Monsanto Company (MON)

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Monsanto Company, Inc. (MON)

F3Q09 Earnings Call

June 24, 2009 8:30 am ET

Executives

Scarlett Foster – Vice President Investor Relations

Hugh Grant – Chairman of the Board, President & Chief Executive Officer

Carl M. Casale – Executive Vice President Strategy & Operations

Terrell K. Crews – Chief Executive Officer, Executive Vice President & Chief Executive Officer Vegetable Business

Analyst

Mark Connelly – Sterne Agee

Vincent Andrews – Morgan Stanley

Mark R. Gulley – Soleil Securities Group

Jeff Zekauskas – J. P. Morgan

Don Carson – UBS

Robert Koort – Goldman Sachs

Frank Mitsch – BB&T Capital Markets

P.J. Juvekar – Citigroup

Steve Byrne – Banc of America Merrill Lynch

Laurence Alexander – Jefferies & Co.

Presentation

Operator

Welcome to the third quarter 2009 Monsanto Company earnings conference call. At this time all participants are in listen only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Scarlett Foster, Vice President Investor Relations for Monsanto.

Scarlett Foster

I’d like to welcome you to Monsanto’s third quarter earnings conference call and I’m joined this morning by Hugh Grant, Carl Casale and Terry Crews from our executive team. 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 and the replay is also available at that address. For those of you who would like to go to our website, the slides for this call are posted on the investor relations page.

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 uncertainties 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 10Q and today’s press release.

In addition, we’re providing you with 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 on the slides and in the earnings press release. As has been our practice, we also have published today the preliminary numbers for our biotech trade acreage penetration by crop and by country.

Our conversation today is intended to do three things: highlight the growth potential in our seasoned trades business; bring clarity to the prospects of our Roundup Herbicide; and underscore our financial commitments both for this year and looking out to 2012. Hugh will start by discussing the strategic pass forward with an emphasis on the season trade business. Carl will take a deeper dive in to the new paradigm for the Roundup business and Terry will bring it all together with an update to our financial outlook as we finish fiscal year 2009 and prepare for 2010 all with an eye towards meeting our commitment to double gross profit in 2012.

Before we start I’d like to review the financial results for the quarter and year-to-date. As we shared with you in late May, ongoing EPS in the third quarter declined compared with the third quarter last year as the competitive dynamics for glyphosate dramatically shifted. Total company net sales and gross profit declined 11% and 7% respectively as seen on Slide Four, although margins rose over two points. These results reflect a 17% lift in season trades gross profit with a three point margin lift in contrast with a 54% decrease in gross profit from the Roundup business.

Coupled with the benefit of SG&A reductions, ongoing EPS for the quarter was $1.25. Based on our current outlook for completing the US season and starting sales in Latin America, we believe we remain on track for meeting our full year ongoing earnings guidance at the lower end of the $4.40 to $4.50 per share range.

If you would refer to Slide Five, all of our major crops reported gross profit growth and margin expansion for the quarter. While corn and soybeans are typically winding down as we complete the US planting season, corn gross profits still increased 12% and soybeans rose 26%. Corn margins were up by nearly four percentage points and soybeans by approximately three. Vegetables recorded a 22% increase in gross profit and margin expansion of some five percentage points predominately from the addition of the protected culture business.

The third quarter is the heart of the earnings season for cotton and gross profit increased 28% while margins expanded by five percentage points. The tried and true combination of new higher performing seed with the best stacked trade package is now playing out in our cotton franchise. The earnings power of the season trades business however, was overshadowed by the decline in the Roundup business. Gross profit was halved compared with that in the third quarter last year. Total volumes were down 28 million gallons as we held price for branded Roundup above the $20 per gallon level. As a result of the mix of branded and non-branded sales Roundup margins contracted to 44%.

On the cost side, SG&A as a percent of net sales was just under 16% in the quarter and expenses were down by more than $100 million. Year-to-date companywide gross profit increased 13% and margins rose four percentage points. Gross profit for all our major crops increased lead by corn and soybeans at 21% and 32% respectively. Margins received in trades increased some two percentage points. Roundup gross profit declined 3% year-over-year but margins increased nearly six percentage points as we favor price over volume in optimizing the gross profit contribution of this business.

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