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Monsanto Beats, Retains Guidance

Zacks Equity Research

Monsanto Company (MON) posted strong financial results in the third quarter of fiscal 2012, with earnings per share from ongoing business of $1.63 surging much above $1.28 recorded a year ago. The results exceeded the Zacks Consensus Estimate of $1.59.

The company generated revenues of $4,219 million, up from $3,608 million registered in the year-ago quarter based on volume and a mix benefit across segments.The revenue exceeded the Zacks Consensus Estimate of $3,977 million.

On a segmental basis, revenue from the Seeds and Genomics segment was recorded at $3,128 million, up from $2,647 million in the year-ago quarter. Agricultural Productivity segment’s revenues came in at $1,091 million versus $961 million a year ago.

During the quarter, gross margin was recorded at approximately 56%, up slightly from 55% recorded in the year-ago comparable quarter.

Operating expense was recorded at $1,013, up from $952 recorded in the year-ago period.

Selling, general and administrative expenses, as a percentage of net sales, were recorded at 15% compared with 16% recorded a year ago. On the other hand, Research & Development (R&D), as a percentage of net sales, was 9%, down marginally from 10% recorded a year ago.

At the end of third quarter, cash and cash equivalents were approximately $1,716 million versus $1,074 million a year ago.  Long-term debt was recorded at $1,538 million, down marginally from $1,543 million at the period ended August 31, 2011.

Net cash provided by operating activities was recorded at $853 million for nine months ended May 31, 2012 versus $944 million recorded a year ago.

Exiting the quarter ended May 31, 2012, free cash flow increased to $311 million compared with $237 million a year ago.

Outlook

Management confirmed its full-year ongoing earnings per share guidance in the range of $3.65 to $3.70 per share on an ongoing basis. Also, the company expects 2012 earnings per share on an as-reported basis to be $3.73 to $3.78.

The company reaffirmed full-year free cash flow guidance in the range of $1.7 billion to $1.8 billion.

The net cash provided by operating activities is expected to be in the range of $2.7 billion to $2.9 billion. Management retains net cash required by investing activities in the range of $1 billion to $1.1 billion for fiscal year 2012.

Monsanto’s biotechnology research and innovations position it as a market leader above its peers, such as Syngenta AG (SYT) and The Dow Chemical Company (DOW).

We currently maintain a long-term Neutral recommendation on the stock. Monsanto has a Zacks #2 Rank, which translates into a short-term Buy rating (1-3 months).

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