Monsanto's (NYSE:MON) second-quarter earnings report last month didn't yield a bumper crop of good news, primarily because corn, which represents 70% of its seeds and genomics revenues and some 56% of total quarterly revenues, is suffering from a glut of supply resulting from fewer acres being planted.
Although soybean seed and traits experienced a better than 7% jump in revenues, it was not nearly enough to offset the half-billion dollar drop in corn revenues. Yet the shortfall was nearly as disastrous at it seems, and the biotech continues to keep an upbeat outlook for the immediate future and into next year as well.
In the midst of these seemingly conflicting signals, here are the top five things Monsanto wants shareholders to keep in mind.
1. Corn is still king
Monsanto's corn business might be contracting in the U.S. because of oversupply, but there's a 500 million bushels per year expansion in demand forecast for the next five years. And the USDA estimates the global corn demand has grown by nearly 900 million bushels compared to the prior season.
So, what really played havoc with Monsanto's results were the effects foreign currency exchange rates had on corn gross profits. While at least 11 million to 12 million acres of corn came out of production since 2013, it was the additional weakness in foreign currencies that really hit Monsanto's full-year guidance, to the tune of $0.35 to $0.40 per share.
COO Brett Begemann said, Monsanto remains the dominant corn seed player and is still "on track to hold or grow our branded share footprint in every major market in the face of declining corn acres."
2. New technologies are boosting other crops
Monsanto's Intacta Roundup Ready 2 Pro soybeans are growing like kudzu, with acreage now at 15 million acres for fiscal year 2015 and expected to double to 30 million acres in the next fiscal year. Intacta was the first biotech product developed especially for a market outside the U.S. where Monsanto estimates it can develop into a 100 million acre opportunity.
It's also looking forward to the introduction of its Roundup Ready 2 Xtend soybean seeds, which is awaiting final regulatory approval and seed production acreage. The soybean market is a 200 million acre opportunity in North and South America, and the biotech anticipates a three million acre introduction next year. Pending regulatory approval in China could expand that even further.
Just as exciting has been the response to Monsanto's Bollgard II XtendFlex cotton, which sold out quickly following its commercial introduction. The seed trait is tolerant to three different herbicides -- dicamba, glyphosate, and glufosinate -- and was previously identified as one of its "groundbreaking" new platforms last year.
CEO Hugh Grant said, "Roundup Ready 2 Yield, Intacta, and Xtend remain very much on track for their expected long-term growth trends," proving that new technologies that improve in-field protection are as critical to Monsanto's future as they ever were.
3. Doing something about the weather
The next generation of Monsanto's Climate Pro technology is in the hands of growers, and though thus far it's proved to be a pricey acquisition with little payoff thus far, it ought to begin paying dividends soon.
By analyzing hyper-local weather measurements derived from millions of National Weather Service data points on a daily basis, the biotech is looking for farmers concerned about their bottom line to turn to Climate Pro to optimize their growing decisions.
Monsanto remains committed to increasing its number of active basic users by 50% from last year's base of 30 million acres, and to more than doubling its premium acres from one million. To do that, though, it's practically giving away the service, having slashed pricing from $15 an acre when it first introduced the technology down to $3 an acre.
CEO Grant said Monsanto is developing complementary solutions to its core seed and biologics curricula, "where the application of data science through our Climate offerings can enhance each and every decision in a grower's operation."
4. The third quarter should be strong
Although Monsanto had to deal with lower corn acreages planted and fluctuating exchange rates, it's not as though all the sales and profits were completely lost because of those factors. In fact, a large component is due just to timing.
Some $275 million in gross profit, mostly from corn, will turn up in the third quarter because of how its Channel brand corn seed business is sold. Previously, the seed was sold through third-party distributors who sales showed up earlier in the fiscal year, but now Monsanto sells that seed directly to the farmers themselves, and that largely doesn't happen until the third quarter.
So, CFO Pierre Courduroux says when looking at how the remainder of its full-year guidance falls out, "We expect around 80 to 85% of the remaining earnings per share to fall into the third quarter, with the residual in the fourth quarter."
What all this means for investors
While there was a moment of angst when the World Health Organization proclaimed Monsanto's Roundup herbicide a probable carcinogen, the biotech termed it "junk science" that amounted to mischief-making and cherry-picking data. It's premiere product and its seed traits built on it remain solid in the marketplace. Whatever softness the markets saw in Monsanto's quarter was ignored because of the strength that is still to come, in the coming quarters, and likely over the coming years.