A Lone Ray of Sunshine From MON

For Dvorchak's preview heading into the Monsanto conference call, please click here.

On a day when a dreary ceiling of clouds is descending on Wall Street, Monsanto (MON - commentary - Cramer's Take) is shining one lone ray of sunshine, with an earnings report that would have been pedestrian two years ago but is spectacular today. EPS of 90 cents (excluding items) smoked the Street estimate of 59 cents on revenue $200 million above the consensus ($2.65 billion vs. $2.44 billion expected). Cash flow performance lagged revenue and earnings, but don't worry, the lag was due to a high level of prepayments last quarter flowing through the P&L this quarter.

Management raised guidance for the year to an EPS range of $4.40 to $4.50 from $4.20 to $4.40. The new range is still below the Street consensus of $4.56, but clearly, analysts are factoring in Monsanto's ability to consistently outperform its modest guidance.

Latin America is the driving force behind Monsanto's success. Management described the results as "stunning", and expects 20% growth again this year. Brazil drove great results in Roundup, with both volume and pricing gains. Although still early in the season, management indicated that the company expects meaningful market share gains in corn seed as well. Notably, unlike major competitor Pioneer, Monsanto is being much more cautious in extending credit throughout the region, yet still notching share gains on the strength of yields provided by its products. Management does concede that drought in Argentina is slowing sales in that country.

Globally, Monsanto is successfully executing its premium pricing strategy, in stark contrast to Pioneer, which is acting more like a commodity vendor. Strong gross-margin performance resulted from Roundup pricing holding steady above the targeted $16 to $18-a-gallon band. The company anticipates that band holding firm throughout the year. Roundup volumes declined a bit due to the aforementioned Argentine drought but also due to more normal buying patterns in the U.S. Volume spiked this time last year as retailers bought in front of an announced price increase. This year, half of Roundup volume will be purchased in the third and fourth quarters.

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At the time of publication, Dvorchak was long Monsanto, although positions can change at any time.

Gary Dvorchak is a managing partner of Aviance Capital Management, a Sarasota, Fla.-based institutional asset manager that manages $200 million in growth and value equities and fixed income. Dvorchak holds a master's degree in business administration from Northwestern University and a bachelor's degree in computer science from the University of Iowa.