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Monsanto Q4 Loss Wider than Estimates; FY16 Outlook Weak

Monsanto CompanyMON reported disappointing results for fourth-quarter fiscal 2015 (ended Aug 31, 2015). The company's bottom line came in at loss of 19 cents per share, wider than the Zacks Consensus Estimate of a loss of 1 cent. However, the result compared favorably with the year-ago tally of 27 cents of loss per share.

For fiscal 2015, Monsanto's earnings came in at $5.73 per share, up 9.6% from $5.23 recorded in fiscal 2014. The results included a 7% adverse impact from unfavorable foreign currency translation. However, the bottom line lagged the Zacks Consensus Estimate of $5.77 per share.

Revenues

In the fiscal fourth quarter, Monsanto generated revenues of $2,355 million, down 10.5% year over year and below the Zacks Consensus Estimate of $2,889 million.

On a segmental basis, revenues from Seeds and Genomics decreased 9.1% year over year to $1,251 million. Sales were weak for seeds and traits businesses of corn, soybean and cotton as well as for vegetable seeds.

Revenues from Agricultural Productivity declined 12% year over year to $1,104 million.

For fiscal 2015, Monsanto's revenues totaled $15,001 million, down 5.4% year over year and short of the Zacks Consensus Estimate of $15,434 million.

Cost & Margins

Monsanto's cost of sales fell 9.9% year over year, representing 53.5% of total revenue versus 53.1% in the year-ago quarter. Gross margin fell 40 basis points to 46.5%.

Operating expenses were $1,070 million, down 21.2% year over year, accounting for 45.4% of total revenue. Interest expense increased 45.3% to $109 million.

Balance Sheet and Cash Flow

Exiting fiscal fourth-quarter 2015, Monsanto's cash and cash equivalents increased to $3.7 billion from $1.2 billion at the end of fiscal third-quarter 2015. Long-term debt remained stable sequentially at $8.4 billion.

In fiscal 2015, Monsanto generated cash of $3.11 billion from its operating activities, up from $3.05 billion recorded a year ago. Capital spending declined 3.8% year over year to $967 million. Dividend payments in the fiscal year totaled $938 million.

Free cash flow soared to $2.1 billion from $959 million in fiscal 2014.

Outlook: For fiscal 2016, Monsanto anticipates difficult operating conditions to impact its results. Earnings are predicted within $5.10−$5.60 per share, down from $5.73 earned in fiscal 2015. The year-ago result included impact of 35−40 cents per share from unfavorable currency movements, 50−85 cents per share from pricing decline in Agricultural Productivity segment and 20−30 cents per share from higher expenses.

Monsanto anticipates gross profit growth in mid-to-high single digits for the Seed and Genomics segment; while predicting gross profit within $900 million to $1.1 billion for the Agricultural Productivity segment.

Cash flow from operating activities is projected within $1.6−$1.8 billion; while cash required for investing activities is expected in a range of $1.1−$1.3 billion. Free cash is projected within $2.0−$2.2 billion. In addition, the company announced a new $3-billion share buyback program.

Monsanto also initiated certain restructuring actions for controlling costs and improving growth opportunities. In the initial phase, the company anticipates annual savings of $275−$300 million by fiscal 2017. Costs for this period will likely amount to $850−$900 million. Further, additional savings of $100 million are anticipated from reduction in operating expenditure by the company.

By fiscal 2019, Monsanto plans to more than double its fiscal 2014 earnings per share, including 20% annual growth starting from fiscal 2017.

With a $41.2-billion market capitalization, Monsanto currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include Koppers Holdings Inc. KOP , Rentech Nitrogen Partners, L.P. RNF and Marrone Bio Innovations, Inc. MBII . While both Koppers Holdings and Rentech Nitrogen Partners sport a Zacks Rank #1 (Strong Buy) while Marrone Bio Innovations carries a Zacks Rank #2 (Buy).

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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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