Agricultural products company Monsanto (NYSE:MON) will report Q1 2007 financial results on Jan. 4, and it looks like things may come a cropper this time out.

What analysts say:

  • Buy, sell, or waffle? The 12 analysts covering Monsanto have put down roots all over the place, with seven rating it a hold, one a sell, and four either buy or strong buy.
  • Revenues. Revenues for the first quarter are expected to rear up at $1.53 billion, an 8.6% increase over the year-ago period.
  • Earnings. Profits are forecast to come in at $0.10 per share, down a penny from a year ago, but estimates range from a low of $0.08 to a high of $0.15 per share.

What management says:
Monsanto plans to continue developing and breeding new seeds and products that use the latest developments in biotechnology. The company's first quarter is generally slow here in the U.S., the region from which it derives nearly 60% of its revenues. But Monstanto also realizes substantial revenues from Latin America (17%) and Europe (14%), where planting seasons differ. It will also be closing on its $1.5 billion Delta & Pine Land Company (NYSE:DLP) acquisition this year, which will allow it to do with cotton seeds what it's already achieved for corn and soybean farmers. The acquisition is expected to be accretive to cash flow in the first year, and to earnings by the second, so expect to see a little bit of a drag on performance until the company has digested its purchase, one of several acquisitions it has made.

What management does:
While Monsanto has been generating gross margins in the area of 50% fairly consistently, it has also been able to reduce expenses, which has provided a bit of fertilizer for its operating margins. The result: an increasing return on capital, meaning that management has been adequately investing in itself each quarter.

Margin %

08/05

11/05

02/06

05/06

08/06

Gross

48.4

47.8

49.4

50.0

49.0

Op.

16.3

15.3

17.0

17.7

17.1

Net

4.1

5.3

6.1

9.8

9.4



Efficiency Ratios

08/05

11/05

02/06

05/06

08/06

ROA

6.5

6.0

6.8

6.7

7.0

ROE

2.9

6.1

6.8

11.3

11.5

ROC

9.2

9.0

9.7

9.5

10.2

YOY Revenue Growth

16.1

21.1

17.6

15.7

16.7

YOY Earnings Growth*

(41.0)

56.2

(5.3)

182.7

344.6

*Earnings from continuing operations.
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.


One Fool says:
Analysts are being cautious about Monsanto, because there's a lot of hope already sprouting from its price, which sports a forward P/E of 40. Yet the company is a prodigious generator of cash; cash flow from operations exceeded $1.6 billion over the last 12 months, giving Monsanto free cash flow of more than $1.3 billion. Expect that number to be slightly lower for the next year or so, however, since the company plans to increase its capital expenditures for environmental projects. Faced with higher costs, a new acquisition, and some legal wranglings that are scheduled to get under way this year, this Fool sees Monsanto underperforming the market. That's not a popular view with investors at Motley Fool CAPS, who have given the company a three-star rating.

Competitors:

  • Syngenta (NYSE:SYT)
  • Dow Chemical (NYSE:DOW)
  • DuPont (NYSE:DD)
  • FMC (NYSE:FMC)

Related Foolishness:

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here . Dow Chemical is a Motley Fool Income Investor pick. The Motley Fool has a disclosure policy .