Monsanto Co. recently announced fiscal 2016 results that it said exceeded its latest ongoing earnings per share (EPS) guidance for the year. The company expects to grow EPS into fiscal 2017 and beyond by building upon the achievements of 2016, together with continued strong penetration of key soybean traits, global corn germplasm upgrades and spending discipline.
Hugh Grant, Monsanto chairman and chief executive officer, said, “Despite challenges to our business in fiscal year 2016, we delivered on the drivers that position Monsanto for the return to EPS growth in the year ahead. To see it through, our fiscal year 2017 priorities are focused on delivering on the operational plan and key business milestones for the year while also executing on the necessary steps to close the deal with Bayer. Ultimately, we believe that combining with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration.”
Results of operations
Monsanto reported net sales of $2.6 billion for the fourth quarter of fiscal 2016 and $13.5 billion for the full year. Despite strong penetration of Intacta RR2 PRO technology and record U.S. corn seed volumes, full-year net sales were down versus a year ago, due primarily to currency headwinds and price declines in agricultural productivity.
The company's year-over-year total operating expenses were basically flat on an as-reported basis. Selling, general and administrative expenses increased primarily due to $280 million in PCB litigation settlement costs associated with a group of legacy PCB personal injury claims, which were partially offset by the absence of a Securities & Exchange Commission settlement expense in the prior year. Research and development expenses declined slightly due to currency and transformation cost savings. Finally, restructuring charges were $297 million in fiscal 2016, compared to $393 million in fiscal 2015, as a result of the 2015 restructuring plan.
Monsanto reported a net loss of $191 million in the 2016 fourth quarter, compared with a net loss of $495 million in the same period last year. Net income attributable to Monsanto for 2016 was approximately $1.3 billion, compared to net income of $2.3 billion attributable to Monsanto in fiscal 2015.
EPS on an as-reported basis was $2.99 for the year, reflecting costs associated with restructuring actions, Argentina tax matters, environmental and litigation matters and income from discontinued operations. On an ongoing basis, this translated to $4.48.
For the fourth quarter, the company reported a loss of 44 cents per share on an as-reported basis, which translated into earnings of 7 cents per share on an ongoing basis. The ongoing EPS results were better than 2015, driven by a $157 million gain from the formation of a sorghum joint venture with Remington, a strong start in South America and lower seed returns in the U.S.
The Seeds & Genomics segment, which consists of the global seeds and related traits business, biotechnology platforms and digital agriculture, had net sales of $1.6 billion for the fourth quarter and $10.0 billion for the fiscal year, which declined primarily due to unfavorable currency, higher discounting in corn in the U.S. and price declines in cotton in India as a result of new government regulations. This was partially offset by record U.S. corn seed volumes, a benefit from the alfalfa licensing deal with Forage Genetics and outstanding penetration of Intacta RR2 PRO technology.
In digital agriculture, paid acre adoption of Climate FieldView rose to greater than 14 million acres in 2016, with total platform acres at 95 million.
In corn, Monsanto expects overall gross profit growth from global price mix gains and continued momentum in South America.
In soybeans, the company expects more than 20% year-over-year growth in gross profit, coupled with margin improvement. It anticipates that Environmental Protection Agency approval for over-the-top use of dicamba is on the horizon. Monsanto expects Roundup Ready Xtend Crop System costs of goods sold to decline significantly year-over-year.
The Agricultural Productivity segment, which consists of crop protection products and lawn and garden herbicide products, reported net sales of $997 million for the quarter and $3.5 billion for the year. A $1.2 billion decline in net sales year over year was primarily due to lower pricing for glyphosate-based herbicides, absence of a $274 million licensing deal with Scotts that occurred in fiscal year 2015 and lower volumes.
Monsanto noted that its continued focus on a return on innovation and cost discipline in 2016 set up a strong base for growth in 2017, where it expects strong cash flows and growth in EPS. Anticipated gross profit growth in the Seeds & Genomics segment is expected to be driven by increased penetration of soybean technologies and improved soybean costs of goods sold.
For fiscal 2017, Monsanto expects to achieve EPS of $3.83-4.35 on an as-reported basis, which includes roughly 20-24 cents in anticipated restructuring charges, 10-13 cents in Argentina-related tax matters and 27-34 cents in proposed costs related to the Bayer transaction. This translates into an estimated EPS of $4.50-4.90 on an ongoing basis.
The company expects net cash provided by operating activities to be $2.4-2.8 billion and net cash required by investing activities to be approximately $1.0-1.2 billion, assuming a successful sale of the Precision Planting equipment business and a meaningful first-year investment in its dicamba production facility.
In fiscal 2017, Monsanto said it remains focused on the following key areas:
* Growth from the core Seeds & Genomics segment. The company expects segment gross profit to increase year over year in the mid-single digits as a percentage, with soybean gross profit alone expected to grow by more than 20%. This is expected to be driven primarily by increases in Intacta RR2 PRO and Roundup Ready 2 Xtend soybean penetration and related trait fees and an anticipated significant reduction in the cost of goods sold related to the launch of Roundup Ready 2 Xtend soybeans. Growth in corn is expected to come from global genetic share gains and a germplasm mix lift in local currency. Finally, strategic licensing opportunities are expected to provide an overall contribution of around $200 million in 2017.
* Strategic management of the Agricultural Productivity segment. Monsanto expects this segment to deliver $900 million to $1 billion of gross profit as it remains consistent with its strategy to price slightly above generics and to maintain its emphasis on cost discipline. The company also plans to focus on construction of its new dicamba facility.
* Business transformation and strategic spend discipline. The restructuring and cost savings plans are on track, with an opportunity to deliver $380 million in annual savings in operating expenses and cost of goods sold at the close of 2017, the company reported. However, overall operating expenses in 2017 are expected to increase slightly with inflation and the costs associated with the return to growth, which may more than offset savings from the restructuring and cost savings plans.
* The combination with Bayer. Monsanto reiterated confidence in the timelines to close the deal with Bayer by the end of calendar year 2017.
“We are entering a new era in agriculture, where growers are demanding new solutions and technologies to be more profitable and more sustainable,” Grant said. “We believe that combining with Bayer secures our shared vision to provide a wide set of solutions to meet these demands and feed a growing world.”