Monsanto Company (MON)

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Monsanto (MON)

Q1 2012 Earnings Call

January 05, 2012 9:30 am ET

Executives

Robert T. Fraley - Chief Technology Officer and Executive Vice President

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

Analysts

Elaine Yip - Crédit Suisse AG, Research Division

Michael Picken - Cleveland Research Company

P.J. Juvekar - Citigroup Inc, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Robert Koort - Goldman Sachs Group Inc., Research Division

Frank J. Mitsch - Wells Fargo Securities, LLC, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Michael E. Cox - Piper Jaffray Companies, Research Division

Andrew W. Cash - UBS Investment Bank, Research Division

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Vincent Andrews - Morgan Stanley, Research Division

Presentation

Operator

Greetings and welcome to the First Quarter 2012 Monsanto Company Earnings Conference Call and R&D Pipeline Update. [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 Company. Thank you, sir. You may begin.

Bryan Hurley

Thank you, Dan, and good morning to everyone on the line. Thanks for joining Monsanto's First Quarter Earnings Call. I'm joined this morning by Hugh Grant, our Chairman and CEO; Pierre Courduroux; our CFO; as well as Robb Fraley, our Chief Technology Officer. Also joining me are Manny Cruz and Bryan Corkal, 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, both on 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 to our website.

This call will include statements concerning future events and financial risks. 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.

Today's an extended conference call that features the annual review of our R&D pipeline results with Robb. Before we cover that, Pierre will walk you through the quarterly financial results and our guidance outlook. Then, Hugh will cover the strategic checkpoint, including the U.S. order outlook.

So with that, let me hand the time over to Pierre to start us with the financial review.

Pierre Courduroux

Thanks, Bryan, and good morning to everybody on the line. The first quarter results we reported today reflect better-than-expected performance from our Latin American business. They also reflect some timing benefits from our Australian cotton business and some early positives from the U.S. These results were even better than our revised quarterly guidance of a month ago. With these strong results in hand and an additional month of data on our business outlook, it gives me the confidence to point to the upper end of our original EPS range for the full year, even at this early point in the season.

Before we go into the details of the financial results, let me place the first quarter in a more precise perspective. First, we are, of course, very pleased with our first quarter results, as they confirm our emerging opportunity from Latin America, especially in corn. Compared with last year, we grew ongoing EPS by $0.20 this quarter. This is strong growth at this early point, and it is consistent with our plan that considers delivering 60% of our full year gross profit growth from our international business.

But with less than 10% of our expected total full year earnings, the first quarter is still a small quarter. I personally believe in a proven approach to updating guidance, making sure the projections we communicate are backed by solid data points in the business. Today, with the strong results we've seen through December and the positive outlook coming out of our U.S. order book, we have greater clarity that gives us the confidence to take our full year EPS guidance to the upper half of the previous range. But with the U.S. season still ahead of us, and the reality that there's volatility in the broader economic environment, we will not get ahead of the business. Against that backdrop, I feel good about translating the early strengths in our business to full year performance.

Let me now move from that overview to the specifics of our financial results on Slide 4. Ongoing earnings per share was $0.23, which was ahead of our quarterly guidance, but in line with our expectation for a more significant first quarter. That compares with ongoing EPS of $0.03 in the first quarter of last year. As expected, the most important driver is the growth in the Seeds and Genomics. Sales and gross profit both increased more than 30%. And there's really 2 key factors driving that change. One is the core business driver and the other as an element of timing.

The first and biggest business driver is Latin America. The Seed business delivered at the high end of our expectations and you can see this in our Corn Seed and Traits numbers where quarterly gross profit was up almost 60% relative to last year. This growth was driven by the mixed benefit that came from significant trade expansion and by volume growth in both Brazil and Argentina. And that year-over-year gain flows very nicely through to the margins, where the Corn Seeds and Traits gross profit as a percent of sales came in at almost 60% compared with 55% in the prior year.

The second factor of growth revolves around cotton, where we saw a quarterly uptick in gross profit from our Australian business. As last year, the total planted acreage in the high-value cotton market in Australia stands at historical highs as the acres have rebounded following several years of drought. And in addition to the business performance, roughly $0.04 in cotton EPS reflect a pure timing shift in this business.

In Australia, growers have the option of either buying the technology upfront or following harvest based on yield. This year, more farmers chose to buy upfront rather than after harvest, and this shifts those $0.04 from the fourth quarter of 2012 into this first quarter.

For the other crops, Q1 is a small quarter. In soybeans, we saw some gross profit contribution as the final royalties came through the point of delivery system in Brazil. But we also saw the vegetable gross profit decline in the quarter due to some softness in the higher value vegetable market in Europe, as well as some timing shift in the Americas.

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