Monsanto (MON) Misses Q4 EPS by 17c; Guides FY15 EPS Below Views

Monsanto (NYSE: MON) reported Q4 EPS of ($0.19), $0.17 worse than the analyst estimate of ($0.02). Revenue for the quarter came in at $2.36 billion versus the consensus estimate of $2.79 billion.

Monsanto sees FY2016 EPS of $5.10-$5.60, versus the consensus of $5.75.

The company projects free cash flow in the range of $1.6 billion to $1.8 billion for fiscal year 2016. The company expects net cash provided by operating activities to be $2.7 billion to $3.1 billion, and net cash required by investing activities to be approximately $1.1 billion to $1.3 billion. (For a reconciliation of free cash flow, see note 1.)

In fiscal year 2016, Monsanto remains focused on strategic execution and operational discipline as it delivers on several key priority areas to set the foundation for strong and sustainable earnings growth over the long-term:

• Growth from Core Seeds and Genomics Segment: The company expects mid-to-high single digit growth in gross profit, before estimated restructuring charges, from its core Seeds and Genomics segment in fiscal year 2016. This will be led by new global corn hybrid portfolio introductions, continued significant Intacta RR2 PRO™ adoption and additional licensing opportunities.
• Strategic Management of Agriculture Productivity Segment: The company expects the Agricultural Productivity segment to deliver $900 million to $1.1 billion of gross profit as the company plans to stay consistent with its strategy to maintain a slight premium over the generics.
• Strong Cash Generation and Balance Sheet: Monsanto also reiterated its commitment to its capital allocation strategy. Monsanto plans to enter into a new $3 billion accelerated share repurchase program under its current share repurchase authorization, as it progresses toward its targeted capital structure. The company plans to begin the new accelerated share repurchase program in the near-term and complete it sometime in the next six months.
• Business Transformation and Strategic Spend Discipline: Monsanto also announced plans for global restructuring actions to enhance competitiveness by delivering cost improvement and to support long-term growth. The changes are designed to transform and innovate the way the company operates resulting in a more agile and focused organization prepared to continue to lead the agriculture industry. Actions, in part, include streamlining and reprioritizing some commercial, enabling and R&D efforts, including the exit of the sugarcane business.The initial phase is expected to lead to annual savings of $275 to $300 million by the end of fiscal year 2017, at a total cost of approximately $850 to $900 million. The plans also include an expected separation of approximately 2,600 employees over the next 18-24 months. The company is developing further plans to reduce its operating spending by an additional $100 million, which would bring the total annual expected savings to potentially $400 million.

Continued progress toward these key milestones in fiscal year 2016 and a clear focus on operational discipline will set the foundation for expected rapid future growth. With this in mind, the company reiterated its confidence in delivering its five-year plan to more than double fiscal year 2014 ongoing earnings per share by 2019. This includes an expected return to more than 20 percent ongoing EPS growth starting in fiscal year 2017 as the current macro environment stabilizes. The primary drivers of growth in fiscal year 2017 and beyond are expected to include the return to mid-single digit corn germplasm mix lift globally, Intacta RR2 PRO™ soybeans penetration on the majority of the 100 million acres targeted and the Roundup Ready® Xtend Crop System well down the penetration path in cotton and soybeans across the Americas. The expected absence of several headwinds from fiscal year 2016, including currency headwinds, elevated cost of goods for corn and the Roundup Ready® Xtend soybean launch costs are expected to further enhance the growth, while generic glyphosate prices are expected to make a small, but steady recovery over time.

For earnings history and earnings-related data on Monsanto (MON) click here.

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