1 Key Trait Fueling Growth at Monsanto Company

 

Monsanto's magic growth seeds? Photo credit: Flickr/www.WATTAgNet.com 

Monsanto (NYSE: MON  ) recently reported strong second-quarter results. The ag giant beat Wall Street's earnings and revenue estimates while reaffirming its full-year outlook. One key trait fueled Monsanto's results in the face of industry headwinds: soybeans. Let's take a closer look at how this legume is growing in importance to Monsanto and what that means for investors.

Green shoots of growth
Overall, Monsanto's sales continue to be dominated by corn. In the second quarter, the corn seeds and traits business delivered $3.4 billion in sales, which is about 4% higher than the year-ago period. Sales of corn seeds and traits represent nearly 60% of Monsanto's revenue and 71% of its gross profit. 

 

Photo credit: Flickr/Caitlin Regan.

Needless to say, corn is critical to the company. However, seeds and traits in general are an important driver of Monsanto's growth. CEO Hugh Grant noted in the company's earnings release that "nearly 80% of our growth in the quarter came from our core seeds and traits business." While corn is the dominant trait, Monsanto did see strong year-over-year growth in its soybean seed and traits segment. Revenue of $820 million in the soybean segment was 21% higher than last year. Meanwhile, gross profit in the segment grew by 36% over last year's second quarter. Both were quarterly records for the segment.

Monsanto reached 3 million acres of its Intacta RR2 PRO soybeans, which powered the growth of the soybean segment. That was the largest launch of a soybean trait in the company's history and provided a revolutionary new platform for Latin American soybean growers. Given the more than four bushels per acre yield harvest advantage against the first generation of Roundup Ready soybeans, it appears Monsanto has a winner on its hands.

Photo credit: Flickr/United Soybean Board.

Can the competition catch up?
This latest soybean launch should keep Monsanto one step ahead of competitors such as Dow Chemical (NYSE: DOW  ) and DuPont (NYSE: DD  ) . Dow isn't expected to launch its newest soybean trait -- the Enlist -- until next year. However, it will follow that launch with Enlist E3 soybeans in 2016 and a novel 2-Bt trait for soybeans after 2016, so it's working hard to provide the soybeans that farmers want to grow. 

Meanwhile, DuPont signed a technology licensing agreement with Monsanto last year that covers its next-generation soybean technology. Because of that DuPont will pay Monsanto royalties on future soybean sales. 

Investor takeaway
While corn continues to be the trait driving Monsanto's business, soybeans are the key to its growth. Not only is the company staying ahead of the competition, but its licensing agreement with DuPont means its rivals are paying for the privilege of working with Monsanto on the next generation of soybeans. 

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  • Report this Comment On April 03, 2014, at 11:36 AM, funfundvierzig wrote:

    DuPont, although the second largest seed producer on the globe, continues to be a pronounced laggard to Monsanto in innovative seed biotechnology. Ironically, DuPont Chieftess Ellen J. Kullman is in the process of ditching two centuries of core competency in chemicals, spinning off her DuPont Performance Chemicals, and literally betting the farm on the farm. But for some time to come, she will be playing second fiddle on the world stage to Monsanto in seeds....funfun..

  • Report this Comment On April 03, 2014, at 11:41 AM, funfundvierzig wrote:

    In the face of an adverse jury verdict of $1 billion last year, DuPont Management was compelled to settle a federal lawsuit with Monsanto involving DuPont's illegal use of Monsanto's patent-protected seed biotechnology. Part of the settlement stipulated DuPont would be paying Monsanto license fees of circa $200 million a year in order to put Monsanto's superior GM traits into DuPont Pioneer's otherwise inferior seed line-up. ...funfun..

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