Monsanto Co. (MON, Financial) posted strong first-quarter results for fiscal 2017 on Thursday, returning to profitability after battling a multiyear decline in the prices of corn, soybeans and other major crops.
The price decline also affected farmers as the lower prices led to dwindling incomes and sparked a series of mergers between global seed and crop chemical businesses, one of which was Monsanto.
Monsanto agreed to merge with rival Bayer AG (BAYRY, Financial) in September. The deal was approved by shareholders in December and is expected to close by the end of the year. Monsanto Chairman and CEO Hugh Grant expressed his gratitude to shareholders and others for their support of the merger.
“We expect the combination with Bayer to amplify the rate of innovation faster than either company could achieve alone, which will be critical in helping to increase grower productivity to meet projected demand in the decades ahead,” Grant said.
The Missouri-based seed and pesticide provider attributed the higher-than-expected profits to the development of corn planting in South America and currency shifts.
For the quarter, seed revenue climbed by nearly one-third due to a 25% increase in the number of acres planted with corn in Argentina and a 10% increase in Brazil. The strengthening Brazilian real gave Monsanto an additional boost. The company witnessed a 50% increase in soybean gross profit during the quarter as well.
Monsanto reported higher earnings per share for the quarter as compared to last year. The EPS on an as-reported basis was 7 cents, which included 19 cents of pending Bayer transaction-related costs. EPS on an ongoing basis was 21 cents, a significant increase from the previous year’s ongoing loss of 11 cents. According to the company, these improvements were driven by the growth in the South American business and currency effects.
Net sales for the quarter were $2.7 billion, an increase from $2.2 billion in the same quarter a year ago. Gross profit increased to $1.3 billion compared to $900 million a year ago. Monsanto reported net income of $29 million, an increase from last year’s net loss of $253 million.
The company guided full-year as-reported EPS of $3.97 to $4.95 and reiterated its ongoing business EPS forecast of $4.50 to $4.90 for full-year 2017.
Among the gurus invested in Monsanto, PRIMECAP Management (Trades, Portfolio) is the largest shareholder with 2.5% of outstanding shares. This represents 1.14% of its total assets managed. Frank Sands (Trades, Portfolio) holds the second-largest position. In all, 20 gurus hold a position in Monsanto.
Monsanto has a market cap of $46.4 billion; its shares traded around $105.89 Friday with a price-earnings (P/E) ratio of 34.4, a price-book (P/B) ratio of 10.23 and a price-sales (P/S) ratio of 3.5.
Disclosure: I do not own stock in any companies mentioned in the article.
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