Monsanto's Corn Business Grows Strong Profits In Q1

GC is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Monsanto's (NYSE: MON) corn seeds & genomics business germinated and grew strong profits in the company's first operating quarter of its fiscal 2013.  Revenue in the corn seeds and genomics business surged 27 percent compared to the same quarter a year ago and accounted for most of the nearly 21 percent surge in  revenues, which totaled $2.94 billion in the quarter compared to $2.44 billion a year ago.

Seeds & Genomics

Seeds & genomics revenues reached $1.75 billion, a 14 percent increase over a year ago. Notably, the corn & seed traits business was the sole contributor to revenue growth. Soybeans, cotton, vegetable  and other seed and traits were all down year over year.

Driving the growth in corn revenues in Q1 was a strong performance in South America. The earlier growing season in South America saw drought decimate both the corn and soybean crops. A summer drought in the US saw global supplies of corn and soybeans dwindle further and this caused prices to soar to all time highs. The high prices created a strong incentive for South American farmers to maximize corn and soybean acreage again this year.

In fact, corn has pollinated almost all of Monsanto's revenue growth in this operating segment over the last three years as it is the only seed and trait business showing significant growth over that time period.

Revenues in the seed & genomics business are largely determined by acres planted for a given crop.  In 2012 corn acres planted in the US  total 96 million acres, a five percent increase over the previous year and the most acres planted since 1937. Early estimates for 2013 are   around 99 million acres, which explains the 42.3 percent year over year rise in the company's order book to a whopping $2.8B. During the  earnings conference call the company stated that while this sends a strong signal about intent, until the seeds are in the ground it's not a done deal. Wise words indeed considering that the number of acres planted in the US will depend in large part South American corn production and how that affects global prices as we move towards spring planting in the US.

Agricultural Productivity

The agricultural productivity segment has seen another strong Q1 with revenues growing 34.5 percent compared to the same period last year and nearly doubling since the company's 2011 fiscal year.

The company indicated that it benefited from a favorable marketplace, which lifted the business in the near term and that it remains focused on its strategy for its Roundup® products. 

When I reported on the third quarter of the company's fiscal 2012 in an article entitled, "Monsanto Q3 Earnings Strong, Q4 May Provide Buying Opportunity", I wrote the following about a possible reaction by the stock to company's Q4 earning announcement:

"Monsanto's stock has traded near its 52-week lows in the last 3 calendar years between September 30th - October 30th, which has coincided with its Q4 earnings release and its annual 10-K filing a few weeks later. In 2012 the stock has traded as low as $69.89 a share. Just because this has occurred for 3 consecutive years does not mean it will happen in the future. However, with the company posting a larger 4th quarter loss than it has in the last 3 years it may create an opportunity worth waiting for."

The company reported Q4 earnings on October 3. By November 14 the stock did in fact reach a low of $83.84, which was the lowest price the stock traded at during the quarter before rebounding to a recent closing price of $98.45.

At 22 times earnings the stock seems a bit pricey compared to rival Syngenta (NYSE: SYT), which is only trading at roughly 17 times next years estimated earnings.  Syngenta is also trading at a lower price to sales and price to book based on the trailing twelve months. Over the last 45 days Monsanto's stock's been moving in near lock step with the S&P 500 with a simple correlation of 0.86. I expect that market performance to continue until a new catalyst emerges. What's going to decide which direction this stock ultimately heads in is the number of corn acres farmers decide to plant in the spring.


Neither The Mays Report or G C Mays has a position in any stocks mentioned. G C Mays does own bear credit spreads in March 2013 corn & soybean contracts. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure