Monsanto (NYSE:MON) reported a promising first quarter with strong revenue increases and a profit, compared to a loss in last year's quarter.The agricultural company, which has been in transition from its large herbicide business to a mostly seed and genomics one, continues this long-term direction.
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Monsanto's profits, which fell 47% last fiscal year, grew this quarter. Strong corn and soybean seed sales in Latin America pushed total company sales to $1.8 billion, compared to $1.7 billion in last year's quarter.The first quarter saw a 2 cent EPS versus a loss in last year's same quarter of 3 cents per diluted share.This beat analyst estimates by a penny. Net income this quarter was $6 million versus a loss of $19 million in the first quarter last year. CEO Hugh Grant noted the company was now trying to sell more seeds rather than getting the highest price. Monsanto lowered its prices after complaints and product disappointments, notably on its SmartStax corn seed developed with Dow Chemical (NYSE:DOW).
Seed Sales Rise
Monsanto's Roundup and other glyphosphate-based herbicides had sales of $523 million, a 3% rise. Roundup had previously suffered from intense competition by generics. Revenue from other farm chemicals fell. Seed sales accounted for $1.16 billion in revenue, of which corn seed sales accounted for $614 million, soybean seed revenue was $226 million and cotton revenue also increased.
The company's full year guidance for EPS remained in the $2.72 to $2.82 range. Free cash flow for fiscal 2011, according to the company, should be from $800 to $900 million. Free cash flow for the first quarter already produced $500 million compared to the use of $1.6 billion cash in last year's first quarter. Latin America remains strong and there is promising interest from US farmers in new seed and seed traits products.With a strong R & D pipeline, the company maintained it's well-positioned for growth.
Monsanto is fighting to regain market share losses to Dupont (NYSE:DD) while trying to boost its long-term profitability with its changeover from an herbicide company to a product mix dominated by seeds, including genetically modified organisms or GMOs. Monsanto and the seed companies face certain problems, however, that agricultural fertilizer companies such as Agrium (NYSE:AGU) don't.
A potentially large problem with GMOs is that they raise the stakes beyond, say, the relatively straightforward problems of crop and commodity cycles or competition problems with rival seed makers such as Dupont or Syngenta, AG (NYSE:SYT). The ongoing passionate opposition to GMOs in many quarters, including the anti-biotech activist group Center For Food Safety, showed itself in the recent federal court ruling against the use of Monsanto Ready Beets, a GMO combination sugar beet-herbicide seed. Genetically modified beet sugar accounts for 95% of beet sugar in the United States. The battle over genetically modified crops, seen by its proponents as a solution to increasing demand for U.S. and worldwide food, will no doubt continue.
Interested investors should monitor the controversy for and against genetically modified food. That said, the worldwide trend shows so far that farmers, though perhaps not consumers, have and will continue their strong interest in using GMOs. This is a deeply emotional issue along the lines of tobacco, alternative energy and environmental beliefs, so it will continue to be volatile.
Though this could change, it looks as though the trend toward GMO use will remain intact or prevail. If so, Monsanto's fortunes are poised as a company on the front lines to benefit heavily in the long-term. We're talking about several years or even decades. The world's hunger for food will feed Monsanto's business. (For related reading, also check out Agriculture Plays In 2011.)
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