GMOs Remain the Driving Force for Monsanto Company

Monsanto reported solid second quarter earnings driven by the company's seeds and genomics segment.

Apr 2, 2014 at 11:29AM

Second quarter results released today by Monsanto (NYSE:MON) show that the company's seeds and genomics segment continues to perform well even amid suggestions that the agricultural sector is seeing greater than usual variability. Monsanto has committed a growing amount of money and resources into ventures beyond its now staple genetically modified (GM) seed business, but existing sales along with expansion in corn and soybeans remain the company's primary revenue generator and also its main source for growth over the near term.

Growth is going more global
Second quarter sales in the seeds and genomics segment increased from $4.3 billion in 2013 to $4.6 billion in 2014, amounting to nearly 80% of the overall growth in gross profit realized by the company. Net sales over the first six months of the fiscal year were up nearly 7% from 2013 in spite of weather-related shipment delays encountered over the first part of the quarter. Sales growth in the quarter for Monsanto also bodes well for competitor DuPont (NYSE:DD) who will release earnings at the end of the month. In general, increases in demand for soybean and corn crop seeds should lift the agricultural technology industry as a whole.

Monsanto is achieving growth in the seed sales despite reports by the United States Department of Agriculture (USDA) that, based on survey results from U.S. growers, acreage devoted to corn dropped by nearly 4% this year as compared with 2013. Fortunately for Monsanto, the decline in corn acreage is being more than compensated by an increase of nearly 6% in soybean acreage. With positive growing conditions, the increased acreage in the U.S. contributes to a strong chance at generating a record production year for soybeans.

The growth of their soybean platform domestically has been accompanied by global growth spurred by the massive and very successful launch in Latin America of their Intacta RR2 PRO soybeans. The domestic and global growth within the soybean segment led Monsanto to a record quarter for both soybean sales and gross profit, compounded by overall margin expansion within the segment.

The drop in corn acreage had little effect on Monsanto's corn sales that saw second quarter growth that more than made up for a challenging first quarter. The corn seed and traits segment remains the company's largest profit generator. Margins within the segment continue to grow as well.

The rest of the story
Seeds and genomics will provide Monsanto with a growing revenue base for years to come, but the company in the meantime continues to increase research and development (R&D) investments beyond just genomics in its goal to help farmers feed a growing population in the midst of global climate change. Monsanto CEO summarizes by explaining:

Our broader portfolio enables us to deliver growth today, while also building the platforms that will help us bring additional value to farmers around the world in the years to come.

R&D expenses for the quarter were up $44 million over the prior year period as the company continues to invest in agricultural biologicals, as demonstrated by collaborations with Preceres LLC, and integrated farming systems, as shown by its acquisition of the Climate Corporation and expanding research into data science.

The takeaway
Monsanto's second quarter earnings put it in great position to meet its full year guidance. Consistent earnings per share, a growing core business, and increasing R&D investments into both their central genomics technologies as well as forward-looking technologies make Monsanto a solid investment, even as naysayers cite consumer concern over GMOs and increased competition from other seed companies as troubling indicators for its future growth.

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