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Monsanto Earnings Beat, Revs Lag

Zacks Equity Research

Leading agricultural products provider Monsanto Company (MON) reported a strong fiscal third quarter 2013 performance. The company’s earnings of $1.66 per share beat the Zacks Consensus Estimate of $1.60 by 3.8%. Also, earnings increased 1.8% year over year on the back of improved revenues and margins.

Following the third quarter results, Monsanto reaffirmed its earnings guidance for fiscal 2013.

Revenue: Monsanto generated revenues of $4.2 billion in the third quarter, an increase of 0.7% year over year driven by an improvement in its global corn business. However, revenues missed the Zacks Consensus Estimate of $4.4 billion by 4.0%.

On a segmental basis, revenues from the Seeds and Genomics segment decreased 2.4% year over year in the quarter to $3.1 billion, due to a reduced contribution from the Brazil soybean business.

Revenues from the Agricultural Productivity segment increased 9.4% in the quarter to $1.2 billion, driven by recovery in market environment and the company’s innovative strategies.

Margins/Costs: During the quarter, gross margin was recorded at approximately 53.2%, indicating 280 basis points contraction from 56.0% registered in the year-ago quarter.

Operating expenses were recorded at $1,024 million, up from $1,013 million reported in the year-ago period. Selling, general and administrative expenses, as a percentage of sales, were recorded at 14.9%, against 15.1% in the year-ago quarter. Research & development, as a percentage of net sales, were 9.2% versus 8.9% in the year-ago quarter.

Balance Sheet: Exiting the third quarter, the company’s cash and cash equivalents stood at approximately $2.9 billion versus $4.4 billion at the end of fiscal second quarter 2013. Long-term debt was recorded at $2.1 billion, flat compared with the previous quarter.

Outlook: Management reaffirmed its fiscal 2013 earnings guidance to be within a range of $4.50-$4.55, reflecting roughly 20% year-over-year growth. It is believed that this earnings growth will continue in fiscal 2014 as well. Monsanto maintained its free cash flow guidance to be within the range of $1.8-$2.0 billion.

Net cash provided by operating activities is expected to be in the range of $2.8-$3.1 billion, while net cash required by investing activities is likely to be in the range of $1.0-$1.1 billion.

Monsanto currently carries a Zacks Rank #3 (Hold). Other stocks worth a look in the agricultural chemicals industry are American Vanguard Corp. (AVD), carrying a Zacks Rank #1 (Strong Buy), and FMC Corp. (FMC) and Limoneira Company (LMNR), each carrying a Zacks Rank #2 (Buy).

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