Monsanto marks record sales, gross profit in Seeds & Genomics

Bayer and Monsanto deal still expected to close in early 2018.

Monsanto Co. recently announced that it concluded its 2017 fiscal year with as-reported earnings per share (EPS) of $5.09, compared to as-reported EPS of $2.99 for fiscal 2016. The company said EPS is also expected to grow in the first quarter of fiscal 2018.

“Our record sales and gross profit in the Seeds & Genomics segment this year, fueled by the outstanding penetration of our latest soybean and cotton technologies and continued adoption of our newest corn hybrids around the world, reflects the need for new solutions in what continues to be a challenging ag economy,” Monsanto chairman and chief executive officer Hugh Grant said. “Our proven ability to innovate and our unique platform advantages position us well to meet the production challenges of today as well as the demands of tomorrow.”

Results of operations

Monsanto reported net sales of $2.7 billion for the fiscal 2017 fourth quarter and $14.6 billion for the full year. Full-year net sales were up more than $1 billion year over year, which the company said was due primarily to record technology adoption for the newest soybean technologies across the Americas and global corn pricing.

Seeds & Genomics segment net sales were $1.7 billion for the quarter and $10.9 billion for the full year. Agricultural Productivity segment net sales were $939 million for the quarter and $3.7 billion for the year.

The company’s total operating expenses were up slightly year over year on an as-reported basis, at $4.7 billion. Selling, general and administrative (SG&A) expenses increased to $3.0 billion for the year, primarily due to increased incentives and commissions, with the return to growth of the business. Research and development (R&D) expenses increased due to incentives and increased investment in digital tools for agriculture. Finally, restructuring charges were a net reversal of $36 million in fiscal 2017, compared to a $297 million spend in fiscal 2016.

The company reported net income attributable to Monsanto of $20 million in the 2017 fourth quarter, compared with a net loss of $191 million in the same period last year. Net income attributable to Monsanto for the year was approximately $2.3 billion, compared to $1.3 billion in fiscal 2016.

Monsanto’s fiscal 2017 EPS on an as-reported basis was $5.09, which it said reflected both the focus on delivering its operational plan and its strategic portfolio management. On an ongoing basis, this translated to $5.50. For the full year, strategic licensing deals and non-core asset sales contributed about $380 million of pretax benefit -- similar to fiscal 2016.

For the fourth quarter, the company reported EPS of 5 cents on an as-reported basis, which translated to EPS of 20 cents on an ongoing basis, versus a loss of 44 cents per share on an as-reported basis and EPS of 7 cents on an ongoing basis in the same period last year. The ongoing EPS results for the quarter were better than initially projected, mostly due to tax benefits and the fact that Monsanto had an opportunity to grant the right to some key corn licenses in Brazil, the company said. The latter resulted in a pretax benefit of more than $200 million in the fourth quarter of 2017.

Outlook

Given the pending combination with Bayer, Monsanto did not provide financial guidance for fiscal 2018 but instead highlighted key guideposts to consider, including growth drivers in the Seeds & Genomics segment, such as: adoption and pricing of INTACTA RR2 PROTM soybeans in South America, continued adoption of Roundup Ready 2 Xtend soybeans and price and share gains from the launch of new corn hybrids around the world.

In addition, the company expects to reach 50 million paid acres globally for the Climate FieldView platform and growth from the multi-crop U.S. launch of NemaStrike Technology. Monsanto also anticipates fewer planted corn acres in Brazil and challenging commodity pricing for corn around the globe.

In the Ag Productivity segment, the pricing for glyphosate is expected to improve, at least through the first quarter of the fiscal year, and volumes of XtendiMaxd Herbicide with VaporGrip Technology are expected to expand.

The company expects that its tax rate will normalize and that contributions from strategic portfolio management will likely fall below the roughly $350 million average annual pretax contribution from the last three years.

Finally, in fiscal year 2018, Monsanto said it also anticipates completing its restructuring and cost savings initiative that began in fiscal 2015, with the expectation that SG&A and R&D expenses in fiscal 2018 will be relatively flat year over year compared to 2017. Upon completion of the initiative, the company expects to realize nearly $500 million in annual savings compared to its fiscal 2015 baseline.

Regarding the Bayer and Monsanto deal, Grant provided an updated during the company’s earnings call, saying, “All the key filings have been made, and more than one-third of the approvals have been received from the authorities with whom we filed. We continue to cooperate with regulators as they work through the reviews, and we look forward to positive outcomes.”

Beyond work with regulators, he said Monsanto continues its outreach with stakeholders to convey the innovation opportunity the deal can have for the future of agriculture.

“While some divestitures will occur in limited areas of overlap with Bayer, we believe in the potential to further evolve our leadership role in agriculture through this deal,” he said.

The transaction is still expected to close in early 2018.

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