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Original Source: FD (FAIR DISCLOSURE) WIRE
. Don Carson, Merrill Lynch, Analyst . Scarlett Foster, Monsanto Company, VP, IR . Hugh Grant, Monsanto Company, Chairman, President & CEO . Terry Crews, Monsanto Company, EVP, CFO . P.J. Juvekar, Citigroup, Analyst . Mike Judd, Greenwich Consultants, Analyst . Frank Mitsch, BB&T Capital Markets, Analyst . Mark Gulley, Soleil Securities, Analyst . Kevin McCarthy, Banc of America, Analyst . Jeff Zekauskas, JP Morgan, Analyst . Marybeth Connolly, Goldman, Sachs & Co., Analyst
MON reported 4Q06 net sales of $1.4b and a loss per share of $0.21 on an ongoing basis. FY06 sales were a record $7.3b and EPS was $1.31 on an ongoing basis. FY07 EPS on an ongoing basis is expected to be $1.50-1.57.
A. Key Data From Call 1. FY06 net sales = $7.3b. 2. 4Q06 net sales = $1.4b. 3. 4Q06 gross profit = $480m. 4. FY06 EPS on an ongoing basis = $1.31. 5. 4Q06 loss per share on an ongoing basis = $0.21.
6. FY07 EPS guidance on an ongoing basis = $1.50-1.57.
S1. 4Q06 & FY06 Review (S.F.) 1. Results: 1. EPS reflects the stock split that was effective on July 28. 2. 4Q06 net sales were $1.4b, a 9% increase vs. 4Q05. 3. FY06 net sales were a record $7.3b, a 17% increase vs. FY05. 1. The increase reflected the inclusion of a full year of sales from Seminis and Stoneville.
2. On a pro forma basis, sales would have increased in the double-digit range primarily because of stronger sales in corn seeds and traits and better-than-expected results for the global Roundup business.
4. 4Q06 gross profit of $480m was modestly lower than 4Q05 on
both an absolute and percent of sales basis. 5. FY06 gross profit increased 18% vs. FY05. 1. On a percent of sales basis, gross profit was 48.3% vs. 47.7% in FY05, which rounded to 48% in both years in earnings release. 6. FY06 gross profit was affected most significantly by the following factors: 1. Inventory step-up charges for the Seminis business, which are reflected in COGS. 2. Increased raw material costs for Roundup from higher energy costs and higher cost of goods for Roundup in Brazil because
of the stronger real. 3. Valuation allowance charged to cost of goods for value-added tax credits in Brazil, which MON now believes that the probability of realizing them is lower. 1. Collectively, these items reduced FY06 gross profit by approx. $100m. 4. The Seminis inventory step-up was the largest amount at $50m in 2006 vs. $19m in FY05 or a delta of $31m. 5. Valuation allowance accounted for $29m with the higher cost for Roundup production roughly the remainder. 6. Of the three, MON would expect that it would continue to be affected by higher cost of goods for Roundup production for
similar reasons in FY07. 7. Items affected reported earnings:
1. On an ongoing business basis, MON had a 4Q06 loss of $0.21
per share vs. $0.25 in 4Q05. 2. On an ongoing business basis, FY06 EPS was $1.31 vs. $1.04 for FY05 or a 26% increase. 3. The most significant unusual item affecting both 4Q06 and FY06 was the $0.04 per share tax charge from the one-time repatriation of $437m in cash under the provisions of the American Jobs Creation Act. 1. This increased effective tax rate by 2 percentage points.
8. FY06 free cash flow topped $1b vs. $70m in FY05, which
included the effect of $1.7b in cash used for investing activities, primarily for the Seminis, Stoneville, and some American seed acquisition. 9. Overall, 4Q06 results reflected stronger-than-expected branded Roundup business in the US. 10. FY06 results were driven by the strength of the US seeds and traits business, and particularly the performance in corn. 11. Organic growth accounted for 96% of its growth in ongoing EPS for FY06, while the addition of acquired businesses accounted for approx. 4%. 12. Seminis and ASI acquisitions were both accretive to FY06 EPS as the Co. had forecast, and in both cases were actually higher than its original internal estimates.
S2. Strategic Review (H.G.) 1. 2006 Results: 1. MON reported that 2006 was by almost every measure another outstanding year.
1. Delivered or exceeded its original commitments on earnings,
free cash, and return on capital. 2. Seed market share grew globally and most dramatically in the US while trait acreage increased 12% worldwide and 6% in the US. 3. Seminis and American Seeds acquisitions performed particularly well. 1. They both were accretive this year and at levels above original targets. 4. Brazil and India fell short of some of its internal expectations, but despite economic and political difficulties, they delivered trait acreage growth, solid seed performance, and particularly in the case of Brazil,
good working capital management. 2. At this point in 2006, MON reported it is putting 2007 in the bag right now literally as its seed production facilities are running at full speed.
3. Committed to 15-20% growth rate for ongoing EPS off of the
higher base that was delivered in 2006 with continued strong
generation of free cash. 4. From 2007, 2010 is well within its site, and in this time frame, it has a unique window of opportunity to extend its leadership and establish the platform that will drive its growth not just through the end of the decade, but well beyond. 1. It starts with and is dominated by corn. 5. Every part of its portfolio has a unique and significant role to play in contributing to earnings growth while it
continuously bring what's arguably the most exciting R&D pipeline in agriculture to fruition. 2. Factors to Drive Growth:
1. In June call, MON outlined five factors that it expect to
drive its growth into the next decade. 2. Since then, with the pending acquisition of Delta and Pine Land, it has added a sixth. 1. Growth in the US corn market is far from over.
2. Sees international corn seed share growing. 3. Biotech traits are poised to advance internationally. 4. Added the potential acceleration of its cotton business pending the completion of the acquisition of Delta and Pine Land. 5. Expects Seminis to generate a higher GM going forward. 1. Pipeline should allow for the launch of three (indiscernible) products with greater commercial certainty.
3. Opportunity in US Corn: 1. In 2006, MON came into its own as a provider not just through the best technology in corn, but as the provider of the best yielding corn. 2. Survey results of 2,000 farmers. 1. The top three reasons a farmer bought DeKalb seed this season had to do with superior performance like yields and plant health which stands in direct contrast to competitors'
seeds where discounts were the major driver behind purchase. 1. This validates that performance trumps discounts. 2. Now that MON has come to returns and the final reporting by its distributors through the end of Sept., it is confident that its branded market share in the US grew by just over 3 points. 1. Reports that this is the greatest gain that it has made since DeKalb and Asgrow were purchased in the late '90s. 2. Over five years, this represents a 9-point gain in market share. 3. With the seed being harvested right now and the market that it has in hand, it believes it has a path to another 1- to 2-point share gain for the US national brands, not only in 2007, but annually through 2010. 4. The last five years of market share gains have come predominantly from inter-co., international [proxies]. 5. Only this year that the Co. sees complete hybrids that were the result of molecular breeding in its portfolio and even they were still less than 1%. 6. Next year, Co. expects to more than double that to 2-3% and then effectively double that number again by 2008. 1. This breeding powerhouse has the ability to uniquely source three different choices for farmers to use a …