Monsanto sales down 13% in Q2 of FY 2016

Monsanto’s net sales decreased by 12.8% to $4,532 million in the second quarter of FY 2016 ended Feb 29^th, with gross profit down by 14.5% to $2,598 million. For the first six months of fiscal year 2016, net sales were approximately $6.8 billion and gross profit was approximately $3.5 billion.

The second quarter 2016 results are in line with expectations as the company continues to make progress on several key milestones related to its long-term growth drivers despite the near-term challenging agricultural environment. The company continues to execute on key initiatives within its core business, led by new global corn hybrid portfolio introductions, significant Intacta RR2 PRO™ soybean adoption, launch of its new Roundup Ready 2 Xtend™ varieties and continued progress within its digital agriculture platform with a series of extended partnerships. The company also remains disciplined in the optimization of its spend and targeted capital structure with the recent completion of its $3 billion accelerated share repurchase (ASR) agreements. The company noted its estimate for fiscal year 2016 as-reported EPS improved, while ongoing EPS and free cash flow remain in the ranges of its recently revised guidance.

 “We continue to have a strong growth plan, backed by our commitment to delivering value to our customers through the industry’s most-proven integrated pipeline,” said Hugh Grant, chairman and chief executive officer. “Not only does this give us the confidence that we can deliver a baseline EPS CAGR in the mid-teens from the mid-point of our fiscal year 2016 guidance through fiscal year 2019, but it fuels our belief that we can continue to be the innovation engine for the industry and the partner of choice in leading agricultural solutions.”

Seeds & Traits Business

The Seeds and Genomics segment consists of the global seeds and related traits business, biotechnology platforms and digital agriculture.

Net sales for Monsanto's Seeds and Genomics segment in the first half of fiscal 2016 were approximately $5.2 billion, with sales for the segment in the second quarter of fiscal year 2016 reaching approximately $3.8 billion.

In soybeans, Monsanto continues to build on the strong grower adoption of Intacta RR2 PRO™ soybeans in South America as the company remains on track to reach 35 million acres in fiscal year 2016. The company also has seen strong grower interest for its Roundup Ready 2 Xtend™ soybeans and is pleased with the recent announcement of the U.S. Environmental Protection Agency's open comment period regarding the in-crop use of dicamba herbicide. Monsanto still awaits the final EU approval of the stacked product, which has experienced unexpected administrative delays after receiving the European Food Safety Authority’s positive opinion last June. The company continues to be positioned to provide its new Roundup Ready 2 Xtend™ soybeans for three million acres this year as it awaits the final EU approval.

In cotton, Bollgard II® XtendFlex™ is now expected to reach two million acres in just the technology’s second year of commercialization.

Through new hybrid portfolio introductions across key corn growing regions, Monsanto expects to grow corn share in 2016, with germplasm price mix lift expected to be flat in local currency.

In the United States, Monsanto’s year one to year three hybrids are tracking at 50 percent to 60 percent of its portfolio, with SmartStax® corn remaining roughly at the same percentage of the portfolio mix as last year. Importantly, the company’s disciplined response to competitor discounting and free seed actions has been effective. The company is on track to hold or grow its leading share position, while maintaining the premium pricing its corn product performance and yield advantage garners.

In Brazil, the company has demonstrated discipline in offsetting some of the currency weakness in the market, with 20 percent plus price increases in local currency year-over-year expected. The company grew share in the first season of the year and its VT Triple PRO® product, the first product to offer below ground insect protection in the country, has achieved strong grower interest and adoption.

In Argentina, the company’s share remains above 50 percent in a region where acres declined approximately 15 percent to 20 percent versus the prior year. With its strong portfolio and share position, the company is well-positioned to participate in the expected growth in area planted in the upcoming season.

Finally, across Europe and South Africa, the company also expects to hold or grow share in a region of declining corn acres.

Monsanto continues to expect the Climate FieldView™ platform to expand to more than 90 million acres in 2016 with more than 12 million of these acres using its premium offerings. Climate recently announced data connectivity agreements with several agronomic and retailer software systems as well as the John Deere Operations Center, enabling farmers and their trusted advisors to quickly and easily transfer certain field data between these systems and the Climate FieldView™ platform. These agreements connect the Climate FieldView™ platform to the farm management systems of more than 80 percent of the top retailers across the Corn Belt and the largest U.S. agricultural equipment provider. Improved data connectivity helps farmers maximize the value of their field data, while giving them full control over how their data is used and shared.

Agrochemical Business

The Agricultural Productivity segment consists of the crop protection products and lawn-and-garden herbicide products.

Net sales for the Agricultural Productivity segment in the first half of fiscal 2016 were approximately $1.5 billion, with segment sales for the second quarter reaching $715 million.

Monsanto continues to expect Agricultural Productivity segment gross profit to be roughly at the mid-point of the range of $900 million to $1.1 billion in fiscal year 2016 as generic glyphosate pricing holds relatively steady.

Outlook

Monsanto updated its fiscal year 2016 as-reported EPS guidance to be in the range of $3.72 to $4.48 per share, primarily due to a change in the expected timing for the accounting of restructuring expense. The company confirmed ongoing EPS guidance in the range of $4.40 to $5.10 per share. Monsanto’s guidance incorporates the anticipated continuation of several global and industry headwinds, including the expected $0.90 to $1.00 of currency headwinds.

The company also reaffirmed its full-year free cash flow projections to be in the range of $1.4 billion to $1.6 billion for fiscal year 2016. The company expects net cash provided by operating activities to be $2.2 billion to $2.6 billion, and net cash required by investing activities to be approximately $800 million to $1 billion for fiscal year 2016. (For a reconciliation of free cash flow, see note 1).

The company continues to expect gross profit growth from its core Seeds and Genomics segment in fiscal year 2016 to be relatively flat with the previous year. Exclusive of currency headwinds of nearly $400 million, seeds and genomics gross profit is estimated to be up single digits, driven primarily by the expected increase in potential licensing deals in the range of more than $300 million to as much as $450 million in fiscal year 2016, increased Intacta RR2 PRO™ soybean adoption and global corn market expansion. With generic glyphosate pricing holding relatively steady, the company continues to expect the Agricultural Productivity segment gross profit to be roughly at the mid-point of the range of $900 million to $1.1 billion of gross profit in fiscal year 2016.

The company continues to expect operating expenses for fiscal year 2016, exclusive of restructuring expense and legacy environmental and litigation matters, to be down slightly versus fiscal year 2015. This expectation is inclusive of new platform spend to support the long-term growth prospects for these opportunities. Other expense, net is expected to increase year-over-year by approximately $180 million due to the Argentine Peso devaluation expense.

Moving beyond the current fiscal year, Monsanto’s outlook is for a baseline mid-teens compounded annual growth rate in its as-reported and ongoing EPS from the mid-point of its fiscal year 2016 guidance through fiscal year 2019. This is expected to be led by the company’s soybean innovation growth drivers, strength and durability of its global corn platform, continued financial discipline, assumed stability in currencies and an improved cost of goods outlook for corn and soybeans.