Monsanto Company MON reported mixed results for the third quarter of fiscal 2015 (ended May 31, 2015). Growing demand for crop-yield enhancing products boosted the company’s commercial affairs, while strong U.S. dollar and lower commodity prices acted as headwinds.
Quarterly earnings came in at $2.39 per share, up 47.5% from the year-ago tally of $1.62. The bottom line also surpassed the Zacks Consensus Estimate of $2.05 per share.
Revenues
Monsanto generated revenues of $4,579 million in the quarter, up 7.7% from $4,250 million recorded in the year-ago quarter but lower than the Zacks Consensus Estimate of $4,654 million.
On a segmental basis, revenues from Seeds and Genomics increased 5% year over year to $3,193 million. The year-over-year improvement was primarily driven by increased demand for new hybrids, greater sale of Intacta RR2 PRO, improved soybean productivity in U.S. and launch of Roundup Ready 2 Xtend.
Revenues from Agricultural Productivity increased 14.5% year over year to $1,386 million. The segmental performance was led by extension of Monsanto’s partnership deal with the Scotts Miracle-Gro Company SMG.
Cost & Margins
Monsanto’s cost of sales fell 4% year over year to $1,843. Gross margin increased 500 basis points (bps) to 59.8%.
Operating expenses stood at $1,092 million, up roughly 1% from the year-ago quarter. Interest expenses totaled $96 million as against $42 million recorded in the year-ago comparable period.
Balance Sheet and Cash Flow
Exiting fiscal third-quarter 2015, Monsanto’s cash and cash equivalents decreased to $1,179 million from $2,367 million at the end of fiscal fourth-quarter 2014. Long-term debt in the quarter was $8,396 million, up 11.5% from the end of fiscal 2014.
In the first nine months of fiscal 2015, Monsanto used $30 million of cash for its operating activities, as against cash generation of $371 million in the year-ago comparable period. Capital spending rose 1.9% year over year to $701 million. Dividend payments in the first nine months of fiscal 2015 totaled $709 million.
Outlook
Taking into account both optimistic and pessimistic factors influencing the global agricultural chemical industry, Monsanto expects to deliver break-even results in fourth-quarter fiscal 2015. The company has maintained its EPS guidance for fiscal 2015 and expects earnings to trend the lower end of the $5.75–$6.00 range. It also continues to track at the low end of its original free cash flow guidance of $2.0 billion to $2.2 billion.
In order to combat the impending business issues such as reducing acres and currency headwinds, by the end of 2017 Monsanto aims to lower its operational expenses by $300 million to $500 million, through tactical cost saving programs.
Stocks to Consider
Monsanto currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Alamos Gold Inc. AGI and BASF SE BASFY. Both stocks hold a Zacks Rank #2 (Buy).
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