‘Leverage year’: Monsanto executives on why the $156 million earnings loss doesn’t matter
News that biotech giant Monsanto had lost $156 million in its most recent earnings report has prompted excitement at the possibility that the company is feeling the effects of recent activism campaigns and the GMO labeling campaigns across the country. The company actually increased sales by about 19 percent to $2.63 billion, beating the $2.42 billion average estimate from analysts.
While progress has been made, here are some quotes from Monsanto executives on the latest earnings call that show the company isn’t fading yet.
Starting with CEO Hugh Grant
four years of strong earnings growth
leverage year for Monsanto
we’re a growth company, begins with innovation
commit to strong growth today and at the same time step up significant incremental investment to unlock growth
this isn’t an either or situation
we plan to do both in 2015
Beginning of strategic shift
Over the course of 2014, we took a bolder approach and outlined a 5 year target to at least double our ongoing EPS (Earnings Per Share).
We feel as good today as we did when we outlined our goal, both in the near term spring board year of 2014 and the multiyear path
…our growth model for the next 5 years is in place and it’s as clear as it’s ever been
It’s not distant growth at the backend of the decade. We’ll expect strong growth in 2015, that builds a cadence of consistent growth carried from 2016 to 2019.
We have everything that we need to make it happen and we’re focused on execution
Perhaps more importantly for the long term opportunity, this is a gateway year for our strategy, technology and opportunity, we can actually extend our leadership position and unlock the next leg of growth over the next 5 years in our business.
Brett D. Begemann is Monsanto’s president and chief operating officer.
3 key factors I’m focused on this year
1 is seeds and traits growth
Simply put, we expect seeds and traits delivers double digits gross profit growth which is the primary driver of our earnings growth
… overall we feel good
… seeds and traits is balanced against our continued strategic management of the roundup business. overall, we feel good about the expected full year ag productivity contribution for 2015 as well as the long [outlook]
The biggest variable in 2015 is actually the timing of ag productivity earnings
… we’d expect the majority of year-over-year earnings decrease, shows up in q1, reflecting some changes in timing and product mix as we’ve moved more of our volume in ’15 from the non-branded supply business to sales in our flagship brands
This is a year where the strength in our core business will allow us to aggressively invest to drive climate and other new platforms.
…against those factors, the metrics that matter this year…
First, we’re going to build on the record soybean year in 2014, as we expect it to become one of our most meaningful platforms, and the first of our billion dollar plus growth drivers.
Soybeans were a real differentiator in 2014, providing an offset to the macro offset to the corn shifts. that record setting year in soybeans also drove our bottom line results, providing the business lift for us to reach the high end of our overall guidance.
…the biggest contributor in 2015 is clearly Intacta in Latin America. (despite serious ongoing problems?
We’re on track with the 10-12 million acre target we laid out, marking a record second year adoption pace for a soybean trait, penetration of Intacta at this level effectly places us at the tipping point of adoption in FY 15, and sets us on an accelerating trajectory in soybeans over the next few years.
That’s furthered by Roundup Ready 2 Xtend, which moves into the final commercial preparation in 2015, setting up soybeans for a mutli-trait, multi geography opportunity covering a market of almost 200 million acres in North and South america during our 5 year growth horizon.
… that accelerating soybean opportunity is backed by two billion dollar plus platforms in our global corn business.
… in 2014 we increased our corn margins even as our corn business absorbed several hundred million dollars at the GP level from lower acres and currency effects
… that came from a couple of strategic metrics.
Our costs were lower, portfolio mix on track, our total price was positive and we had good volume against declining planted acres
That carries us into 2015, where the growth opportunity comes from a combination of those same strategic drivers
… the most important factor is our portfolio upgrade
… increased our average price in our portfolio every year.
… continued expansion of our underlying footprint in corn.
… practically, we dont expect overall planted acres to make a significant rebound in 2015.
… in key regions like latin america, shifts away from corn planting are likely to create further headwinds.
… however, in other regions like Eastern Europe, there continues to be opportunity for added volume (like Ukraine?). against that, we expect our footprint to expand
that comes from two sources
… continued growth in established markets along with opportunity in newer emerging markets
… the ability to grow our volume in a declining macro market demonstrates there is resilient demand as we continue to deliver the best performing products
Lastly, we expect some continuation of the costs benefits
… revolves around our multi-channel distribution approach in the US…
This is a key differentiator. We’re able to meet farmers wherever they prefer to buy their seed, giving us more touch points for the key seed decisions.
… the anchor of that strategy remains the full service reach with our retail partners, but within our regional brands, our customers also told us there’s more opportunity to further the relationship componoent for the direct-to-grower brands.
So we’ve evolved our channel seed brand to a model that’s even more of a direct to grower sales force, so they spend more time on the ground with the farmers, while shifting supply chain activities to us, where we excel.
… that results in that changes that shifts the timing of our sales, but in year where we want to stay close to our customers, it allows us to leverage a sales force that is highly motivated by day-to-day relationships with the grower
… outlook also factors in the rest of our portfolio…
… cotton is among our most international operations,
… we expect nice growth from the US and importantly the first proof point in our Roundup Ready 2 Xtend opportunity as we expect to launch this Xtend program in cotton in 2015.
The performance in the core business becomes a leverage point as we use 2015 to accelerate our new platforms…
… the most notable is our Climate Corporation platform
2014 served as an important foundation year with better than anticipated progress as we combined the [Climate Corporation] capability with Monsanto
In fact, our base tools were used on nearly 1 in 3 US corn and soybean acres this year, giving us a significant headstart in making this a true industry relevant platform.
In 2015, we’ll do 3 big things…
We’ll step up our investment to leverage that headstart
We’ll cultivate further enrollment on the platform by increasing our active climate users by another 50%
… first steps in building the runway with a focus on our entry level premium climate pro offering. on that upgrade, we’re applying the core Monsanto experience by building a value adder of multiple offerings at multiple price points to incentivize trial and establish value, very similar to how we thought about our biotech traits over the years.
The company expects an ‘significant uptick’ in Q3 earnings and ‘this will be punctuated by a Q4 likely to be breakeven to positive on an absolute basis’, meaning that the recent loss will be a statistical non-factor.
this is really about the runway of opportunity that begins in 2015, from here each of the growth drivers becomes materially larger in 2016 and beyond, unlocking the next wave of Monsanto’s growth through the end of the decade
Pierre C Courduroux – Chief Financial Officer
the company anticpates some of the turmoil that has been a reality in places like Argentina and the Ukraine will continue although our 2015 guidance assumes reasonable operating environments in both regions