Monsanto Company (MON)

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Monsanto (MON)

Q3 2011 Earnings Call

June 29, 2011 9:30 am ET

Executives

Pierre Courduroux - Chief Financial Officer and Senior Vice President

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

Bryan Hurley - Director of Investor Relations

Analysts

Michael Picken - Cleveland Research Company

Michael Cox - Piper Jaffray Companies

Vincent Andrews - Morgan Stanley

Jeffrey Zekauskas - JP Morgan Chase & Co

Donald Carson - Susquehanna Financial Group, LLLP

Mark Connelly - Credit Agricole Securities (USA) Inc.

James Sheehan - Deutsche Bank AG

Kevin McCarthy

Laurence Alexander - Jefferies & Company, Inc.

Duffy Fischer - ClearBridge Advisors

P.J. Juvekar - Citigroup Inc

Presentation

Operator

Greetings, and welcome to the Third Quarter 2011 Monsanto Company Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. 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, Rob, and good morning to everyone. Welcome to Monsanto's third quarter earnings conference call. This morning, I'm joined by Hugh Grant, our Chairman and CEO; and by Pierre Courduroux, our CFO. Also joining me are Manny Cruz and Ruben Mella, my colleagues in Investor Relations. This call is being webcast and you can access the webcast and supporting slides at monsanto.com. The replay will also be available at that address.

We're providing you today with EPS measures on both a GAAP basis and on an ongoing business basis. Where we refer to non-GAAP financial measures, we reconcile to the GAAP in the slides and in the press release, both of which are posted on the 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 statement. A description of the factors that may cause such a variance is included in the Safe Harbor language, in our most recent 10-K and in today's press release.

For today's call, I'll walk through a brief review of the financial results. Hugh will then take a deeper look at where we stand on our overall strategy in this fiscal year, and how that informs 2012. Finally, Pierre will focus on the guidance and the translation of that strategy to our financial outlook.

For the financial review, I'll anchor off our guidance update, which starts on Slide 4. For ongoing EPS, we've stepped up the full year guidance range to a new range of $2.84 to $2.88. That translates to ongoing earnings growth of between 17% to more than 19% over last year. That means against our target to re-establish momentum with mid-teens earnings growth, we now anticipate delivering ongoing growth in the high teens this year. That step up also flows through our free cash flow outlook where we've raised our guidance for the second time, with a revised full year outlook of $1.1 billion to $1.3 billion.

Pierre will go into greater detail on our overall guidance outlook and the drivers so I'll focus on a snapshot of the financial performance on Slide 5. The strength of the wrap up of the U.S. season in combination with the contribution across our businesses resulted in a better-than-expected third quarter and underscores the new growth expectations embedded in our guidance today. Q3 re-emerges as 1 of the most significant annual earnings drivers this year, with ongoing earnings per share at $1.26, compared with $0.81 in Q3 last year.

Looking at the detail, the starting point is Seeds and Genomics. In a critical quarter for the U.S. and for our Seed business, Seeds and Genomics gross profit increased more than 20% year-over-year. That keeps us on track for double-digit gross profit growth across the segment for the year, as each of our core Soybean, Corn and Cotton businesses have delivered double-digit gross profit growth in Q3 and for the year-to-date.

Corn Seeds and Traits gross profit is up 19% in the quarter and 10% for the year-to-date, reflecting growth across the globe in our Corn business in the absence of the 2010 restructuring items. Soybean Seeds and Traits gross profit increased 17% year-to-date, translating to an increase in gross profit margins of nearly 7 points to 66%. That reflects the mix benefit from Roundup Ready 2 Yield, as well as a portion related to benefits we're seeing this year, both from the lower cost of goods in the U.S. and the trade collection for Roundup Ready soybeans in Brazil, where the combination of strong yields and a healthy commodity price provide upsides on the royalties we collect through our value capture system there.

Following the trends from the first half of the year. Cotton Seeds and Traits continues to perform at the high end of our expectations, with gross profit growth more than 30% as cotton acreage rebounds and we see greater trade contribution from the U.S., India and Australia. Vegetable gross profit is effectively flat through the first 9 months. With this segment's largest quarter coming in the fourth, we began to see the positive product sales mix in the third quarter, and we expect that to continue resulting in full year growth.

Shifting now to Ag Productivity. This is our second quarter of reporting consolidated results for the Roundup, selective chemistry and lawn-and-garden businesses. Year-to-date, Ag Productivity has delivered a cumulative gross profit of $565 million. From a continuing business standpoint, the gross profit contribution comes from 2 sources. One of the most significant relative to our initial expectations is the contribution from our lawn-and-garden business, which is on pace for a second year of above historical profitability for us, despite wet weather this spring.

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