Planting Optimism in Monsanto

NEW YORK ( TheStreet) -- I know full well that saying anything remotely positive about Monsanto ( MON) will likely get me in trouble. But, frankly, I can't resist.

I get that there are ongoing controversies surrounding this company -- from Monsanto's genetically enhanced seeds to what many believe are the company's unfair pricing tactics, which has soured the company's relationship with farmers. But things are getting better.

Contrary to what several readers believe, I've never discounted that these matters were real. In fact, I've been a huge advocate and a facilitator of these sorts of discussions. However, unlike most, I also understand there are always two sides to every story.

In these accounts, I don't believe that Monsanto has received a fair trial in the court of public opinion. The company's recent third-quarter earnings report serves as perfect evidence.

The headlines all read that Monsanto's fiscal third-quarter profits dropped 3% -- the company missed revenue estimates, etc -- I get it. But what I also get is that Monsanto is honoring its word and commitment to restoring the soured relationships with farmers.

Case in point: Because of the severe drought in 2012 that adversely impacted the soil in several parts of the United States, which hurt the company's seed business, Monsanto was forced to utilize South American greenhouses to produce corn seeds. The impact of this decision was felt this quarter to the extent of a 7% increase in the cost of goods sold.

Instead of passing on this extra 7% cost to farmers, which would have been a standard business maneuver, Monsanto opted to absorb the higher expenses tied to seed production. Monsanto understands that if it needs to repair relationships with farmers and customers around the globe, this was a worthwhile investment.

Disappointingly, however, nobody has pointed out this fact. I don't expect this gesture will be accepted by activists as the sort of "olive branch" that it is. Sadly, even those who report on this will spin it into a "public relations stunt." But ask the farmers whose costs weren't increased how that so-called "PR stunt" is itemized on their bottom line.

Let's not forget, when Monsanto issued guidance during the second-quarter announcement in April, management fully expected to gain share and actually raised both revenue and earnings-per-share guidance, while also affirming its outlook for free cash flow. So the miss on revenue and the slight drop in profits should be appreciated far more than they are.

For a company that is worth billions of dollars, Monsanto is often called to defend itself for its success. But in this case, choosing better relationships over profits, the company was willing to sacrifice earnings to make an investment in its future. I believe it is these sorts of gestures that should resonate with those that despise Monsanto.

Human beings are actually running this company. Who knew? It seems pointless to continue with the rest of the report. But overall, Monsanto's earnings dropped from $937 million in the third-quarter of 2012 to $909 million this quarter. There was virtually no revenue growth to speak of this quarter, whereas in last year's quarter the company posted 17% growth.

With less than 1% growth, as you can probably imagine, the segment performance was a mixed-bag disappointment. Overall seed revenue was down 2%, led by a 21% decline in cotton and a 3% decline in soybeans. Corn, which has always been the company's biggest source of strength was up 3%. The company's herbicides business, which includes the Roundup product for weed control, rose 9% year over year.

As disappointing as this quarter was for Monsanto, as I've said before, I don't believe this changes the long-term story. But it should change how the company is perceived. If not, it should at least start the discussion. From an investment perspective, there are still plenty of reasons to be bullish on the stock.

While there are indeed threats from the likes of DuPont ( DD) and Syngenta ( SYT), I don't believe they can match Monsanto's pipeline. Fundamentally, the company remains solid from the standpoint of revenue growth and financial position and it has reasonable levels of debt.

Investors looking for exposure to agriculture should really consider this name. This is a well-managed company that can post some strong long-term gains with some operational improvements.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.

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