Monsanto Company highlighted progress related to its FY18 business objectives on April 5, including the expected acres of Intacta RR2 Protm soybeans in South America and Roundup Ready 2 Xtend soybeans in the U.S.
The company also noted that results for its second quarter of fiscal year 2018 represented a solid performance, with as-reported earnings per share of $3.27 and $3.22 in ongoing earnings per share.
The company remains optimistic that its merger with Bayer will proceed with the required approvals secured within the second calendar quarter of 2018. Anti-trust approvals have been received from the European Commission, China and Brazil.
“Despite tough farm economics, we delivered a solid second quarter and are staying disciplined on near-term execution of the business,” said Hugh Grant, chairman and chief executive officer for Monsanto. “We continue to pursue new innovations to benefit modern agriculture, as evidenced by several recent agreements, and we look forward to reaching additional milestones for the merger with Bayer.”
“We met our acreage target for Intacta RR2 Protm soybeans in South America, and the Roundup Ready Xtend Crop System is on a path to record trait adoption,” added Brett Begemann, president and COO for Monsanto. “In just the third year of the trait on the market, U.S. farmers are on the way to planting nearly 50 million acres of dicamba-tolerant soy and cotton in 2018, nearly doubling last season’s acreage. Based on anticipated market demand, we're expecting 60 million acres in 2019. Farmers clearly see the value in this weed control technology, and we are eager to partner with them to successfully use this vital tool.”
Results of operations
Net sales for the company's fiscal year 2018 second quarter were essentially flat compared to the prior year's second quarter at approximately $5.0 billion. Gross profit totaled approximately $3 billion for the second quarter of fiscal years 2018 and 2017.
The second quarter results were driven by improved glyphosate pricing, as well as better pricing and increased acres from Intacta RR2 Protm soybeans, offset by decreased corn volumes from the combination of timing and expected lower planted acres in the U.S., and from reduced corn prices from continued lower commodity prices in Brazil.
Selling, general and administrative costs were $652 million, and research and development expenses were $394 million for the second quarter, basically flat, while other income declined by more than $60 million due to lower gains from asset sales and from currency and hedging related costs in the quarter. Finally, the effective tax rate declined to 21%, primarily from the lower U.S. corporate tax rate plus some discrete items.
The company’s fiscal year 2018 second quarter EPS on an as-reported basis was $3.27, compared to $3.09 in the prior year. EPS on an ongoing basis was $3.22, just above the prior year’s $3.19. The company is modestly ahead of the prior year at the first-half mark, with EPS for the first six months of fiscal year 2018 of $3.65 on an as-reported basis and $3.63 on an ongoing basis.
For the first half of fiscal year 2018, cash flow from operations was a source of approximately $1.6 billion, compared to $1.5 billion the same period last year. Net cash required by investing activities for the first half of fiscal year 2018 was approximately $366 million, compared to $438 million for the same period of fiscal year 2017. Net cash required by financing activities for the first half of 2018 was $714 million, compared to net cash required of $494 million for the same period of fiscal year 2017.
Finally, free cash flow was a source of $969 million for the first half of fiscal year 2018, compared to a source of $994 million for the first half of fiscal year 2017. The 2018 results were driven by the year-to-date improvement in net income, offset by the increase in capex as the company continues investing in its dicamba manufacturing plant, slated for completion in 2020.
For the full year, the company continues to expect growth to be driven by pricing for glyphosate and the continued adoption of new technologies in Seeds and Genomics, as well as reductions in related launch costs for these products.
The company also remains diligent in its work to complete the restructuring and cost savings initiative that it began in fiscal year 2015. Selling, general and administrative costs and research and development expenses now are expected to be down slightly year over year.
In addition, the company expects that benefits related to strategic asset sales and licensing contributions should be about 30% below the roughly $350 million pre-tax average annual contribution for the last three years.
Overall, with the solid start to the first half of the year and considering these factors, Monsanto continues to expect pre-tax income growth for fiscal year 2018, on a stand-alone basis.
Including the effects of the recent U.S. tax reform legislation, the company expects the as-reported effective tax rate to be in the range of 23% to 25%, for the full fiscal year, as the Argentina valuation allowance is expected to increase during the second half of the year. For fiscal year 2019, the company is expecting an as-reported effective tax rate in the range of 24% to 28%, reflecting the new lower corporate tax rate in the U.S., the loss of the U.S. domestic manufacturing deduction, and a lack of some of the discrete benefits from this year.
Results by segment
- Sales for Monsanto's Seeds and Genomics segment in the second quarter were approximately $4.1 billion, down approximately 2% compared to the prior year period. Gross profit in the segment was $2.7 billion for the quarter, down approximately 1% when compared to the prior year. This reflects the balance of continued demand for new soybean and cotton technologies, juxtaposed with challenging commodity prices in markets where demand for grain continues to grow.
- For soybeans, gross profit was up 7% globally, at $672 million. In the U.S., the company continues to expect 40 million acres of Roundup Ready 2 Xtend soybeans to be planted in fiscal year 2018, which would be a record for new trait adoption in three years.
- The gross profit for Monsanto’s corn business was down 7%, mostly due to volumes, which were down because of timing delays from the first half of the year to the second half, and from the expectation of lower planted corn acres.
- In complementary crops, Bollgard II XtendFlex cotton is now anticipated to be planted across eight million acres in the U.S., up from more than six million acres, as expectations for planted acres rise. This expansion helped contribute to a 31% boost in cotton gross profit for the second quarter.
- The Climate Corporation continued to see major advancements. In Europe, Climate is continuing its work following recent pre-launch announcements for the Climate FieldViewTM platform for Germany, France and Ukraine. The team also completed its first season of beta testing in Argentina, complementing existing business in Brazil, Canada and the U.S.
- Sales for Monsanto's Agricultural Productivity segment were $931 million for the second quarter of fiscal year 2018.