Monsanto Company (MON)

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Monsanto Company (MON)

F1Q09 Earnings Call

January 7, 2009 9:30 am ET

Executives

Scarlett Foster – Vice President, Investor Relations

Hugh Grant – Chairman and Chief Executive Officer

Terry Crews – Chief Financial Officer

Robb Fraley – Chief Technology Officer

Analysts

Jeffrey Zekauskas - J.P. Morgan

Prashant Juvekar - Citigroup

Nils Wallin - Credit Suisse

Kevin McCarthy - Banc of America Merrill Lynch

Peter Butler - Glen Hill Investors

Vincent Andrews - Morgan Stanley

Charlie Rentschler - Wall Street Access

Frank Mitsch - BB&T Capital Markets

Laurence Alexander - Jefferies & Co.

Mark Gulley - Soleil - Gulley & Associates

Chris Shaw - UBS

Robert Koort - Goldman Sachs

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Monsanto Company first quarter 2009 results conference call. (Operator Instructions)

It is now my great pleasure to turn this conference over to Scarlett Foster, Vice President, Investor Relations. Please go ahead, ma'am.

Scarlett Foster

Thank you, [Martin], and best wishes to everyone on the line for the new year. I'd like to welcome you to our first quarter earnings conference call, and I'm joined this morning by Hugh Grant, Monsanto's Chairman and CEO, by Terry Crews, our CFO, and by our Chief Technology Officer, Robb Fraley. Also joining me is Laura Meyer, my colleague in Investor Relations.

Before we begin, I'd like to remind you that we're webcasting this call. You can access it at Monsanto's website at Monsanto.com. The replay is also available at that address. And for those of you who'd like to go to our website, the slides for this call are posted on the Investor Information page.

We're providing you with EPS measures both on a GAAP basis and on an ongoing business basis. In those cases where we refer to non-GAAP financial measures, we've provided you with a reconciliation to the GAAP measures in the slides and in the earnings press release.

I need to remind you that this call will include statements concerning future events and financial results. Because these statements are based on assumptions and factors that involve risks and uncertainty, the company's actual performance and results may vary in a material way from those expressed or implied in any forward-looking statements. A description of the factors that may cause such a variance is included in the safe harbor language contained in our most recent 10K and today's press release.

Today's conference call features our fourth annual review of our R&D pipeline results. In addition to Robb's remarks, I'll take you through the first quarter results. Hugh will provide a strategic and operational outlook, and Terry will address our increase in guidance for the 2009 fiscal year.

Let's start with the first quarter, as shown on Slide 4. Gross profit rose by 49%, which more than flowed through to net income as both SG&A and R&D as a percent of sales were lower as compared with the first quarter last year. This coupling of growth with financial discipline resulted in ongoing earnings of $.98 for the first quarter compared with $0.45 of ongoing EPS in the comparable period. While we anticipated certain discrete tax events that would take the full year tax rate to roughly 30%, several of those occurred earlier than anticipated. This resulted in an $0.08 per share tax benefit in the quarter.

From an operations perspective, the first quarter is all about Latin America, as we highlight on Slide 5. Across the region, gross profit rose by more than 80%, with Roundup gross profit doubled and Corn, Seeds and Traits gross profit rose by more than 50%.

From a Roundup perspective, it was a standout quarter, driven by Brazil, where our significant levels of prepayment for Roundup in last year's fourth quarter flowed through into higher sales from both volume and price increases.

Latin America as a whole continues to shift to premium corn seed hybrids, and that, combined with a richer trait mix in Argentina and Brazil specifically contributed to the gross profit improvement in the area. Based on our early read, we are on track to gain corn seed market share across the region, even as we are taking a cautious approach to credit through the second season in Brazil.

These market share gains are expanding our leading seed footprint in Latin America just as the region is emerging as a new player in biotech traits. In Brazil, we expect to sell 1.5 to 2 million acres of YieldGard corn bore this fiscal year, at the high end of our original expectations. In Argentina, we likewise have sold more than 2 million acres of the newly approved double-stack corn. This is also above our original target, and the double-stack was roughly half of everything we sold in the DEKALB brand in Argentina this year.

The pace of regulatory approvals in Brazil underscores the response we're seeing globally to the need for more grain. As we closed out the calendar year, we received Brazilian regulatory approval for Roundup Ready Corn and Cotton. We have seed production under way in the second season in Brazil so that we will have Roundup Ready Corn inventory to sell there in the fall of 2009.

Additionally, the El Salvador government issued its first permits for biotech corn experimental trials, underscoring the importance and the value of the timing of our Cristiani seed acquisition in Central America.

Moving from a world area to a segment look at the numbers, gross profit growth came both from Roundup and from Seeds and Traits, particularly corn and soybeans.

Looking first at Roundup on Slide 6, the branded net selling price was up in every world area, as reflected in the gross margin lift. The first quarter saw prices above our targeted $16 to $18 band, in line with our forecast that pricing would remain above that band for the full year.

Volumes were down slightly, in part because of the drought in Argentina and in part because of a return to a more normal selling pattern in the United States. This year we would anticipate that well over a half of the volume in the U.S. will be sold in the third and fourth quarters, as we experienced in fiscal year 2007. Remember that in fiscal year 2008, early buying ahead of an announced February price increase pulled U.S. volume into the first and second quarters.

If you would turn to Slide 7, gross profit for Corn, Seeds and Traits improved by 41%, with a 3point margin lift. In addition to the strong performance in Latin America, the U.S. also saw an uptick in Corn, Seeds and Traits in what was the very start of the upcoming shipping season.

As we note on Slide 8, soybean orders have been early and aggressive this year in the U.S., and the start of the sales season has reflected both higher volume and greater value in early shipments. Soybean gross profit rose 31% as a result. While not a significant piece of our first quarter results, all indications are that the Roundup Ready Soybean trait in Brazil appears to be on track to approach the 60% penetration mark this fiscal year.

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