Monsanto Sprouts Rising Revenues, But Can It Germinate More Growth?

When Monsanto (NYSE: MON  )  reported revenues of $14.8 billion in its fiscal 2013, it marked the fourth straight year of sales growth,  which was not a surprise given the number of corn acres planted in the spring. What is surprising is the company's belief that it can continue the strong growth by raising prices despite the state of the agricultural industry. Competitor DuPont (NYSE: DD  )  grew its agricultural revenues 11% during the first half of 2013, due to a 6% price hike and a rise in volume. A look at the year in its entirety shows a company highly dependent on revenues from its corn seed and traits business.

Seed & genomics
2013 seed and genomics revenues of $10.3 billion are 5.6% higher than a year ago. Corn seed and traits have always represented the lion's share of the segment's revenues. It was 64% of total seed and genomics revenues in 2013. However, last year it was the only seed business showing any material year-over-year growth.

Monsanto year over year Seed & Genomics Revenues

Source: Mays Research

Monsanto's second largest seed business, soybean seed and traits, tumbled in the company's fiscal 2013, with sales falling nearly 7%. The company should see some improvement in this area as the company moves from zero soybean acres to a potential 100 million acres in Latin America. Before investors get too excited about 100 million acres, the company expects about 3 million acres planted with its Intacta soybeans, making it the company's largest soybean trait launch ever. This is on top of its 10 year,  $1.75 billion licensing agreement with DuPont's Pioneer seed brand. Monsanto will book revenues from the DuPont annual licensing agreement during the company's fiscal second and fourth quarters.

Despite the mixed year-over-year sales growth in fiscal 2013, Monsanto's seed and genomics business has delivered consistent revenue growth since the company changed to a fiscal year ending August 31, which more than coincidentally aligns with the corn and soybean marketing years.

Monsanto annual seed & genomics gross profit growth

Source: Mays Research

Agricultural productivity
With revenues of $4.5 billion in the company's fiscal 2013, the agricultural productivity business has also grown for four straight years and at an average annual rate of 12% over that period. This segment's revenues peaked in 2008 when the company had net sales of nearly $5 billion so there is still some room to run before it breaks any new sales records.

Monsanto Agricultural Productivity Revenues

Source: Mays Research

This segment manufacturers roundup ready and other herbicides for agricultural, industrial, ornamental, turf, and residential lawn and garden applications. Scotts Miracle-Gro  (NYSE: SMG  ) , which markets the residential version of Roundup Ready, reported that roundup sales have done particularly well since the company's fiscal 2012. Between June and August 2012 sales of the popular weed killer posted 20% gains amid high levels of rainfall this year in much of the US, which encouraged weed growth.

With corn and soybean prices trending lower, one concern on investors' minds is Monsanto's ability to execute its plan to expand profit margins through price increases. Farmers want to maximize their margins as well and will have to decide if the yield increases and plant protection features the new seeds offer offset the additional cost. The company expects to grow earnings in the mid-teens in fiscal 2014. With falling crop prices, these are growth estimates that may or may not sprout earnings.

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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 15, 2013, at 1:50 PM, funfundvierzig wrote:

    For the past ten years in the global business of seeds, Monsanto has out-researched, out-developed, out-commercialised, out-marketed and out-sold its nearest competitor, the lagging DuPont conglomerate based in Delaware. With its superior pool of managerial and scientific talent, Monsanto continues to out-innovate DuPont. Most of the better seeds in the DuPont Pioneer seed line-up are currently embedded with genetically-engineered traits licensed from Monsanto.

    Nor has Monsanto had the misfortune and mismanagement of ending up with colossal multi-$billion disasters in the agricultural arena as DuPont has with the failed GM seed trait, DuPont OptimumGAP, and the extraordinarily toxic tree-kllling dandelion lawn herbicide, DuPont Imprelis, mercifully banned by the U. S. EPA.

    As an individual investor, long MON, SYT, and DOW, short and long DD, we believe Monsanto will continue to reign supreme in global seeds for the near future, 36 to 60 months.


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