OREANDA-NEWS. Monsanto Company (NYSE: MON) today announced fiscal year 2016 results, delivering above the company’s most recent ongoing earnings per share guidance for the year. The company expects to grow earnings per share (EPS) into fiscal year 2017 and beyond by building upon the achievements of fiscal year 2016, together with continued strong penetration of key soybean traits, global corn germplasm upgrades and spend discipline.

         
    Fourth Quarter   Fiscal Year
($ in millions, except per share amounts)   2016   2015   2016   2015
Net Sales by Segment                
Corn seed and traits   $ 801     $ 598     $ 5,825     $ 5,953  
Soybean seed and traits   249     162     2,162     2,276  
Cotton seed and traits   70     39     440     523  
Vegetable seeds   275     257     801     816  
All other crops seeds and traits   170     195     760     675  
TOTAL Seeds and Genomics   $ 1,565     $ 1,251     $ 9,988     $ 10,243  
                 
Agricultural productivity   $ 997     $ 1,104     $ 3,514     $ 4,758  
TOTAL Agricultural Productivity   $ 997     $ 1,104     $ 3,514     $ 4,758  
                 
TOTAL Net Sales   $ 2,562     $ 2,355     $ 13,502     $ 15,001  
                 
Gross Profit   $ 1,138     $ 996     $ 7,017     $ 8,182  
                 
Operating Expenses   $ 1,403     $ 1,556     $ 4,642     $ 4,659  
Interest Expense – Net   $ 81     $ 109     $ 362     $ 328  
Other (Income) Expense – Net   $ (138 )   $ 15     $ 22     $ 34  
Net Income (Loss) Attributable to Monsanto Company   $ (191 )   $ (495 )   $ 1,336     $ 2,314  
                 
Diluted Earnings (Loss) per Share   $ (0.44 )   $ (1.06 )   $ 2.99     $ 4.81  
Items Affecting Comparability – EPS Impact                
Restructuring Charges   0.09     0.72     0.59     0.70  
Environmental and Litigation Matters   0.34     0.06     0.38     0.11  
SEC Settlement Matters   —     0.10     —     0.17  
Argentine-Related Tax Matters   0.08     —     0.56     —  
Income from Discontinued Operations   —     (0.01 )   (0.04 )   (0.06 )
Diluted Earnings (Loss) per Share from Ongoing Business (For the definition of ongoing EPS, see note 1.)   $ 0.07     $ (0.19 )   $ 4.48     $ 5.73  
Effective Tax Rate   — %   27 %   35 %   27 %
                         
           
      Fourth Quarter   Fiscal Year
Comparison as a Percent of Net Sales:   2016   2015   2016   2015
  Gross profit   44 %   42 %   52 %   55 %
  Selling, general and administrative expenses   38 %   31 %   21 %   18 %
  Research and development expenses   16 %   18 %   11 %   11 %
  (Loss) income from continuing operations before income taxes   (8 )%   (29 )%   15 %   21 %
  Net (loss) income attributable to Monsanto Company   (7 )%   (21 )%   10 %   15 %
                           

Comment from Hugh Grant, chairman and chief executive officer for Monsanto:

“Despite challenges to our business in fiscal year 2016, we delivered on the drivers that position Monsanto for the return to EPS growth in the year ahead. To see it through, our fiscal year 2017 priorities are focused on delivering on the operational plan and key business milestones for the year, while also executing on the necessary steps to close the deal with Bayer. Ultimately, we believe that combining with Bayer represents the most compelling value for our shareowners, with the most certainty through the all-cash consideration.”

Results of Operations

Monsanto reported net sales of $2.6 billion for the fourth quarter of fiscal year 2016. Net sales for the full fiscal year were $13.5 billion. Despite strong penetration of Intacta RR2 PRO technology and record U.S. corn seed volumes, full-year net sales were down year-over-year, due primarily to currency headwinds and price declines in agricultural productivity.

Seeds and Genomics segment net sales were $1.6 billion for the quarter. For the fiscal year, net sales for the Seeds and Genomics segment were $10.0 billion. Agricultural Productivity segment net sales were $997 million for the quarter. Net sales for the Agricultural Productivity segment for the fiscal year were $3.5 billion.

The company's total operating expenses were basically flat year-over-year on an as-reported basis. Selling, General & Administrative expenses increased, primarily due to the $280 million in PCB litigation settlement costs associated with a group of legacy PCB personal injury claims. In September, after diligent efforts, the company reached an agreement to potentially settle all the legacy PCB personal injury claims, including those on appeal. The settlement and final payment amount will be contingent upon the level of claimant participation, which the company anticipates will be met at a very high level. This increase was partially offset by the absence of the SEC settlement expense in the prior year. R&D expenses declined slightly due to currency and transformation cost savings. Finally, restructuring charges were $297 million in fiscal year 2016 compared to $393 million in fiscal year 2015 as a result of the 2015 Restructuring Plan.

Monsanto reported a net loss of $191 million in the fourth quarter of fiscal year 2016, compared with a reported net loss of $495 million in the same period last year. Net income attributable to Monsanto for fiscal year 2016 was approximately $1.3 billion compared to net income of $2.3 billion attributable to Monsanto in fiscal year 2015.

The company's fiscal year 2016 EPS on an as-reported basis was $2.99, reflecting costs associated with restructuring actions, Argentine-related tax matters, environmental and litigation matters and income from discontinued operations. On an ongoing basis, this translated to $4.48.

For the fourth quarter, the company reported $0.44 loss per share on an as-reported basis which translated to $0.07 earnings per share on an ongoing basis. The as-reported loss includes environmental and litigation matters, restructuring expenses and Argentine-related tax matters. The ongoing EPS results were better than fiscal year 2015, driven by the $157 million gain from the formation of the sorghum joint venture with Remington, a strong start in South America and lower seed returns in the U.S. (For a reconciliation of as-reported to ongoing EPS, see page 1 and note 1.)

Cash Flow

For fiscal year 2016, net cash provided by operating activities was $2.6 billion, compared with $3.1 billion in fiscal year 2015. Net cash required by investing activities was $864 million in fiscal year 2016, compared with $1.0 billion in fiscal year 2015. Net cash required by financing activities was $3.7 billion in fiscal year 2016, compared with $430 million in fiscal year 2015, reflecting the completion of a $3.0 billion accelerated share repurchase in fiscal year 2016. The company delivered better-than-expected free cash flow of $1.7 billion in fiscal year 2016 which was $100 million above the high end of the company’s expected range compared to $2.1 billion in free cash flow for fiscal year 2015. The decline in fiscal year 2016 free cash flow is a result of lower net income and an increase in trade receivables, primarily due to a decrease in sales of receivables to third parties, partially offset by lower seed inventories and the strong prepay volume in South America in the fourth quarter for Intacta RR2 PRO. (For a reconciliation of free cash flow, see note 1.)

Outlook

The company noted that its continued focus on return on innovation and cost discipline in 2016 sets up a strong base for growth in 2017, where it expects strong cash flows and growth in EPS. Anticipated gross profit growth in the Seeds and Genomics segment is expected to be driven by increased penetration of soybean technologies and improved soybean costs of goods sold.

For fiscal year 2017, Monsanto expects to achieve EPS of $3.83 to $4.35 on an as-reported basis. This includes an estimated $0.20 to $0.24 in anticipated restructuring charges, $0.10 to $0.13 in Argentine-related tax matters and $0.27 to $0.34 in proposed Bayer transaction related costs. On an ongoing basis, this translates into an EPS estimate of $4.50 to $4.90. These estimates assume currencies are relatively stable year-over-year. (For a reconciliation of as-reported to ongoing EPS, see note 1.)

The company expects net cash provided by operating activities to be $2.4 billion to $2.8 billion, and net cash required by investing activities to be approximately $1.0 billion to $1.2 billion, assuming the successful sale of the Precision Planting equipment business and a meaningful first year investment in its dicamba production facility. All together, this translates into expected free cash flow of $1.4 to $1.6 billion. (For a reconciliation of free cash flow, see note 1.)

In fiscal year 2017, consistent with its priorities for the year, Monsanto remains focused on the following key areas:

  • Growth from Core Seeds and Genomics Segment: The company expects Seeds and Genomics segment gross profit to increase in the mid-single digits as a percent year-over-year, with soybean gross profit alone expected to grow by more than 20 percent. This is expected to be primarily driven by increases in Intacta RR2 PRO and Roundup Ready 2 Xtend soybean penetration and related trait fees, and an anticipated significant reduction in the cost of goods sold related to the launch of Roundup Ready 2 Xtend soybeans. Growth in corn is expected to come from global genetic share gains and germplasm mix lift in local currency. Finally, strategic licensing opportunities are expected to provide an overall contribution of approximately $200 million in 2017, with roughly $60 million assumed in this segment’s gross profit and in the latter half of the fiscal year.
  • Strategic Management of Agricultural Productivity Segment: The company expects the Agricultural Productivity segment to deliver $900 million to $1 billion of gross profit, as it remains consistent with its strategy to price slightly above generics. The company also plans to maintain its emphasis on cost discipline and a focus on the construction of the new dicamba facility.
  • Business Transformation and Strategic Spend Discipline: The company’s restructuring and cost-savings plans are on-track, with an opportunity to deliver approximately $380 million in annual savings in operating expenses and cost of goods sold at the close of 2017. However, overall operating expenses in 2017 are expected to increase slightly with inflation and the costs associated with the return to growth. This is expected to more than offset the savings from restructuring and cost-savings plans.
  • Combination with Bayer: The company reiterated confidence in the timelines to close the deal with Bayer by the end of calendar year 2017.

“We are entering a new era in agriculture, where growers are demanding new solutions and technologies to be more profitable and more sustainable,” Grant said. “We believe that combining with Bayer secures our shared vision to provide a wide set of solutions to meet these demands and feed a growing world.”

         

Seeds and Genomics Segment Detail
         
($ in millions)   Net Sales  

Gross Profit (A)
    Fourth Quarter   Fiscal Year   Fourth Quarter   Fiscal Year
Seeds and Genomics   2016   2015   2016   2015   2016   2015   2016   2015
Corn Seed and Traits   $ 801     $ 598     $ 5,825     $ 5,953     $ 387     $ 208     $ 3,450     $ 3,557
Soybean Seed and Traits   249     162     2,162     2,276     179     97     1,399     1,510
Cotton Seed and Traits   70     39     440     523     34     38     282     408
Vegetable Seeds   275     257     801     816     157     127     401     372
All Other Crops Seeds and Traits   170     195     760     675     112     134     542     430
TOTAL Seeds and Genomics   $ 1,565     $ 1,251     $ 9,988     $ 10,243     $ 869     $ 604     $ 6,074     $ 6,277
                                                               

(A) For the three months ended Aug. 31, 2016 and Aug. 31, 2015, the seeds and genomics gross profit includes a pretax restructuring charge totaling $13 million and $100 million, respectively, related to certain asset impairment charges, primarily in the corn ($9M and $65M, respectively) and vegetable ($2M and $28M, respectively) businesses, which is included in cost of goods sold. Fiscal year 2016 and 2015 seeds and genomics gross profit includes a pretax restructuring charge totaling $66 million and $100 million, respectively, related to certain asset impairment charges, primarily in the corn ($41M and $65M, respectively) and vegetable ($16M and $28M, respectively) businesses, which is included in cost of goods sold.
                                                               
     
($ in millions)   Earnings Before Interest & Taxes (EBIT)

 

   Fourth Quarter   Fiscal Year
Seeds and Genomics   2016   2015   2016   2015
EBIT (For a reconciliation of EBIT, see note 1.) (A)   $ 34     $ (773 )   $ 2,292     $ 2,206  
Unusual Items Affecting EBIT:                
EBIT from Restructuring Charges   (15 )   (481 )   (327 )   (481 )
EBIT from SEC Settlement Matters   (1 )   (38 )   2     (68 )
                         

(A) EBIT is defined as earnings (loss) before interest and taxes. Interest and taxes are recorded on a total company basis. We do not record these items at the segment level.
                         

The Seeds and Genomics segment consists of the global seeds and related traits business, biotechnology platforms and digital agriculture.

Seeds and Genomics segment sales in the fourth quarter were $1.6 billion. For fiscal year 2016, the company realized Seeds and Genomics segment net sales of $10.0 billion, which declined primarily due to unfavorable currency, higher discounting in corn in the U.S. and price declines in cotton in India as a result of new government regulations. This was partially offset by record U.S. corn seed volumes, the benefit from the alfalfa licensing deal with Forage Genetics and outstanding penetration of Intacta RR2 PRO technology.

In the area of digital agriculture, paid acre adoption of Climate FieldView rose to greater than 14 million acres in 2016 which directly reflects the value growers saw in the platform, with total platform acres at 95 million.

Monsanto sets the stage for EPS growth in fiscal year 2017 and beyond as the company expands its portfolio of integrated solutions for farmers.

In corn, the company expects overall gross profit growth from global price mix gains and continued momentum in South America. The company expects the potential for a greater than 25 percent corn acre growth in Argentina coupled with price increases planned across South America. All together, global germplasm mix lift, in local currency, is expected to be roughly flat to up low single-digits, in terms of percentages.

In soybeans, greater than 20 percent growth in gross profit, coupled with margin improvement, is expected year-over-year. For Intacta RR2 PRO, the company expects 45 to 55 million acres in South America in fiscal year 2017. For Roundup Ready 2 Xtend soybeans, the company has supply for more than 15 million acres in the U.S., and anticipates that the EPA approval for over-the-top use of dicamba is on the horizon. Finally, Monsanto expects Roundup Ready® Xtend Crop System costs of goods sold to decline significantly year-over-year.

Within the digital agriculture space, Climate FieldView’s new product enhancements and industry partnerships will help drive the expected 25 million paid acre adoption in 2017.

         

Agricultural Productivity Segment Detail
         

($ in millions)

   Net Sales  

Gross Profit (A)

 

   Fourth Quarter   Fiscal Year   Fourth Quarter   Fiscal Year
    2016   2015   2016   2015   2016   2015   2016   2015
Agricultural Productivity   $ 997     $ 1,104     $ 3,514     $ 4,758     $ 269     $ 392     $ 943     $

1,905
TOTAL Agricultural Productivity   $ 997     $ 1,104     $ 3,514     $ 4,758     $ 269     $ 392     $ 943     $ 1,905
                                                               

(A) In fiscal fourth quarter and fiscal year 2016, the agricultural productivity gross profit includes a pretax restructuring charge totaling $1 million related to certain asset impairment charges which is included in cost of goods sold.
                                                               
     

($ in millions)

   Earnings Before Interest & Taxes (EBIT)

 

   Fourth Quarter   Fiscal Year
Agricultural Productivity   2016   2015   2016   2015
EBIT (For a reconciliation of EBIT, see note 1.)(A)   $ (137 )   $ 196     $ 116     $ 1,294  
Unusual Items Affecting EBIT:                
EBIT from Discontinued Operations   3     8     27     45  
EBIT from Restructuring Charges   (6 )   (12 )   (37 )   (12 )
EBIT from Environmental and Litigation Matters   (245 )   (48 )   (273 )   (87 )
EBIT from SEC Settlement Matters   —     (7 )   1     (12 )
                         

(A) EBIT is defined as earnings (loss) before interest and taxes. Interest and taxes are recorded on a total company basis. We do not record these items at the segment level.
                         

The Agricultural Productivity segment consists of the crop protection products and lawn-and-garden herbicide products.

Segment sales for the quarter were $997 million. For the fiscal year, the segment delivered net sales of $3.5 billion. A decline of $1.2 billion in net sales year over year was primarily due to lower pricing for glyphosate-based herbicides, the absence of the $274 million licensing deal with Scotts that occurred in fiscal year 2015 and lower volumes.

Looking forward to fiscal year 2017, the company plans to maintain its emphasis on cost discipline and a focus on the construction of the new dicamba facility, as well as its strategy to price slightly above generics. This is expected to create another year of pricing headwinds. In addition, the company expects a $140 million benefit from strategic licensing agreements in gross profit for this segment, pending final transaction structures.

About Monsanto Company

Monsanto is committed to bringing a broad range of solutions to help nourish our growing world. We produce seeds for fruits, vegetables and key crops - such as corn, soybeans, and cotton - that help farmers have better harvests while using water and other important resources more efficiently. We work to find sustainable solutions for soil health, help farmers use data to improve farming practices and conserve natural resources, and provide crop protection products to minimize damage from pests and disease. Through programs and partnerships, we collaborate with farmers, researchers, nonprofit organizations, universities and others to help tackle some of the world’s biggest challenges.