 5.00% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

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