Monsanto sales down 10% in FY 2016

Seeds and Genomics segment sales in the fourth quarter were $1.6 billion. For fiscal year 2016, the company realized Seeds and Genomics segment net sales of $10.0 billion, 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, the benefit from the alfalfa licensing deal with Forage Genetics and outstanding penetration of Intacta RR2 PRO technology.

In the area of digital agriculture, paid acre adoption of Climate FieldView rose to greater than 14 million acres in 2016 which directly reflects the value growers saw in the platform, with total platform acres at 95 million.

Monsanto sets the stage for EPS growth in fiscal year 2017 and beyond as the company expands its portfolio of integrated solutions for farmers.

In corn, the company expects overall gross profit growth from global price mix gains and continued momentum in South America. The company expects the potential for a greater than 25 percent corn acre growth in Argentina coupled with price increases planned across South America. All together, global germplasm mix lift, in local currency, is expected to be roughly flat to up low single-digits, in terms of percentages.

In soybeans, greater than 20 percent growth in gross profit, coupled with margin improvement, is expected year-over-year. For Intacta RR2 PRO, the company expects 45 to 55 million acres in South America in fiscal year 2017. For Roundup Ready 2 Xtend soybeans, the company has supply for more than 15 million acres in the U.S., and anticipates that the EPA approval for over-the-top use of dicamba is on the horizon. Finally, Monsanto expects Roundup Ready® Xtend Crop System costs of goods sold to decline significantly year-over-year.

Within the digital agriculture space, Climate FieldView’s new product enhancements and industry partnerships will help drive the expected 25 million paid acre adoption in 2017.

Agrochemical Business

Segment sales for the quarter were $997 million. For the fiscal year, the segment delivered net sales of $3.5 billion. A decline of $1.2 billion in net sales year over year was primarily due to lower pricing for glyphosate-based herbicides, the absence of the $274 million licensing deal with Scotts that occurred in fiscal year 2015 and lower volumes.

Looking forward to fiscal year 2017, the company plans to maintain its emphasis on cost discipline and a focus on the construction of the new dicamba facility, as well as its strategy to price slightly above generics. This is expected to create another year of pricing headwinds. In addition, the company expects a $140 million benefit from strategic licensing agreements in gross profit for this segment, pending final transaction structures.

Outlook

The company noted that its continued focus on return on innovation and cost discipline in 2016 sets 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 and Genomics segment is expected to be driven by increased penetration of soybean technologies and improved soybean costs of goods sold.

The company expects net cash provided by operating activities to be $2.4 billion to $2.8 billion, and net cash required by investing activities to be approximately $1.0 billion to $1.2 billion, assuming the successful sale of the Precision Planting equipment business and a meaningful first year investment in its dicamba production facility. All together, this translates into expected free cash flow of $1.4 to $1.6 billion.

In fiscal year 2017, consistent with its priorities for the year, Monsanto remains focused on the following key areas:

*Growth from Core Seeds and Genomics Segment: The company expects Seeds and Genomics segment gross profit to increase in the mid-single digits as a percent year-over-year, with soybean gross profit alone expected to grow by more than 20 percent. This is expected to be primarily driven 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 germplasm mix lift in local currency. Finally, strategic licensing opportunities are expected to provide an overall contribution of approximately $200 million in 2017, with roughly $60 million assumed in this segment’s gross profit and in the latter half of the fiscal year.

*Strategic Management of Agricultural Productivity Segment: The company expects the Agricultural Productivity segment to deliver $900 million to $1 billion of gross profit, as it remains consistent with its strategy to price slightly above generics. The company also plans to maintain its emphasis on cost discipline and a focus on the construction of the new dicamba facility.

*Business Transformation and Strategic Spend Discipline: The company’s restructuring and cost-savings plans are on-track, with an opportunity to deliver approximately $380 million in annual savings in operating expenses and cost of goods sold at the close of 2017. However, overall operating expenses in 2017 are expected to increase slightly with inflation and the costs associated with the return to growth. This is expected to more than offset the savings from restructuring and cost-savings plans.

*Combination with Bayer: The company reiterated confidence in the timelines to close the deal with Bayer by the end of calendar year 2017.