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Must-know: Lone Pine exits position in Monsanto

Overview: Lone Pine Capital's 2Q14 positions (Part 6 of 8)

(Continued from Part 5)

Lone Pine and Monsanto

Stephen Mandel’s Lone Pine Capital’s new positions included Comcast (CMCSA), Canadian Pacific Railway (CP), Williams Companies Inc. (WMB), and Under Armour Inc. (UA). Top positions sold were Monsanto Co. (MON), Qualcomm Inc. (or QCOM), and Wyndham Worldwide (or WYN).

Lone Pine Capital exited a position in Monsanto Co. (MON) that accounted for 2.85% of the fund’s 1Q14 portfolio.

Overview of Monsanto

Monsanto Co. is the world’s largest seed company. It’s a leading global provider of technology-based solutions and agricultural products. The solutions and products improve farm productivity and food quality. The company manages its business in two segments:

  • Seeds and Genomics – In this segment, Monsanto produces seed brands. The brands include DEKALB, Asgrow, Deltapine, Seminis, and De Ruiter. The segment also develops biotechnology traits that assist farmers in controlling insects and weeds. It develops precision agriculture to assist farmers in making decisions. The Seeds and Genomics segment also provides other seed companies with genetic material and biotechnology traits for their seed brands.

  • Agricultural Productivity – In this segment, Monsanto manufactures the Roundup and Harness herbicide brands. It also manufactures other herbicides.

Monsanto sees controversy over GM seeds

The company has seen protests worldwide over its genetically modified (or GM) seeds. The protests are due to the seeds’ possible effects on human health. News reports in March said that France banned the sale, use, and cultivation of Monsanto’s MON 810 GM maize because of environmental concerns.

A June report said the European Union environmental ministers approved a proposal that would allow individual states to decide for themselves about growing GM crops. The anti-genetically modified organism (or GMO) movement is also in favor of passing laws. The laws would require food companies that use GMOs to appropriately label their products. The company’s main peers include Syngenta (or SYT) and DuPont (or DD).

Monsanto recently said it expects its controversial new GM soybean seeds to be approved in 2014. The seeds are herbicide-tolerant. A Wall Street Journal report said Monsanto could sell the seeds as early as 2016—pending the expected regulatory approvals. The report said the approval has taken time because of the opposition from environmentalists.

Monsanto and Syngenta reportedly end merger talks

News reports in June said that Monsanto and its Switzerland-based peer Syngenta were in preliminary talks about a merger. However, the negotiations were later abandoned. A combined entity would have created the world’s largest agrochemical company. It would have helped Monsanto benefit from lower taxes. The merger would have shifted its legal domicile to Switzerland.

After the news that the merger talks with Syngenta ended, Monsanto announced a new two-year $10 billion share repurchase authorization. It includes a $6 billion accelerated repurchase program.

Fiscal 3Q14 revenues are flat

Net sales for fiscal 3Q14 were flat year-over-year (or YoY) at $4.3 billion. Net sales missed estimates. The Seeds and Genomics segment’s net sales decreased $14 million to $3 billion. The Agricultural Productivity segment’s net sales increased $16 million in the three-month comparison.

Increases full year EPS guidance

Despite the decline in Seeds and Genomics, Monsanto expects that the segment will be on track for revenue growth and margin expansion. The segment will be supported by performance across the portfolio—especially corn and soybeans. The company raised its full year guidance to the upper end of its previous guidance ranges. It has ongoing earnings per share (or EPS) guidance of $5.10–$5.20 for the full year. Monsanto also said it expects to at least double full year ongoing EPS by the end of fiscal year 2019. This is based on its core business and its new platforms’ transformational potential.

Continue to Part 7

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