Impact on our views: We would not expect any
material stock response from today’s results or outlook.
Monsanto’s underlying F3Q EPS of $1.66 results came
in ahead of both MS ($1.59) and consensus ($1.60)
forecasts that were recently tempered by the company’s
preannouncement. The outperformance came largely
below the gross profit line due to a lower tax rate ($0.07)
and lower interest expense ($0.01), partially offset by
higher than forecast SG&A ($0.01) and R&D ($0.06).
From a gross profit perspective, seeds overall came in
$0.02 below our forecast, more than offset by Ag
Productivity $0.05 above our forecast. FY13 and FY14
guidance was not surprisingly left unchanged from the
update a few weeks back. However, the high end of
cash flow from operations guidance was reduced by
$200 million, but FCF guidance was left unchanged – we
assume this is a function of working capital changes
(i.e., inventory increasing due to seed returns due to
lower planted acreage) and assume this number could
still move up or down depending on the final tally of
sales / returns determined in F4Q13.
Monsanto targets about 3 million acres for Intacta in
F14. This is in line with our expectations. We would
imagine both extrapolating this initial acreage number
into the out years and Intacta pricing to be a focal point
of today’s conference call.
US biotech acreage targets exceeded. Monsanto
expects to be at or above the high end of its acreage
forecast for Reduced Refuge Corn (36-38 million acres)
and Roundup Ready 2 Soybeans (39-41 million acres).
This is notable given the likely decline in expected
planted acreage in the US.
Corn and soy margins weak as anticipated. Gross
profit margin in corn was 55% versus 61% in the year
ago period; soy margins were 60% versus 66% in the
year ago period. Soy margins faced the headwind of.
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material stock response from today’s results or outlook.
Monsanto’s underlying F3Q EPS of $1.66 results came
in ahead of both MS ($1.59) and consensus ($1.60)
forecasts that were recently tempered by the company’s
preannouncement. The outperformance came largely
below the gross profit line due to a lower tax rate ($0.07)
and lower interest expense ($0.01), partially offset by
higher than forecast SG&A ($0.01) and R&D ($0.06).
From a gross profit perspective, seeds overall came in
$0.02 below our forecast, more than offset by Ag
Productivity $0.05 above our forecast. FY13 and FY14
guidance was not surprisingly left unchanged from the
update a few weeks back. However, the high end of
cash flow from operations guidance was reduced by
$200 million, but FCF guidance was left unchanged – we
assume this is a function of working capital changes
(i.e., inventory increasing due to seed returns due to
lower planted acreage) and assume this number could
still move up or down depending on the final tally of
sales / returns determined in F4Q13.
Monsanto targets about 3 million acres for Intacta in
F14. This is in line with our expectations. We would
imagine both extrapolating this initial acreage number
into the out years and Intacta pricing to be a focal point
of today’s conference call.
US biotech acreage targets exceeded. Monsanto
expects to be at or above the high end of its acreage
forecast for Reduced Refuge Corn (36-38 million acres)
and Roundup Ready 2 Soybeans (39-41 million acres).
This is notable given the likely decline in expected
planted acreage in the US.
Corn and soy margins weak as anticipated. Gross
profit margin in corn was 55% versus 61% in the year
ago period; soy margins were 60% versus 66% in the
year ago period. Soy margins faced the headwind of.
.loss of Brazilian Roundup Ready 1 revenue, which was
effectively 100% gross profit, and both corn and soy margins
were hindered by high production costs due to high corn
growing costs and likely very expensive air freight from winter
production in South America. Importantly, these costs will
ultimately come out of Monsanto’s P&L as crop sizes
normalize, though it is unclear whether this will take place in
F14 or not – we will have to stay tuned to how the US crop
plays out.
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