Can Monsanto Sustain Its Growth?

Monsanto (NYSE: MON  ) released earnings last Wednesday that reaffirmed the consistent growth that investors have come to expect from the often controversial agricultural-technology giant. Continued overall earnings growth, expansion in its soybean business, and an active and productive research and development division all point to a successful year in store for Monsanto.

Impressive earnings
Controversy over genetically modified organisms (GMOs) continues to be a threat to Monsanto moving forward, but as of now the issue has yet to make an impact on business operations worth fearing. First-quarter net sales in 2014 were up almost 7% over the prior year to more than $3.1 billion, while gross profit also grew from that of first quarter 2013 by almost 12% to $1.6 billion. The improved net sales and gross profit figures translated to an increase of similar magnitudes to earnings per share.

Growth in soybeans
While corn is Monsanto's biggest money maker, the 2014 first quarter saw its biggest sales and profit gains from its soybean technologies. The launch of the company's Intacta RR2 PRO soybeans is anticipated to reach a massive 3 million acres, making it the fastest ramp-up from product development to mass utilization of any soybean product ever developed. The successful launch will serve to expand the company's dominance in the crop, as it currently makes around 90% of the soybean seeds sold.

So long as farmers correlate their Monsanto seed product with increasing yields, they will continue to pay the Monsanto premium for the seeds, and Monsanto will continue to grow. As an investor, the argument over whether the chicken or the egg came first is irrelevant, so long as the eggs keep coming.

Active R&D pipeline
Monsanto was into agriculture before agriculture was cool, and now it is reaping the rewards of its early transition. Now other large chemical companies like DuPont (NYSE: DD  ) and Dow Chemical (NYSE: DOW  ) are beginning to make the same moves that Monsanto made decades ago by realigning their priorities away from other chemicals to focus on agricultural technology. Fortunately for Monsanto, its head start will continue to pay off as it continues to reap its productive and well-established R&D pipeline, which yielded a self-proclaimed record of 29 phase advancements in breeding, biotechnology, and other emerging technologies.

Investment into research and development continues to increase, and accounted for approximately 13% of net sales, or $409 million, for the quarter. Increases in most expenses can be troubling, but Monsanto's dedication to continued R&D is what will keep it ahead of DuPont, Dow Chemical, and other competitors moving forward.

The acquisition of The Climate Corporation and implementation of its information and technology with Monsanto's already established precision farming tools will continue to account for a notable portion of R&D expenditures, but these expenses will pay back with farmer brand-loyalty as higher yields are realized and as the tools are put to use.

Takeaway
Investors can put aside the GMO controversy for a short while and appreciate Monsanto's commitment to its shareholders. Looking forward, Monsanto has established a solid base for its 2014 earnings guidance, and the company's continuing emphasis on productive research and development suggests Monsanto will provide shareholder value for years to come.

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  • Report this Comment On January 13, 2014, at 10:08 AM, funfundvierzig wrote:

    Ellen Kullman, DuPont Chieftess and her lagging TEAM are 10 years too late to the party. Her belated attempt to copycat Monsanto will also be stymied by the commercial reality that no buyers have come forth to purchase her liability-laden chemicals unit, Teflon, TIO2, acids, refrigerants and other chemicals. Hence, there will not be any fresh $billions in cash from sales proceeds from the dismantlement of DuPont to invest in R & D in her touted "growth" operation, DuPont AG & NUT. And that commercial reality redounds to the benefit of MON shareholders. ...funfun..

  • Report this Comment On January 13, 2014, at 10:18 AM, funfundvierzig wrote:

    Oddly, Ms. Kullman is tossing away a business in which she is the true global leader and largest producer, DuPont Titanium Technologies, in favour of a business in which she is distinctly second-class to Monsanto in seeds, and to Syngenta in crop protection. Her questionable strategy of severe shrinkage undoubtedly makes some long term investors nervous.

    Sears was once the largest, most powerful retailer in the world. Sears faltered under the oppressive weight of bad management and misdirection at the top. Is DuPont the Sears of chemicals, the Sears of seeds? Stay tuned.

    ...funfun..

  • Report this Comment On January 14, 2014, at 9:25 PM, MarkDonner wrote:

    Monsanto is factually a global terror organization.. one of the worst. They will poison and murder your families and children for generations without a hint of remorse. They will destroy the future of the earth forever by laying waste to entire countries for their profits. “Biotech” monsters like Monsanto, Syngenta, Dow, Bayer, Dupont are working hand in hand to murder and destroy for profits. Their management is criminal and pure evil and belong nowhere else than in a maximum security cell for the rest of their criminal lives. They must be stopped at all costs

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