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Edited Transcript of MON earnings conference call or presentation 28-Jun-17 1:30pm GMT

Thomson Reuters StreetEvents

Q3 2017 Monsanto Co Earnings Call

ST. LOUIS Aug 12, 2017 (Thomson StreetEvents) -- Edited Transcript of Monsanto Co earnings conference call or presentation Wednesday, June 28, 2017 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brett D. Begemann

Monsanto Company - President and COO

* Hugh Grant

Monsanto Company - Executive Chairman and CEO

* Laura Meyer

* Pierre C. Courduroux

Monsanto Company - CFO and SVP

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Conference Call Participants

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* Christopher S. Parkinson

Crédit Suisse AG, Research Division - Director of Equity Research

* David L. Begleiter

Deutsche Bank AG, Research Division - MD and Senior Research Analyst

* Donald David Carson

Susquehanna Financial Group, LLLP, Research Division - Senior Analyst

* Frank Joseph Mitsch

Wells Fargo Securities, LLC, Research Division - MD & Senior Chemicals Analyst

* Jeffrey John Zekauskas

JP Morgan Chase & Co, Research Division - Senior Analyst

* John Ezekiel E. Roberts

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals

* Steve Byrne

BofA Merrill Lynch, Research Division - Director of Equity Research

* Vincent Stephen Andrews

Morgan Stanley, Research Division - MD

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Presentation

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Operator [1]

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Greetings, and welcome to Monsanto Company's Third Quarter Fiscal Year 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Laura Meyer, Monsanto Investor Relations, please. Thank you, please go ahead.

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Laura Meyer, [2]

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Thank you, Brenda, and good morning to everyone. I'm joined to this morning by Hugh Grant, our Chairman and CEO; Brett Begemann, our President and Chief Operating Officer; and by Pierre Courduroux, our CFO. Also joining me from the IR team is Ben Kampelman.

Our third quarter call marks the passage of a significant portion of the Northern Hemisphere ag season, and today, we'll provide a summary of our third quarter results as well as the outlook for the balance of this year.

This call is being webcast and you can access the webcast, supporting slides and the replay at monsanto.com. We have provided you today with EPS and other measures on both a GAAP and ongoing business basis. Where we refer to non-GAAP financial measures, we reconcile to the nearest GAAP measure in the slides and in the press release, both of which are on our website.

This call will include statements concerning future events and financial results. Because these statements are based on assumptions and factors that involve risk and uncertainty, the company's actual performance and results may differ materially from those expressed or implied in any forward-looking statements. A description of the factors that may cause such a variance is included in our most recent 10-Q and in today's press release. The forward-looking statements are current only as of the date of this call, and the company disclaims any obligation to update them or the factors that may affect actual results.

Before handing it over to Hugh to share our strategic outlook, let me share our third quarter results, as shown on Slide 4. As outlined in our reconciliations and in line with our expectations, we delivered as reported earnings per share of $1.90 and ongoing earnings per share of $1.93, as compared to last year's as reported earnings per share of $1.63, and ongoing earnings per share of $2.17. From a free cash flow perspective, we had a use of cash of $158 million for the first 3 quarters, as compared to a use of cash of $251 million in the prior year. Hugh?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [3]

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Thank you, Laura, and good morning to those of you on the phone. Thanks very much for joining us today. I'm pleased to share that we've returned another solid quarter for fiscal year 2017, and in doing so, have an even clearer line of sight on our 2 priorities for the year, namely delivering on our operational plan and key business milestones, and moving to closure on the Bayer merger agreement.

So let's begin with the Bayer path to completion on Slide 6. Bayer continues to lead the filing process with support from Monsanto, and continues to target closing by the end of the year. The filing in the European Union is expected to be submitted in the next few days and the response to the second request issued by the U.S. Department of Justice was recently completed. Once the EU filing is in, all key initial submissions will have been made. In addition, we've already received clearance from several regulators, including South Africa, for which Bayer agreed to provide remedies.

The clearance progress has been steady and consistent, and we remain encouraged by the advancement of other proposed combinations, as our industry undergoes a healthy transformation to better serve the world's farmers. And while other deals have their merits, we believe this merger is uniquely beneficial, as shown on Slide 7. It has the capacity to benefit growers by accelerating innovation, by delivering integrated solution tools and by expanding offerings to new crops and geographies at a time when they're most needed.

One other benefit it delivers is complementary R&D expertise to enhance discovery efforts, leading to increasingly meaningful benefits for growers around the world, and global agriculture meets together to solve the conundrum of growing more with less inputs. We know that there are ways to grow food better, smarter and more efficiently. Collectively, we've created undelivered many of the building blocks necessary to meet future needs, but there's still much more to do.

Despite near-term supply, the demand for corn and soybeans continues to grow, as shown on Slide 8. The rigors of climate change and competition for resources will only serve to intensify this need.

We're well positioned to develop this next-generation of solutions, as shown on Slide 9, with the broadly licensed Climate FieldView platform and our strong foundation of seed, trait and chemistry solutions. The combination with Bayer should only serve to accelerate our ability to bring those to the growers who need them most, and our open platform continues to expand and evolve. I'm encouraged by the positive farmer experiences that we've been hearing and seeing for Roundup Ready 2 Xtend soybeans, Bollgard II XtendFlex Cotton and Climate FieldView, as they reach record levels of penetration. In fact, combined, these new technologies are on more than 125 million acres in the U.S. in just 2 to 3 short years.

In addition, we've recently received several regulatory approvals for our products. In April, we received the EPA approval of NemaStrike Technology, keeping this blockbuster product on track for commercial launch in fiscal year '18. We also recently obtained the EPA approval for SmartStax PRO, our next generation of cotton rootworm control technology, which we expect to launch around the turn of the decade, pending receipt of certain import approvals. And finally, this Vistive Gold soybeans just received import approval from China, clearing its final regulatory hurdle for full commercialization in 2018.

These factors also play into the high-quality performance that our business is delivering, with gross profit up more than 12% through the first 3 quarters. Our innovation leadership is driving our growth and the completion of our third quarter bolsters our confidence and the outlook for the rest of the year.

To that end, our guidance range for fiscal year '17 is expected to be at the high end of the range for as reported earnings per share, and is confirmed at the high end of the range for ongoing earnings despite the continued tough ag market.

I am very pleased with what our team has accomplished, maintaining its focus while balancing our 2 imperatives. The business remains on its growth trajectory and the progress and the combination continues at a steady clip.

So with that, I'll pass it to Brett to provide the operational update. Brett?

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Brett D. Begemann, Monsanto Company - President and COO [4]

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Thanks, Hugh, and good morning to everyone on the line. Our focus on delivering the key business imperatives has powered us through the third quarter, and achieving our 2017 key milestones will place our company on a path to deliver on our strong growth to the turn of the decade. Specifically, the ramp of our latest technologies has been record-breaking, with Roundup Ready Xtend, Intacta and Climate FieldView. Our costs have been coming down in both U.S. corn and soybeans, and our pipeline continues to advance.

As we delve into the specifics, let's start with corn, as shown on Slide 10. This quarter is all about the Northern Hemisphere. Let's begin with the U.S., where we're sold out of our DEKALB Disease Shield hybrids in their first year of introduction, and we remain on track for genetic share gains. This was offset by lower than anticipated planted acres and a modest decline in our germplasm price/mix. A key inclusion on those disease shield hybrids was our Acceleron B-300 SAT microbial product, which was first -- was the first launch from the BioAg joint venture with Novozymes. Early season reaction has been positive, and we look forward to seeing how the rest of the season plays out.

In Europe, acres planted to corn year-over-year ended up relatively flat, and our team delivered modest germplasm price/mix lift in local currency, along with anticipated genetic share gains. Overall, we're still expecting our full year global corn germplasm price/mix lift to be flat to up low single digits as a percent in local currency, primarily driven by the strong double-digit growth in the first half in Brazil and Argentina.

For soybeans, the momentum continues to be tremendous in our latest technologies, as shown on Slide 11. With 50% growth in gross profit in Q3 alone, we now expect to deliver approximately 30% growth in our soybean gross profit as well as strong margin improvement for the full year.

Let's start with Roundup Ready 2 Xtend soybeans in the U.S., as shown on Slide 12, where our ramp year for the trait has been outstanding. There are about 20 million acres planted across the country and we're hearing great feedback on the performance of the varieties and on the efficacy of the trait and herbicide system in managing tough-to-control weeds. Based on information we have to date, the overwhelming majority of our customers are experiencing success with on-target application of Xtendimax with VaporGrip technology, and are following the label and good stewardship practices. So I'm looking forward to seeing how the rest of the season unfolds.

In South America, the strong performance of Intacta Roundup Ready 2 PRO technology once again underpins the record penetration we are delivering. For a fourth consecutive year, Intacta Roundup Ready 2 PRO is delivering a greater than 4 bushel per acre yield advantage based on 2017 field trials. With this continued strong performance, growers have added another 15 million acres this year, increasing penetration to more than 50 million planted acres across South America, as shown on Slide 13.

Our focus is now shifting to next season, where we have established the price in Brazil, commensurate with the performance and reflecting an increase in local currency, which included the removal of the transition rebate that expired in fiscal year 2017 as expected.

In cotton, on Slide 14, the growing experience with Bollgard II XtendFlex varieties and the ability to use dicamba herbicides in season has now driven our trait penetration to more than 5 million acres in the U.S. This is well over our anticipated penetration of more than 4 million acres and is nice to see given the substantial growth in cotton acres this year. In addition, we're increasingly confident in our delivery of the third straight year of genetic share gains in cotton, and look to build upon this in the years ahead with Bollgard III XtendFlex cotton.

Moving to our other crops. We still expect modest, but steady growth in vegetables for the full year. We also continued to strategically manage our product portfolio as planned, with 2 additional deals struck recently, one in Ag Productivity and one in Seeds and Genomics, and we expect to receive the benefit in our fourth quarter results.

Shifting to digital tools, our Climate FieldView platform continues to see major advancements in its strategic differentiators in this space, with our partnerships, collaborations and strong adoption, as shown on Slide 15. In terms of partnerships, we have signed up 3 new platform partners, Ceres Imaging, TerrAvion and Agribotix that will deliver valuable high-resolution imagery to farmers. In addition, in May, Climate acquired HydroBio, an agricultural software company, with unique irrigation focused data and analytics capabilities. This not only reinforces our partner of choice reputation in this space, but also expands the suite of products we expect to be able to offer farmers in the years ahead, and we'd expect even more announcements here before the end of the fiscal year as we continue to evaluate more than 25 potential technology partners.

In terms of adoption, we are ahead of where we expected to be for paid acres, registering more than 35 million, well above the original target of 25 million acres. We also just recently announced our official commercial launch in Brazil after concluding trials on nearly 1 million acres, as shown on Slide 16. With continued significant progress in adoption and partnerships and increasing interest in licensing opportunities, Climate FieldView remains a very promising area on the horizon for us.

At our Ag Productivity segment, we are now seeing the anticipated glyphosate-based herbicide price improvement, translating to the retail market. This has resulted in year-over-year improvement in gross profit for the segment for the third quarter, and we expect this improvement in pricing will extend into the fourth quarter, despite year-over-year headwinds we saw in the past. We're also increasingly confident in glyphosate's re-registration in Europe, as discussions have been progressing positively. In addition, XtendiMax with VaporGrip technology continues to contribute to the bottom line, as trait penetration for the Roundup Ready XTEND crop system drives demand for low volatility dicamba formulations.

Moving to pipeline products. As Hugh mentioned, we recently received the highly anticipated news from the U.S. EPA that NemaStrike Technology has been approved. This puts us on track for commercialization in 2018, and allowed us to place hundreds of Ground Breaker trials across the U.S. this year, as shown on Slide 17.

As we've done with numerous new technologies in the past, these trials will give growers firsthand experience with NemaStrike Technology, and will inform our launch for 2018. With blockbuster value and strong interest from licensors and growers, we're excited to move the technology into their hands.

All in all, this was a solid quarter, in line with our expectations. And as we look confidently to close out 2017, we've shifted our focus to growers' infield experience with our latest technologies, managing returns in the Northern Hemisphere and to the selling season in South America. With that, I'll hand it over to Pierre for his financial review.

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Pierre C. Courduroux, Monsanto Company - CFO and SVP [5]

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Thanks, Brett, and good morning to everyone. In the third quarter, we delivered as reported earnings per share of $1.90 and ongoing earnings per share of $1.93, in line with our expectations.

Let's look at the specifics. Our soybeans gross profit grew by 50%, driven primarily by 3 factors in the U.S.: the reduced cost of goods for Roundup Ready Xtend; the increased acres planted to soybeans; and the benefit from the sale of its both traded varieties. Similarly, cotton gross profit improved by 31%, thanks to the increase in U.S. planted acres, greater Bollgard II XtendFlex acreage and genetic share gains.

Corn gross profit was down slightly, in line with expectation, and mostly due to lower planted acres in the United States, coupled with the previously mentioned grower demand-driven timing shift into Q2. This was partially offset by lower cost of goods in the U.S. due to improved production volumes. Global corn price was essentially flat in the market where commodity prices continued to be challenging. Finally, other crops season traits gross profit declined due to the absence of the benefit from the alfalfa license in the prior year.

Ag Productivity gross profit increased about 12%, given the improvement in both pricing and volume for glyphosate-based herbicides and the continuation of XtendiMax dicamba-based herbicide sales coming through in the results. Our SG&A and R&D expense increased about 8%, primarily resulting from increased incentive expenses, driven by the growth in the business and from the increased investments in Climate. However, we remain on track with our target of $500 million in savings by the end of the fiscal year 2018, as shown on Slide 18, across cost of goods and operating expenses as compared to our fiscal year 2015 base. These savings are helping to offset inflation rate increases globally.

Lastly, free cash flow fiscal year-to-date is a use of cash of $158 million versus the prior year use of cash of $251 million. This improvement reflects the increase in operating cash flows from dollars as compared to the prior year. The increase in capital expenditure relates to the construction of the dicamba manufacturing facility in Luling, Louisiana.

Looking out for the end of the fiscal year, as shown on Slide 19. We confidently expect our as reported earnings per share to be at the high-end of the range of $4.09 to $4.55, and again, confirm our ongoing earnings per share at the high end of the range of $4.50 to $4.90. For free cash flow, we also still expect to be at the high-end of the range of $1.2 billion to $1.6 billion.

As we look at the specific components of guidance, let's start with Seeds and Genomic gross profit, which is now expected to be up high single digit as a percentage for the year. This reflects outstanding growth in both soybeans and cotton as well as modest growth in corn, partially offset by the absence of the benefit from the alfalfa license in Q3 of fiscal year '16.

In our other segments. Ag Productivity gross profit is still expected to be in the range of $850 million to $950 million, as both glyphosate and dicamba deliver anticipated results. As part of our continued portfolio optimization efforts, I am pleased with the recent deals we've signed, and we expect to receive the benefit of roughly $70 million in non-core asset sales gains in the fourth quarter. About half of these gains will benefit the Ag Productivity segments, and half will benefit Seeds and Genomics. Both are expected to be recorded in other income, and are considered in our guidance.

Despite the recent weakening of the Brazilian reais, we still anticipate the change in currency rates year-over-year to be relatively neutral to earnings. And finally, we still expect our SG&A and R&D expense to be up mid-single digits as a percent due to increased commission in South America, incentive increases and greater spend at Climate, consistent with the drivers in the year-to-date results.

In closing, we are delivering solid returns on innovation, and doing so with financial discipline as we return our business to growth this fiscal year. We have confidence that the outlook for the balance of the year is on sure footing, and we look forward to updating you at the fourth quarter.

Thank you for your time today, and with that, I will pass it to Laura for the questions.

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Laura Meyer, [6]

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Thanks, Pierre. With that, we'd now like to open the call for 20 minutes of questions. (Operator Instructions) Brenda, we're ready to take questions from the line.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Vincent Andrews with Morgan Stanley.

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Vincent Stephen Andrews, Morgan Stanley, Research Division - MD [2]

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Just wondering, this year, Brazil, in particular, had a big fly up in planted acreage similar in Argentina, but we've seen the local corn price in Brazil retreat a fair amount. So I'm just wondering, as you think into the fourth quarter and I guess a little bit into fiscal '18, how are you thinking about where the acreage and your volume performance is going to be? And you also had very strong price gains on seed. So do you think you can sustain those if we go into lower acreage and poorer corn economic environment down there?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [3]

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Yes. That's good. I think we're taking a conservative outlook. But Brett, maybe just a little bit of color?

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Brett D. Begemann, Monsanto Company - President and COO [4]

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Yes, Vincent, so it's just exactly as you described. As we look at Brazil, the local price for corn is depressed compared to last year. So we obviously are taking that into consideration as we look at pricing our genetics. So we don't anticipate the same kind of improvement that we saw last year from a pricing standpoint, and it will, as we expect, cut the acreage back a bit. So we're planning for somewhat of a reduction in acres. It's still too early to call from our -- from how we see it and what the acres will actually come back, but we do anticipate it will be down some. It's a bit stronger in Argentina, as we look at the Argentina market with the demand for corn there in both domestically and from an export standpoint. But we don't see the same kind of pricing opportunity that we saw last year. But we still feel really positive about the performance of our portfolio, the performance of our genetics and traits, and our pricing will be fine going into next year, and we still see growth occurring in that part of the world.

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [5]

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It's probably safe to say, Brett, that we took -- we were careful in how we manage our inventory this year as well, how we sold out.

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Brett D. Begemann, Monsanto Company - President and COO [6]

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Yes. We're in a great position in Brazil and Argentina. Last year, as you mentioned, Vincent, the acres were up significantly, and it's always a really good day when you find yourself with significant price increases in a sold-out position. And that's where we found ourselves in Brazil this year.

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Operator [7]

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Our next question comes from the line of Chris Parkinson with Crédit Suisse.

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Christopher S. Parkinson, Crédit Suisse AG, Research Division - Director of Equity Research [8]

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Just a derivative of that first question. Can you just talk a little more about the Intacta ramp as we stand today, including anything left to do in terms of old or new varieties within your portfolio, the ramps in Latin America South, the progress and timing of Intacta 2, et cetera?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [9]

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Yes, so good position on varieties. In fact, in many ways, we're seeing it play out with Xtend now as well. Because of the early delays, we get a chance to call it in the chess boards. But Brett, final steps and then the migration to 2s?

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Brett D. Begemann, Monsanto Company - President and COO [10]

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Yes. So as noted in the call today, soybeans has had a phenomenal year, both in North America with Xtend, and as well as Intacta, as to your question, Chris, in South America. Intacta continues to do extremely well. The big, big driver on Intacta has been and continues to be another year of delivering 4 bushel yield increase, and that's where the real value is, and so we're excited about hitting 50 million acres this year. We continue to look to grow that into the total opportunity down there. We still expect somewhere around 75 million acres by 2019 on about 100 million acre opportunity. And we do continue to look at Argentina and building it out there. But again, I'll remind you that in Argentina, insect pressure isn't as severe as it is in Brazil. So Argentina has never been as big an opportunity as Brazil has been, but we do continue to build it out for Northern Argentina and work with the government on the system. And what really gets me excited about Intacta in South America is the work our R&D team has done to bring us the next-generation of Intacta 2, and we're already starting to build the plants to make the big transition from Intacta 1 to Intacta 2. And as I said for a couple of years, I don't think we'll ever fully penetrate with Intacta 1. We'll be making the transition to Intacta 2, bringing a new technology with a new and better insect control into the marketplace. But we feel reasonably good about where we sit right now in South America with soybean.

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [11]

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We're chasing 75 million acres by 2019.

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Operator [12]

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Our next question comes from the line of Don Carson with Susquehanna Financial.

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Donald David Carson, Susquehanna Financial Group, LLLP, Research Division - Senior Analyst [13]

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Question on just guidance. You've indicated that you're now looking for higher gross profit in both Seeds and Genomics and Ag Productivity versus your previous thinking, yet you haven't changed your overall guidance range. And just in terms of the impact of Xtend, we're seeing a lot of dicamba drama and some concerns over off-target issues, and I know there's been some removal of in-crop use in Arkansas. So what overall impact, if any, do you see that's having on the Xtend roll out?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [14]

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So Don, thanks for the 2 questions. So Pierre, maybe a little bit on guidance and our stance in guidance this year?

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Pierre C. Courduroux, Monsanto Company - CFO and SVP [15]

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Yes. So Don, so as you know, historically, Q4 has always been a smaller quarter, and typically resulted in a loss. And last year, it was somewhat unusual with the favorable impact of the sorghum JV deal that we had and better-than-anticipated final volumes in both corn and soybeans. So this year, we are looking at way more normalized volumes. And the key thing there is we are also expecting half the amounts of deals that we had last year, and this is one of the reasons at this point in time since we've calibrated the benefits from deal around $70 million, this is why despite the increase you see in our guidance on GP in both Ag Productivity and Seeds and Genomics, I mean, modest increases there. You see the total EPS not changing dramatically because we have scaled down some of our assumptions as well on the deals. So all in all, I mean, pointing to the high end of our guidance, you're looking at a year where we're looking at double-digit growth for the full fiscal year in terms of EPS in a really challenging environment. So that's the way we're thinking about it now.

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [16]

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Thanks, Pierre. And then your question on Xtend, Don, we've talked for years about the decade of the bean, and this is clearly the year of the bean. So we are delighted with the rollout of Xtend. It took a long time to get here. But if you look at beans and corn, just to put some context on this, we've won 25 million acres this year from a standing start, so our biggest launch and at a time when growers are really looking for help for this resistant weeds. So Brett, against the backdrop of 25, how are you looking at it?

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Brett D. Begemann, Monsanto Company - President and COO [17]

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Yes, so Don, you think about this, you pointed out 25 million acres of combined corn and soybeans in the marketplace. That's a multiple fold larger launch than we've ever experienced with any technology. And I think it speaks volumes to the farmers' need for additional tools and technology in the marketplace to control weeds. What we've seen so far, Don, is the vast majority of farmers and applicators using our products are seeing great results, both from a weed control and efficacy standpoint as well as the application itself and the products they input. So we feel really good about what we're seeing. I'd remind you, to your point of the -- 33 out of 34 states have approved our XtendiMax with VaporGrip technology. But Arkansas, as you noted, was one of them that never approved that product or was the only one that never approved that product. As it stands today, as we look at inquires across the entire country in the 34 states, where we're approved, it appears that the plant lord in Arkansas is getting a lot more inquiries than we're getting across the combined rest of the state or states that have approved XtendiMax with VaporGrip. So the key here is, is that it's the largest launch ever. The number of inquiries we're experiencing would be normal for any product. Even products that have been established in the marketplace would experience a number of inquiries every year. So we feel really good about where we're at, and we'll continue to work with every farmer that's purchased our technology and work with them to have a positive experience, but I couldn't be more excited about the performance we're seeing across all the states.

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Operator [18]

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Our next question comes from the line of David Begleiter with Deutsche Bank.

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David L. Begleiter, Deutsche Bank AG, Research Division - MD and Senior Research Analyst [19]

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Hugh and Brett, how do you look at the market share playing out this year in the U.S. in both corn and soybean?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [20]

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I guess, I would say early days, but we're feeling good in both crops. There's a possibility of a little bump.

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Brett D. Begemann, Monsanto Company - President and COO [21]

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Yes, I'm always cautious to get ahead of ourselves because returns and everything is not completed yet. But I do feel good today telling you that the indicators would tell us we expect genetic share gain in the U.S. in our corn business and soybean business as well. And the one I'm more confident in is cotton because it's so strong, and we've seen it for 3 years in a row. So we -- I would tell you that it's kind of the Triple Crown on share growth across the 3 different crops this year in the U.S.

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Operator [22]

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Our next question comes from Steve Byrne with Bank of America.

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Steve Byrne, BofA Merrill Lynch, Research Division - Director of Equity Research [23]

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You mentioned earlier about the potential pricing action you can take in Intacta. If I understand correctly, you've been constrained on being able to push price for Intacta the last 3 years, limited by just the rate of inflation down there, but the real has devalued by 50% in those 3 years. So given what you described as the yield benefit, and certainly, cutting back on a number of applications, it's got to be a meaningful value proposition to the grower. What kind of a price increase could we expect this fall on Intacta down in Brazil?

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Brett D. Begemann, Monsanto Company - President and COO [24]

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So a couple of things to keep in context, and it's all consistent with the points you made in your question. Yes, we've been somewhat limited based on inflation in Brazil. It's not very often when you're talking about inflation being your friend, but inflation has been our friend when it comes to pricing of Intacta. So we haven't been holding our price flat in Brazil. We've actually been moving it up with inflation the past number of years. So we have improved our position. As noted, there was a transition payment that was occurring from the old Roundup Ready formulation or trait to the new Roundup Ready 2 and Intacta, and that expires. And with that expiration, it feels a bit like a price increase to the farmer and a benefit to us because it just goes away. So it just extinguishes itself. So we'll feel the benefit of that. So we would expect going into this year that we'll see somewhere in the range of double-digit, but it still has to play out as we look at that transition payment expiring and the price move that we took, which was a positive uptick this year, again, on top of the previous years.

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Operator [25]

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Our next question comes from the line of Jeff Zekauskas with JPMorgan.

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Jeffrey John Zekauskas, JP Morgan Chase & Co, Research Division - Senior Analyst [26]

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Corn replant acres have been relatively high this year. Can you talk about the magnitude of the replants, and whether that tightens up corn seed inventories at all industry wide? And secondly, it looks like your operating expenses in Ag Productivity were really much, much higher year-over-year. Maybe they were 89 million or 90 million higher over a base of 127. What happens to operating expenses in Ag Productivity?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [27]

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Thanks for the 2 questions, Jeff. We'll maybe take the second one -- second on Ag Productivity.

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Brett D. Begemann, Monsanto Company - President and COO [28]

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Yes, so looking at the replants, it was -- Mother Nature was not kind to farmers. They started planting early with great conditions, and then there's pockets, where it just -- it became really tough, and to your point, there were farmers replanting for the second and third time, unfortunately, this year. Here's the context and the reminders. Every year, there's replants. And if you're one of the farmers that's affected in that area, it can be devastating and it's incredibly frustrating. But when you look at it across the entire marketplace, it's always a relatively small percentage in total. We accrue for that to occur in the marketplace. Jeff, I would guess, there's probably a slight chance it's going to -- more than a slight chance that it's going to be more than average. But it isn't going to be all that high. So to your point of will it change our position with inventories, et cetera? No, we're well prepared for that. The change in corn planted acres from last year to this year was more significant than the impact of replant. So we're well-balanced going into next year.

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [29]

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Yes, and that would be the same across the industry, that's (inaudible) piece. Pierre, expenses on Ag Productivity?

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Pierre C. Courduroux, Monsanto Company - CFO and SVP [30]

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So Jeff, I don't have the details in front of me. But as our total spend, our total spend is increasing with the health of our business, and we are seeing growth on both segments. And some of that translate into commission in South America. Some of that translates into higher incentives. So specifically, regarding Ag Productivity, I mean, I don't have, as I mentioned, the detail in front of me. But these are the key driver at the company level, which definitely play a lot in Ag Productivity since the base is lower, and there's also the launch of the dicamba formulations in the market that may also have impacted that. So overall, I mean, this is together with the trends of our spend in the company, which is really associated with the growth of the business.

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [31]

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So when you look at the year and our forecast on what we expected, we're tracking within expectation.

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Pierre C. Courduroux, Monsanto Company - CFO and SVP [32]

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We're tracking within expectation, yes.

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Operator [33]

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Our next question comes from the line of John Roberts with UBS.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [34]

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Is there any update you could give us in where you are in the divestment, you or Bayer, in the divestment process to satisfy anticipated anti-trust issues?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [35]

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Not at this time, John. As I mentioned in my prepared remarks, I think we're making steady progress. And the next piece of visibility will be the submission to the European Union, which we're working towards by the end of this month. And given that, then the -- if that occurs in that time frame, then we anticipate that we would still be working towards closure by the end of this year. But beyond that, we have not [based] at this time.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [36]

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And is there anything to learn from that canceled precision planting deal that you had with Deere, anything to learn about anti-trust issues? Or anything you can help us with there to understand why that didn't happen?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [37]

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No. It's completely -- it comes as a second part of your question, but it's completely separate from our deal with Bayer. And we continue to look at that process. We're pursuing alternative purchasers at the moment. So no, there's absolutely no linkage with the transaction.

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Operator [38]

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Our next question comes from the line of Frank Mitsch with Wells Fargo.

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Frank Joseph Mitsch, Wells Fargo Securities, LLC, Research Division - MD & Senior Chemicals Analyst [39]

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I wanted to follow up on John's question in a little different fashion. You mentioned that you received the South African approval for the transaction subject to a remedy, I guess, on the herbicide and seed side. Was that in line with what your expectations were in terms of what would be necessary or is that higher or lower? Can you give us an order of magnitude of what the sales of that remedy was roughly? And I guess, do you think that that's something that might carry through for other jurisdictions as well?

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [40]

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Yes. Thanks for your question, Frank, and I really can't comment on that. I've learned over the years, and you've been on many of these calls over the years, that speculating on regulatory processes is never a good idea. So I think the next major one, as I said, is Europe. And in the coming days, I think our progress has been steady and sure. But I think a comment on an individual jurisdictions is -- I don't think that's something that we should be doing at this stage.

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Laura Meyer, [41]

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And Brenda, I think we're coming to the close on questions now, as we indicated at the start. So we'll pass it over to Hugh to make some closing remarks.

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Hugh Grant, Monsanto Company - Executive Chairman and CEO [42]

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Well, thanks very much, Laura. Let me just begin by thanking you for your support and patience on the line today. We felt through this year that it's been important to continue to update our owners and investors. So we thank you for your support. I wanted to thank my team as well who've done an outstanding job on delivering on our operational plan and our deal milestones while we continue to serve and support our customers, the growers around the world. And as we look at the work through the summer, that's going to remain our priority as we close out this fiscal year.

So thanks and congratulations on a strong performance to my team. And with that, we look forward to joining with you and talking to you again in October as we close out this year. Thank you very much.

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Operator [43]

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Thank you. This concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.