Monsanto Q4 Loss Wider than Estimates; FY16 Outlook Weak
Monsanto Company MON reported disappointing results for fourth-quarter fiscal 2015 (ended Aug 31, 2015). The company’s bottom line came in at loss of 19 cents per share, wider than the Zacks Consensus Estimate of a loss of 1 cent. However, the result compared favorably with the year-ago tally of 27 cents of loss per share.
For fiscal 2015, Monsanto’s earnings came in at $5.73 per share, up 9.6% from $5.23 recorded in fiscal 2014. The results included a 7% adverse impact from unfavorable foreign currency translation. However, the bottom line lagged the Zacks Consensus Estimate of $5.77 per share.
Revenues
In the fiscal fourth quarter, Monsanto generated revenues of $2,355 million, down 10.5% year over year and below the Zacks Consensus Estimate of $2,889 million.
On a segmental basis, revenues from Seeds and Genomics decreased 9.1% year over year to $1,251 million. Sales were weak for seeds and traits businesses of corn, soybean and cotton as well as for vegetable seeds.
Revenues from Agricultural Productivity declined 12% year over year to $1,104 million.
For fiscal 2015, Monsanto’s revenues totaled $15,001 million, down 5.4% year over year and short of the Zacks Consensus Estimate of $15,434 million.
Cost & Margins
Monsanto’s cost of sales fell 9.9% year over year, representing 53.5% of total revenue versus 53.1% in the year-ago quarter. Gross margin fell 40 basis points to 46.5%.
Operating expenses were $1,070 million, down 21.2% year over year, accounting for 45.4% of total revenue. Interest expense increased 45.3% to $109 million.
Balance Sheet and Cash Flow
Exiting fiscal fourth-quarter 2015, Monsanto’s cash and cash equivalents increased to $3.7 billion from $1.2 billion at the end of fiscal third-quarter 2015. Long-term debt remained stable sequentially at $8.4 billion.
In fiscal 2015, Monsanto generated cash of $3.11 billion from its operating activities, up from $3.05 billion recorded a year ago. Capital spending declined 3.8% year over year to $967 million. Dividend payments in the fiscal year totaled $938 million.
Free cash flow soared to $2.1 billion from $959 million in fiscal 2014.
Outlook: For fiscal 2016, Monsanto anticipates difficult operating conditions to impact its results. Earnings are predicted within $5.10−$5.60 per share, down from $5.73 earned in fiscal 2015. The year-ago result included impact of 35−40 cents per share from unfavorable currency movements, 50−85 cents per share from pricing decline in Agricultural Productivity segment and 20−30 cents per share from higher expenses.
Monsanto anticipates gross profit growth in mid-to-high single digits for the Seed and Genomics segment; while predicting gross profit within $900 million to $1.1 billion for the Agricultural Productivity segment.
Cash flow from operating activities is projected within $1.6−$1.8 billion; while cash required for investing activities is expected in a range of $1.1−$1.3 billion. Free cash is projected within $2.0−$2.2 billion. In addition, the company announced a new $3-billion share buyback program.
Monsanto also initiated certain restructuring actions for controlling costs and improving growth opportunities. In the initial phase, the company anticipates annual savings of $275−$300 million by fiscal 2017. Costs for this period will likely amount to $850−$900 million. Further, additional savings of $100 million are anticipated from reduction in operating expenditure by the company.
By fiscal 2019, Monsanto plans to more than double its fiscal 2014 earnings per share, including 20% annual growth starting from fiscal 2017.
With a $41.2-billion market capitalization, Monsanto currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Koppers Holdings Inc. KOP, Rentech Nitrogen Partners, L.P. RNF and Marrone Bio Innovations, Inc. MBII. While both Koppers Holdings and Rentech Nitrogen Partners sport a Zacks Rank #1 (Strong Buy) while Marrone Bio Innovations carries a Zacks Rank #2 (Buy).
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