Monsanto Company (MON)

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Monsanto (MON)

Q2 2011 Earnings Call

April 06, 2011 9:30 am ET


Hugh Grant - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Pierre Courduroux - Chief Financial Officer and Senior Vice President

Bryan Hurley - Director of Investor Relations


Mike Ritzenthaler

Mark Gulley - Soleil Securities Group, Inc.

Vincent Andrews - Morgan Stanley

David Begleiter - Deutsche Bank AG

Jeffrey Zekauskas - JP Morgan Chase & Co

Donald Carson - Susquehanna Financial Group, LLLP

Robert Koort - Goldman Sachs Group Inc.

Laurence Alexander - Jefferies & Company, Inc.

Kevin McCarthy

Duffy Fischer - ClearBridge Advisors

P.J. Juvekar - Citigroup Inc



Greetings, and welcome to the Second Quarter 2011 Monsanto Company Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Bryan Hurley, Investor Relations Lead for Monsanto. Thank you, Mr. Hurley. You may begin.

Bryan Hurley

Thank you, Diego, and good morning to everyone. Thank you for joining Monsanto's Second Quarter Earnings Conference Call. I'm joined this morning by Hugh Grant, our Chairman and CEO; and by Pierre Courduroux, our Chief Financial Officer. Also joining me are Manny Cruz and Ruben Mella, my colleagues in Investor Relations.

Before we begin, I'd like to remind you that we are webcasting this call. You can access the webcast and the supporting slides at The replay is also available at that address. We're providing you today with EPS measures on both a GAAP basis and on an ongoing business basis. In those cases where we refer to non-GAAP financial measures, we reconcile 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 risk 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 10-K and in today's press release.

I'll start today with a brief overview of our second quarter and first half results. Pierre will then cover our financial outlook and guidance for the remainder of the fiscal year 2011. And finally, Hugh will provide a strategic view of how our 2011 product and pricing approach is tracking against our overall operational plans for mid-teens earnings growth.

To start, let's take a look at the financial results on Slide 4. Our second quarter is the first earnings checkpoint for progress in our largest Seeds and Traits market in the U.S. And underpinning our results is good translation of our early order book indicators to a strong quarter as shipments are in full swing, ahead of the spring planting in the U.S. The strong second quarter is in line with our full year outlook for the business and keeps us on track to meet our ongoing EPS target of $2.72 to $2.82. Likewise, the positive overall Ag climate has benefited our cash collections early in the season, which in combination with our focus on working capital puts us ahead of our plans and allows us to increase our free cash flow outlook to $900 million to $1.1 billion for the full year.

Ongoing EPS for the – ongoing earnings per share for the second quarter were $1.87, which is in line with our planning, as this projects to be our largest quarter from an earnings perspective in the fiscal year. That is a year-over-year increase of 10% compared with ongoing earnings of $1.70 for second quarter 2010.

For the quarter, the earnings growth came from the areas where we expected to see growth as overall gross profit increased by 10%, with upticks from both Seeds and Genomics and the Ag Productivity segment. From a percent of sales basis, the uptick in quarterly performance and lower overall cost of goods helped lift gross margins by two percentage points to 56%.

Within the Seeds and Traits business, the gross profit growth comes from global unit volume growth as well as the mix upgrade, particularly in crop platforms in our U.S. business. On a crop basis, our Corn, Soybean and Cotton platforms were all significant contributors to our year-over-year growth. The growth in those crops was somewhat offset by moderate gross profit declines in vegetables and other crops, which primarily reflects sales mix timing that we expect to normalize in the Vegetable business over the remainder of the year.

If we shift over to Ag Productivity, you'll see that we've made a change to our reporting structure, consolidating Ag Productivity operating segments into a single operating segment to reflect the evolution of the Roundup business to steady state. Pierre will provide more detail on that transition and our outlook.

For the quarter, we saw a gross profit contribution from the Ag Productivity segment as the Roundup business returned to a positive gross profit compared with this point last fiscal year, reflecting a more normalized expectation following the re-establishment of that business coming out of 2010.

Year-to-date, the solid first quarter results from our Latin American Seeds and Traits business set the stage for our early U.S. results this quarter. For the first six months of 2011, our ongoing EPS were $1.89, up 13% compared with $1.68 for the first half of fiscal 2010. On the gross profit line, we've seen a double-digit increase, with overall gross profit up a little more than 10% for the first six months. Consistent with that gross profit growth, margins were up one point for the company over this time last year to 52%. As in the quarterly look, that gross profit growth includes contributions from both Seeds and Genomics and the Ag Productivity segment.

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