Monsanto Company (MON)

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Monsanto Co. (MON)

F1Q11 (Qtr End 11/30/2010) Earnings Call

January 6, 2011 9:30 am ET

Executives

Bryan Hurley - IR Lead

Hugh Grant - Chairman and CEO

Rob Fraley - Chief Technology Officer

Pierre Courduroux - Chief Financial Officer

Analysts

Mike Ritzenthaler - Piper Jaffray

Vincent Andrews - Morgan Stanley

Duffy Fischer - Barclays Capital

David Begleiter - Deutsche Bank

Kevin McCarthy - Bank of America

Don Carson - Susquehanna Financial Group

Robert Koort - Goldman Sachs

Jeff Zekauskas - JPMorgan Chase

P.J. Juvekar - Citigroup

Presentation

Operator

Greetings and welcome to the first quarter 2011 Monsanto Company earnings conference call and R&D topline update. (Operator Instructions)

It is now my pleasure to introduce your host Bryan Hurley, Investor Relations Lead for Monsanto.

Bryan Hurley

Thank you for joining our first quarter earnings conference call. I'm joined this morning by Hugh Grant, our Chairman and CEO; and by Rob Fraley, our Chief Technology Officer. Also sitting in for today's call is Pierre Courduroux who officially became our new Chief Financial Officer this week.

Before we begin, I'd like to remind you that we are webcasting this call. You can access the webcast and two sets of supporting slides at monsanto.com. The replay is also available at that address.

We're providing you today with EPS measures on both the GAAP basis and on an ongoing business basis. In those cases where we refer to non-GAAP financial measures, we've reconciled to the GAAP measure in the slides and in the press release, which are both posted on our website.

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 statement. A description of the factors that may cause such a variance is included in the Safe Harbor language contained in our most recent 10-K and in today's press release.

Today's conference call features our seventh annual review of R&D pipeline results. We've changed our historical pattern a bit and have posted an expanded R&D pipeline resource presentation on our website today. That covers additional project updates and back run on our pipeline.

After a short review of the quarter and our guidance update, Hugh will expand on the strategic checkpoints for the first quarter, including our U.S. order outlook. Following that, Rob will take you through the pipeline update.

Let's begin with the core financial results for the quarter on Slide 4 of our earnings slide deck. The first quarter is a small quarter for us, but it's an important step for delivering our commitments for the full fiscal year. Our first quarter results keep us on track to meet our ongoing EPS target of $2.72 to $2.82 as well as our free cash flow target of $800 million to $900 million.

On Slide 5, we roll up our complete guidance elements for our mid-teens earnings growth expectation for the full year. Ongoing earnings per share were $0.02, which is in line with our projections as we return to a more historic earnings pattern in our business. This compared against an ongoing loss of $0.02 per share in the prior year.

On the seeds and traits side, sales increased 13% and gross profit increased 14% as we realized increases across all of our top platforms in the quarter. In particular, that growth was underpinned by the performance of our Latin American seed business. Even with reduced planted corn acres in Brazil, the rebound of planted acres in Argentina and the mixed benefit from increased overall trait penetration in those regions through a double-digit increase in our corn seeds and traits segment.

Within corn seeds and traits, we also saw some additional year-over-year volume increase in the U.S. that tracks with the order book update that Hugh will address in a few minutes.

That growth was complemented by an uptick in cotton gross profit, which reflects our trait performance in Australia as we saw the expected rebound in cotton acreage following several years of drought.

On the Ag Productivity side of the business, overall sales and gross profit were both effectively flat in the first quarter. In Roundup, we delivered $94 million in gross profit in the quarter. The early performance is on track with our strategy as we've repositioned Roundup as the centerpiece of our new weed management program.

With the fall fill in the U.S. and the early Latin American sales and application season behind us, we've seen increased volumes with the lower anticipated net selling prices that tracks against our projected $8 to $10 branded price range for the year.

Our guidance for Roundup in 2011 remains unchanged. We expect to generate $250 million to $350 million in gross profit. Our priority this year will be selling our 250 million to 300 million gallons of Roundup, not trying to take the leading edge of pricing in every geography around the world.

Operating expenses for the quarter also tracked well with our full year guidance. SG&A in the quarter decreased 9% compared with last year. In the quarter, there were $7 million in net restructuring charges as we've now effectively reported the last of our expenses from our restructuring program. We remain on track to deliver $300 million to $340 million in annual savings from this program. With the benefit of restructuring, we lower our SG&A run rate, allowing us to project flat to inflationary growth in SG&A spend this year.

R&D was slightly higher than the prior year as we managed more projects in the latter phases of development, but within our projections to realize our full R&D spend of $1.25 billion to $1.3 billion.

With the shift back to a more traditional earnings cycle, the first quarter this year was a significant source of cash. Free cash flow was $500 million in the quarter compared with a use of cash of approximately $1.6 billion this time last year. That $2.1 billion swing was primarily a timing shift. Last year, because of the late harvest in 2009, prepays largely came in during our second quarter, while for this year the earlier harvest helped bring in more of that cash in the first quarter.

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