Monsanto Company MON is scheduled to report second-quarter fiscal 2015 results before the opening bell on Apr 1, 2015. Over the last four trailing quarters, the company generated a positive average surprise of 8.05%. Last quarter, Monsanto’s Most Accurate estimate exceeded the Zacks Consensus Estimate by 38.24%. Let’s see how things are shaping up prior to this announcement.
Factors to Influence Q2 Results
Monsanto’s business remains highly sensitive to market externalities in the short term. On the other hand, growing global population is steadily widening the gap between food supply and demand. At this juncture, the company’s products to support better crop-yield enjoy higher market demand. Moreover, declining prices of energy resources are lowering the market costs of agricultural stocks like Monsanto, thereby supporting its margin expansion.
Despite lower corn production in the U.S., the company expects its superior soybean business to drive higher revenues in the Seeds and Genomics segment for second-quarter fiscal 2015. The company’s soybean sales are expected to increase on the back of Dupont royalties, higher yield in the U.S. and benefits reaped from launch of Intacta in Brazil and Argentina. Monsanto also predicts an uptick in its cotton business, banking upon the effective weed controlling potential of its new Bollgard II XtendFlex cotton system.
Further, the company projects higher gross profit margin for second-quarter fiscal 2015, attributable to business of Intacta, soybean and Roundup Ready 2 across prominent markets of U.S. and South America. Driven by specialized cost-saving strategies, Monsanto aims to generate free cash flow within $2.0–2.2 billion in the to-be-reported quarter, which would, then be used to finance future growth projects. Moreover, committed to rewarding its shareholders, Monsanto offered a dividend of 49 cents per share for second-quarter fiscal 2015.
However, the above-mentioned positives might be offset by short-term market headwinds faced by the company. Monsanto’s results in each quarter are impacted by cyclical fluctuations of the agricultural industry due to weather volatilities. Furthermore, currency headwinds and pricing competitions too, raise our concerns.
Taking into account such macro issues and lower U.S. corn volumes, Monsanto anticipates second-quarter fiscal 2015 earnings per share to be down by 5–10% compared with the year-ago period. Earnings are expected in the range of $5.75–$6.00 per share for fiscal 2015. The guidance is arrived at after considering the 15–20 cents per share impact from currency headwind.
Earnings Whispers
Our proven model does not conclusively state that Monsanto is likely to beat earnings in the upcoming quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. That is not the case here as we will see below.
Zacks ESP: Monsanto has an Earnings ESP of 0.00% for the quarter, as the Most Accurate estimate stands in line with the Zacks Consensus Estimate of $2.96 per share.
Zacks Rank: Monsanto’s Zacks Rank #3 (Hold), when combined with a 0.00% ESP makes surprise predictions difficult. We caution against stocks with Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revision momentum.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Hormel Foods Corporation HRL, with an Earnings ESP of +1.61% and a Zacks Rank #2.
Alcoa Inc. AA, with an Earnings ESP of +8.00% and a Zacks Rank #3.
Agnico Eagle Mines Limited AEM, with an Earnings ESP of +30.00% and a Zacks Rank #3.
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