Monsanto (MON) Tops Q3 Earnings, Confirms FY17 EPS View

Monsanto Company (NYSE:MON) reported better-than-expected results for third-quarter fiscal 2017 (ended May 31, 2017).

Over the last one month, shares of this Zacks Rank #2 (Buy) stock yielded 0.40%, as against the loss of 0.26% incurred by the Zacks categorized Agriculture - Products industry.

Earnings

Adjusted earnings from ongoing business came in at $1.93 per share, comfortably surpassing the Zacks Consensus Estimate of $1.74. However, the bottom line came in lower than the year-ago tally of $2.17 per share.

Revenues

During the reported quarter, Monsanto generated revenues of $4,230 million, up roughly 1% year over year. In addition, the top line exceeded the Zacks Consensus Estimate of $4,089 million.

On a segmental basis, revenues from Seeds and Genomics were down 2.3% year over year to $3,132 million. Revenues from Agricultural Productivity increased 11.8% year over year to $1,098 million.

Cost & Margins

Monsanto’s cost of sales inched up 1.9% year over year to $1,844 million. Gross margin contracted 40 basis points (bps) to 56.4%.

Operating expenses flared up 8% year over year to $1,222 million. Interest expenses were flat year over year at $100 million.

Balance Sheet and Cash Flow

Monsanto exited the quarter with cash and cash equivalents of $1,614 million, lower than $1,676 million recorded at the end of fiscal 2016. Long-term debt was $7,246 million, as against $7,453 million recorded on Aug 31, 2016.

During the fiscal third quarter, Monsanto generated cash of $690 million from operating activities compared with $415 million recorded in the year-ago period. Capital spending was up 27.3% year over year to $848 million.

Outlook

Monsanto anticipates to secure cash worth nearly $70 million in fourth-quarter fiscal 2017 from the sales of non-core assets from different strategic deals.

The company is aimed at boosting its business on the back of improved core seeds and genomics business, sound management of the agricultural productivity segment’s trade, strategic restructuring and appropriate investments.

Based on the existing conditions, the company estimates to report adjusted earnings at the high-end of the $4.50–$4.90 per share range for fiscal 2017, on an ongoing basis.

Bayer AG (DE:BAYGN) Deal Prospects

Monsanto believes that Bayer AG’s (OTC:BAYRY) ) buyout deal would open up a number of opportunities for its business.

Bayer’s distinct crop protection portfolio, when combined with Monsanto’s popular Climate FieldView and Seeds & Traits platform, would likely give rise to a highly competitive seeds traits and agricultural chemicals behemoth in the industry.

The largest all-cash deal ($66 billion), which awaits regulatory approvals, is anticipated to close by the end of calendar year 2017.

Other Key Picks

Other top-ranked stocks in the industry are listed below:

The Chemours Company (NYSE:CC) has an average positive earnings surprise of 39.82% for the trailing four quarters and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Limoneira Co (NASDAQ:LMNR) , which currently carries a Zacks Rank #2, pulled off an average positive earnings surprise of 14.74% over the last four quarters.

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