Monsanto Company F3Q10 (Qtr End 05/31/2010) Earnings Call Transcript - TheStreet

Monsanto Company F3Q10 (Qtr End 05/31/2010) Earnings Call Transcript

Monsanto Company F3Q10 (Qtr End 05/31/2010) Earnings Call Transcript
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Monsanto Company (MON)

F3Q10 (Qtr End 05/31/2010) Earnings Call

June 30, 2010 9:30 a.m. ET

Executives

Bryan Hurley - IR Lead

Carl Casale - CFO

Analysts

Kevin McCarthy - Bank of America

Vincent Andrews - Morgan Stanley

Jeff Zekauskas - JPMorgan

P.J. Juvekar - Citigroup

Robert Koort - Goldman Sachs

Sandy Cogman [ph]- Susquehanna Financial Group

David Begleiter - Deutsche Asset Management

Lucy Watson - Jefferies & Co.

Presentation

Operator

Welcome to the third quarter 2010 Monsanto Company earnings conference call. (Operator Instructions)

It is now my pleasure to introduce your host, Bryan Hurley, Investor Relations Lead for Monsanto.

Bryan Hurley

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Good morning to everybody on the line today for our third quarter earnings conference call. Joining me today on the call are Hugh Grant, our Chairman and CEO; and Carl Casale, our CFO. Also joining me are Will McAndrew, Manny Cruz and Ruben Mella, our IR team.

Before we begin, I'd like to remind you that we are webcasting this call. You can access the webcast and the supporting slides at monsanto.com. The replay will also be available at that address.

We're providing you today with EPS measures on both a GAAP basis and on an ongoing business basis. In those cases where we refer to non-GAAP financial measures, we've provided you with a reconciliation to the GAAP measures in the slides and in the press release, which are both posted on our website.

I need to remind you that this call will include statements concerning future events and financial results. Because these statements are based on assumptions and factors that involve risk and uncertainty, the company's actual performance and results may vary in a material way from those expressed or implied in any forward-looking statement. A description of the factors that may cause such a variance is included in the Safe Harbor language contained in our most recent 10-K and today's press release.

Since we just provided updated quarterly and full year guidance, I'll walk through an abbreviated summary of the quarterly results to save the bulk of the time for Carl who will take you through our full year outlook and our 2011 metrics and for Hugh to talk about progress on our near-term strategic priorities.

Let's start with an overview of our financial results on slide four. Fundamentally, the results were in line with the revised guidance we issued last month for the full year and for the third quarter. For the quarter, ongoing earnings per share were $0.81, slightly ahead of our prior guidance. As expected, the quarter reflects the reset of the Roundup business.

On a year-over-year basis, net sales were down 6% and gross profit declined 24% to $1.4 billion for the quarter. As has been the case in the recent quarters, this was largely driven by Roundup and other glyphosate-based herbicides, which came in at a loss of $189 million on the gross profit line, reflecting the negative gross profit effect associated with the near-term adjustments from our Roundup repositioning. Carl will cover these effects in slightly greater detail in his outlook for the full year.

From the Seeds & Traits perspective, sales in the quarter were up slightly over last year, while gross profit was down slightly. Likewise, for the year-to-date, sales in the segment increased 4%, which reflects increased sales in our U.S. corn business, our global soybean business and contributions from both cotton seeds and traits and the vegetable business. The year-to-date gross profit for the segment is down 2% as the increase in sales were offset by the higher launch year COGS and the restructuring moves we discussed previously.

On the cost side of the ledger, we continue to realize a lower run rate for SG&A, supporting the expected $2 billion to $2.1 billion guidance for this full year. That run rate reflects the benefits that we've realized because of our restructuring program. To date, our restructuring spend for the fiscal year is $184 million, taking our cumulative total to $590 million of the projected $550 to $600 million in total spend.

The effective tax rate for the quarter was 26%, which is lower than the 30% recognized in the prior year. As was the case in prior periods, benefits from several tax items were recognized in the quarter. With our revision to earnings guidance in the last month, our tax run rate puts us in line for full year tax rate that may be better than our projected 29% to 30% range.

As is typical for this quarter, free cash flow was a use of cash. In particular for the year-to-date period, cash flow was a use of cash of $1.15 billion compared with the use of $145 million for the same period in 2009. That use of cash largely reflects the repositioning of the Roundup business, affecting net income as well as working capital and the cash portion of the restructuring charge. That's partially offset by lower inventories from a reduction in seed production and a normalization of deferred revenue compared with the prior year.

In terms of cash deployment, we spent approximately $374 million in the quarter on share repurchases. That will allow us to close out our current three-year $800 million program a year earlier than originally planned.

Let me turn the call over to Carl, so he can expand on our outlook for the remainder of the fiscal year.

Carl Casale

A little more than four weeks ago, we provided our revised guidance for the fiscal year following the strategic repositioning of the Roundup business. As we expected, the third quarter results were in line with that revised guidance and we're on track to meet our full year ongoing EPS guidance range of $2.40 to $2.60 and our free cash flow target of $400 million to $500 million.

Through the third quarter, our ongoing EPS is $2.49, which is squarely within our full year range. With that as the backdrop, it's useful to walk through how we see the year closing out and then shift into the first look at the metrics and drivers we see shaping our mid-teens growth trajectory in 2011.

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