Monsanto Company (MON)

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Monsanto Company (MON)

Q4 2009 Earnings Call

October 7, 2009 9:30 am ET


Hugh Grant – President & CEO

Carl Casale – EVP & CFO

Terrell Crews – EVP, CEO Vegetable Business

Scarlett Foster – VP IR


Jeff Zekauskas - JPMorgan

P.J. Juvekar - Citigroup

Kevin McCarthy - Bank of America Merrill Lynch

Frank Mitsch - BB&T Capital Markets

Laurence Alexander - Jefferies & Co.

Don Carson - UBS

Robert Koort - Goldman Sachs

Mark Connelly – Sterne, Agee

Vincent Andrews - Morgan Stanley

Mike Judd - Greenwich Consultants

Bill Young – ChemSpeak

Mark Gulley - Soleil Securities Group



Greetings and welcome to the fourth quarter 2009 Monsanto Company earnings conference call. (Operator Instructions) It is now my pleasure to introduce your host Scarlett Foster, Vice President Investor Relations for Monsanto.

Scarlett Foster

Good morning to everybody on the line. I’d like to welcome you to Monsanto’s fourth quarter earnings conference call. I’m joined this morning by Hugh Grant, our Chairman and CEO; and Carl Casale our CFO. Also with me are Manny Crews, Wilma [Candrew], and Ruben [Maya], my colleagues in Investor Relations.

Before we begin I’d like to remind you that we’re webcasting this call. You can access it at Monsanto’s website at 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 information 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 10-Q and in 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 in the slides and in the earnings press release.

And has been our practice, we also have published today the final numbers for our biotech trade acreage penetration by crop and by country.

Our conversation today is really focused on two areas. First we need to outline how we will grow our seeds and traits 13% to 15% in 2010 with the associated costs and complexities of launching two new products on a scale not seen before on farms. Carl will focus here along with the financial guidance for 2010.

Second we need to set out the milestones that will demonstrate our ability to deliver on our 2012 commitments. Hugh will address this area driven by grower preference for our seeds and traits which anchors our commitment to double gross profit in 2012.

In the longer-term context, fiscal year 2009 was a sign of the decade to come. Grower adoption of our seeds and traits created the lion share of our growth accounting for over 65% of total gross profit, growing at a 17% rate with a nearly one percentage point gross margin lift, all while we prepared to launch two game changing technologies.

Roundup gross profit declined 7% and the business has now been repositioned in the marketplace for 2010. We’ve defined a clear path to optimizing Roundup gross profit at the $1 billion target by 2012 and at that level, the entire Ag productivity segment would be only 15% of total company gross profit.

Slide four allows us to take a slightly more detailed view of the fourth quarter and full year, and the reconciliation at the end of the slide deck and in the press release provide you with the bridge from as reported to ongoing earnings.

I would note for you that the restructuring charges in the fourth quarter are reflected both in cost of goods sold at $45 million and as an expense line item of $361 million, both pre-tax. The net after tax effect is $0.53 per share in the fourth quarter and $0.52 per share for the full year.

Turning to the financial effect of our operations in the quarter total company net sales and gross profit declined 8% and 11% respectively. Somewhat better results then we originally forecast in seeds and traits coupled with significant one-time cost saving measures put in place for the last four months of the fiscal year helped bridge the forecasted gross profit gap in Roundup.

As a result ongoing EPS was $0.02 rather then our typical seasonal loss in the fourth quarter. For the full year company net sales and gross profit were up 3% and 9% respectively. Strong grower preference for our seeds and traits coupled with the extraordinary actions we took to reduce expenses to offset the Roundup gross profit decline resulted in ongoing EPS growth of 21% at $4.41.

The full year also reflected the mid point of our anticipated tax rate of 28% to 29%. If you refer to slide five, full year gross profit for seeds and traits of $4.5 billion was larger then Monsanto’s entire gross profit in 2007, speaking to the rapid adoption of our products in two short years.

Our corn platform set the pace with gross profit growth of 20% with margins expanding by nearly two percentage points to 63%. The pacesetter for corn was the US business where gross profit grew over 30% as triple-stack corn accounted for more than 70% of the growers’ choice from the DEKALB and American Seeds portfolios.

That value more then offset flat market share in both brands and less aggressive sales of triple-stack products by our licensees. Market share in Brazil and Argentina flourished grower use of our new hybrids. Share gains of one and three points respectively established the base for the future ramp of trait penetration in Latin America.

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