Monsanto Company (NYSE: MON) has delivered on its financial targets for the first quarter of 2010, which ended Nov. 30, 2009, and recommitted to its full-year guidance. With its quarterly earnings results today the company also announced its annual research and development pipeline update, showcasing a record-breaking 11 phase advancements.
Early indicators of the seeds and traits business show the company on track to meet its 2010 financial commitments and with its operational plan through 2011 and 2012.
"Our first quarter is a small but important quarter as it sets the foundation for the year ahead, which we see as a critical year in propelling us to reach our 2011 and 2012 commitments," said Hugh Grant, chairman, president and chief executive officer for Monsanto. "We've delivered on our targets for the quarter and this year we are confident that we will achieve the milestones necessary to reach our financial commitment to our shareowners. Today, we also take a closer look at our R&D pipeline and bring 11 new technologies that will deliver real value to farmers closer to the field. With our selling season well underway and the demand we see for Genuity™ SmartStax™ corn and Genuity™ Roundup Ready 2 Yield® soybeans, we believe it will only get better from here. These winning products are the platform for many of the technologies in early phases in our pipeline, and we're closer to demonstrating what those new technologies can do on the farm."
Results of Operations
Net sales decreased $952 million, or 36 percent, in the three-month comparison primarily as a result of decreased sales of glyphosate-based herbicides, primarily in Brazil and Europe. Gross profit percentage for the total company decreased 15 percentage points to 44 percent in the first quarter, largely driven by pricing adjustments for Roundup and other glyphosate-based herbicides.
Operating expenses decreased 3 percent, or $25 million, in the first quarter 2010 compared to the prior year. In the three-month comparison, selling, general and administrative (SG&A) expenses decreased 10 percent primarily because of lower spending for marketing, administrative functions and incentives. R&D expenses increased 6 percent related to the increase in the company's investment in its product pipeline as it manages more projects in advanced pipeline phases. As a percent of net sales, SG&A expenses were 29 percent and R&D expenses increased to 16 percent.
Net income in the first quarter was a loss of $0.03 per share, compared with income of $1.00 per share in first quarter 2009.
For the first quarter of fiscal 2010, net cash required by operating activities was $1.4 billion, compared to a source of $114 million in the first quarter last year. Net cash required by investing activities for the first quarter of fiscal 2010 was $197 million, compared with a source of $10 million for the year-ago quarter. Net cash provided by financing activities for the first quarter of 2010 was $113 million, compared to net cash required of $258 million for the prior year's first quarter.
Free cash flow was a use of $1.6 billion for the first quarter of fiscal 2010, compared to a source of $124 million for the first quarter in fiscal 2009. (For a reconciliation of free cash flow, see note 1.) The reset of the Roundup business accounted for roughly 30 percent of this shift, and some working capital changes that altered the timing of cash flow in the quarter accounted for approximately half. The working capital changes are primarily driven by a timing adjustment for payments from seed licensees, which traditionally had been collected in the first quarter and are now collected in the fourth quarter. The remaining balance in fiscal 2009 came from the proceeds from the divestiture of the dairy business, which was $300 million.
The company affirmed its previously announced cash flow guidance. The company expects free cash flow for fiscal year 2010 will be in the range of $900 million to $1 billion, including the after-tax cash effect from a restructuring charge of approximately $250 million. The company expects net cash provided by operating activities to be $2 billion to $2.2 billion, and net cash required by investing activities to be approximately $1.1 billion to $1.2 billion for fiscal year 2010. (For a reconciliation of free cash flow, see note 1.)
The company confirmed full-year 2010 ongoing earnings per share (EPS) guidance is in the range of $3.10 to $3.30. Full-year 2010 EPS guidance on an as-reported basis is in the range of $2.85 to $3.11. (For a reconciliation of EPS, see note 1.)
The Seeds and Genomics segment consists of the company's global seeds and related traits business, and biotechnology platforms.
Sales for Monsanto's Seeds and Genomics segment in the first quarter of fiscal 2010 decreased 6 percent or $68 million compared to the same period last year.
Corn seed and traits net sales decreased 9 percent or $59 million due in large part to a decrease in planted acres in Brazil and Argentina as a result of drought, governmental policies and commodity prices. With the second season still ahead in Brazil, there may be some rebound in total acres, but all-in planted acres are expected to be down for the year in both Brazil and Argentina.
This year marks the launch of Genuity SmartStax corn, which is expected to be on more than 4 million acres. Given the early orders, the early-adopter uptake for Genuity SmartStax has been good and the company is on pace to meet the more than 4 million-acre target.
Overall, soybean gross profit is down 4 percent compared with last year, with relatively flat margins, due to a timing effect. Delays in harvesting last year's soybean crop have put the company's seed shipments slightly behind, with this volume expected to shift into the second quarter. The company previously increased its acre targets for Genuity Roundup Ready 2 Yield to 8 million to 10 million acres, and sales to date are on pace to meet that target.
The vegetable business performed well, with sales growing $16 million or 10 percent, driven in part by better product availability.
The Agricultural Productivity segment consists of the crop protection products and lawn-and-garden herbicide products.
Sales in the first quarter of fiscal 2010 for Monsanto's Agricultural Productivity segment declined 57 percent or $884 million compared with the same period last year. Addressing the global supply-demand imbalance, the company continues to execute on its plan by resetting branded prices to bring premiums more in line with historical norms, increasing overall volumes and optimizing its low-cost production advantage.
In conjunction with this announcement, Monsanto will hold a conference call at 8:30 a.m. central time (9:30 a.m. eastern time) today. The call will focus on these results, future expectations and an update of projects within the company's R&D pipeline, including the record-breaking 11 phase advancements. The call also may include a discussion of Monsanto's strategic initiatives, product performance and other matters related to the company's business.
Presentation slides and a simultaneous audio webcast of the conference call may be accessed by visiting the company's web site at www.monsanto.com and clicking on "Investor Information." Visitors may need to download Windows Media Player™ prior to listening to the webcast. Following the live broadcast, a replay of the webcast will be available on the Monsanto Web site for three weeks.
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