Monsanto Company (MON)

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Monsanto Company (MON)

F4Q2010 Earnings Call Transcript

October 6, 2010 9:30 am ET

Executives

Bryan Hurley – IR

Hugh Grant – Chairman, President and CEO

Carl Casale – EVP and CFO

Rob Fraley – EVP and Chief Technology Officer

Analysts

Vincent Andrews – Morgan Stanley

Jeff Zekauskas – JP Morgan

Kevin McCarthy – Bank of America

P.J. Juvekar – Citigroup

Laurence Alexander – Jefferies & Company

Robert Koort – Goldman Sachs

David Begleiter – Deutsche Bank

Don Carson – Susquehanna International Group

Presentation

Operator

Greetings and welcome to the fourth quarter 2010 Monsanto Company earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (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. Thank you for joining Monsanto’s fourth quarter earnings conference call. On our call this morning are Hugh Grant, our Chairman and CEO; Carl Casale, our CFO; and Rob Fraley, our Chief Technology Officer. Also joining me are Manny Cruz [ph] and Ruben Mella, my colleagues in Investor Relations.

Given the interest in our 2010 product performance and our 2011 guidance, Hugh will walk through our strategic approach and our status and Carl will take you through practical guidance. Before we begin, I'd like to remind you that we are webcasting this call. You can access the webcast and supporting slides at monsanto.com. The replay is also available at that address.

We are 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 have provided you with a reconciliation to the GAAP measures in the slides and in the press release, which are both posted on our website.

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 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 contained in our most recent 10-K and today's press release.

If you turn to slide four, I'll walk briefly through the core financial results for fiscal year 2010, but save the time for the substance of our outlook. For the full fiscal year, ongoing earnings per share were $2.14. Embedded in that $2.14 was a fourth quarter ongoing EPS loss of $0.09.

From a free cash flow perspective, our cash generation came in better than our guidance of $400 million to $500 million at $564 million. Fourth quarter collections came in stronger than we anticipated, which reflected the significant source of cash received as we wrapped up collections in our US business.

As we go through the financial performance, we can begin with the Roundup business. For the full fiscal year, Roundup generated $142 million in gross profit against our projected range of $50 million to $200 million. The fourth quarter for the Roundup business was defined by two issues that in turn drove the full year gross profit, notably, volume growth following our price reduction and resolution of key elements of outstanding supply agreements in the quarter. Including the Roundup GP contribution, our Ag productivity segment contributed gross profit of $548 million.

On the seeds and traits side, sales were up approximately 4% for the full fiscal year. Gross profit was up slightly, as the uplift we saw in sales was offset by the margin line on the margin line by the launch year COGS and the restructuring moves we’ve discussed previously. Carl will walk through more detail on seeds and traits, as we look at our 2011 guidance.

On the cost side of the ledger, we ended the year at a total SG&A expense of $2.06 billion, which was essentially the midpoint of our projected range, as we’ve institutionalized the savings from our restructuring. For the full fiscal year, our restructuring charges were $324 million, which included charges for the supplemental restructuring we announced in August.

The reported tax rate for the year was 25%. Excluding the impact of restructuring charges, the tax rate was 26%, which reflects the tax benefit we received from several discrete items. On an absolute dollar basis, these tax benefits were virtually the same as what we realized in fiscal year 2009. However, that absolute benefit applied to a lower earnings base magnified the percentage benefit of the tax rate.

In terms of cash deployment, we spent $532 million in the year on share repurchases, as we closed out our three-year $800 million program a year earlier than originally planned and initiated our new three-year $1 billion authorization in the fourth quarter. We also increased our dividend from $0.265 per share to $0.28 per share.

With that as background on 2010, let me give the time to Hugh.

Hugh Grant

Thanks very much, Bryan, and good morning. I appreciate your joining us for our call today. On the heels of fiscal year 2010, there is no doubt that we are looking forward to seeing the result of the changes that we have made in the new fiscal year. We’ve reset glyphosate pricing, costs and products, and we changed the seed strategy with more products at a wider range of price points.

With what we've done, I believe we’ve taken specs to allow our company to return to growth and create the opportunity in 2011 to demonstrate our mid-teens earnings growth. There will be no surprise that our corn business is a core component of our growth. And to address that meaningfully, we need to consider the US harvest. So I want to address harvest upfront, in particular the data that we have, what we don’t yet have, and how we think about that yield data.

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