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Agribusiness ETFs in Focus on Monsanto's Mixed Q1 Earnings - ETF News And Commentary

On January 7, the agro giant Monsanto Company ( MON ) came up with mixed results for 1Q15 with earnings beating the Zacks Consensus Estimate by a wide margin but revenues falling short of estimates. This provider of agricultural products has, however, reiterated its full-year earnings per share and free cash flow outlook, which probably soothed investors' nerves and pushed up its shares, though modestly, in the session following the news release.

1Q Earnings in Focus

The company reported adjusted earnings of $0.47 per share, down 29.9% from the year-ago quarter, but 38.2% ahead of the Zacks Consensus Estimate. First-quarter revenues of $2.87 billion, down 8.7% year over year, fell shy of the Zacks Consensus Estimate of $2.96 billion.

While quarterly results were not great on the whole, the reiteration of the guidance kept investors' hopes alive. For fiscal 2015, Monsanto maintained its adjusted earnings guidance in the range of $5.75−$6.00 per share. The company also maintained free cash flow expectation in the range of $2 billion to $2.2 billion for the full fiscal year.

For the upcoming quarter, the company anticipates adjusted earnings per share to be down nearly 5−10% year over year due to lower U.S. corn acres. This indicates that the yearly earnings growth will be back-end loaded.

ETF Impact

Thanks to a decent quarterly performance and outlook, shares of Monsanto nudged up 1.3% in the key trading session on Wednesday. The stock also added 0.2% after hours (read: Agribusiness ETFs in Focus on Deere Earnings Beat and Weak Outlook ).

Monsanto has a sizable exposure in various agricultural and materials ETFs like MSCI Global Agriculture Producers ETF ( VEGI ), Materials Select Sector SPDR ( XLB ), iShares U.S. Basic Materials ETF ( IYM ) and Market Vectors-Agribusiness ETF ( MOO ). This suggests that the performance of these funds is highly dependent on Monsanto. Let's see how these fare following Monsanto's earnings:

VEGI in Focus

This global ETF looks to track the MSCI ACWI Select Agriculture Producers Investable Market Index and invests about $41.5 million of assets. In its 130-stock portfolio, the in-focus Monsanto takes the top spot with 15.96% allocation.

Sector-wise, materials take the top position with 50.30% share followed by food and beverages (20.4%). Country-wise, the U.S. accounts for about half of the portfolio while Canada (11.6%) and Switzerland (7.7%) occupy the next positions.

The ETF charges about 39 bps in fees a year and has a dividend yield of 2.05%. The fund lost about 1.3% in the last one year (as of January 7, 2015) while it added 0.9% in the key trading session.

XLB in Focus

Investors looking to tap the rise in Monsanto and the wider sector in ETF form can also invest in XLB. Here, Monsanto holds the second position with 10.02% of assets. The fund's asset base of $2.82 billion is spread across 29 securities.

The fund appears to be quite popular as indicated by its trading volume of more than 8 million shares a day. XLB charges a fee of 16 basis points annually. The fund had recorded a gain of 5.3% in the last one year and was up 1.13% in the key session.

IYM in Focus

This fund follows the Dow Jones U.S. Basic Materials Index, holding 59 stocks in its basket. Like XLB, here also Monsanto takes the second spot at 9.2%. From a sector perspective, Chemicals make up for 77% of assets.

The ETF is also popular, with about $613.5 million in AUM while its expense ratio comes in at 0.43%. The fund delivered a flat performance annually while it has added about 0.8% in the key trading session.

MOO in Focus

Like VEGI, this fund provides exposure to the global agribusiness industry by tracking the Market Vectors Global Agribusiness Index. It is a pretty popular choice in the space with AUM of over $1.4 billion. The ETF charges 55 bps in annual fees (read: Reap Long Term Returns from These Agribusiness ETFs ).

In total, the fund holds 58 securities in its basket. Of these firms, the stock under consideration - Monsanto -takes the second place yet again, making up roughly 7.99% of the total assets. In terms of country allocation, U.S. (51.1%), Canada (10.3%) and Switzerland (7.4%) occupy the top spots. The fund added just 1% in the last one year and 1.3% on January 7.

Bottom Line

As evident by the portfolio pattern, most of the ETFs in this space have a huge holding in MON, suggesting that the returns in this stock will drive the funds in the space. Despite a tough agri-business backdrop due to a benign weather outlook and an accelerated crop plantation which exceeded demand, Monsanto's ability to score on the bottom line is debatable (read: Will the Commodity Slump Weigh on Agribusiness ETFs? ).

However, investors should note that the agricultural space is somewhat volatile and depends largely on weather conditions. Any adverse weather condition might open up an opportunity to buy the agribusiness ETFs. Moreover, the company's outlook is still optimistic.

Given this, investors could definitely take advantage of the potential growth momentum in Monsanto and the evolving agricultural space via the aforementioned ETFs.

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MONSANTO CO-NEW (MON): Free Stock Analysis Report

MKT VEC-AGRIBUS (MOO): ETF Research Reports

ISHARS-M GL AGR (VEGI): ETF Research Reports

ISHARS-US BA MA (IYM): ETF Research Reports

SPDR-MATLS SELS (XLB): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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