Monsanto Company (NYSE:MON)
F1Q14 Results Earnings Call
January 8, 2014, 9:30 a.m. ET
Bryan Hurley - IR
Hugh Grant - Chairman and CEO
Brett Begemann - President and Chief Operating Officer
Pierre Courduroux - CFO
Rob Fraley - Chief Technology Officer
Ashley Wissmann - IR
Manny Cruz - IR
Vincent Andrews - Morgan Stanley
Robert Koort - Goldman Sachs
Michael Cox - Piper Jaffray
Jeff Zekauskas - JPMorgan
Don Carson - Susquehanna Financial
Chris Parkinson - Credit Suisse Group
Kevin McCarthy - Bank of America Merrill Lynch
David Begleiter - Deutsche Bank
Mark Gulley - BGC Financial
Mark Connelly - CLSA
Frank Mitsch - Wells Fargo Securities
John Roberts - UBS
Greetings. W3elcome to the first quarter 2014 Monsanto Company earnings and R&D update conference call. [Operator instructions.] It is now my pleasure to introduce your host, Bryan Hurley, investor relations lead for Monsanto. Thank you Mr. Hurley, you may begin.
Thanks, operator, and good morning to everyone. Thanks for joining our first quarter earnings update. I’m joined this morning by Hugh Grant, our chairman and CEO; Brett Begemann, our president and chief operating officer; as well as Pierre Courduroux, our CFO; and Rob Fraley, our chief technology officer. And also joining me from the IR team are Ashley Wissmann, Tim Baker, and Manny Cruz
As it has been historically, our first quarter call is the first data point on our business for the year, as well as an extensive review of our R&D pipeline. So our emphasis today will be on the color in both categories.
The call is being webcast, and you can access the webcast and supporting slides, and replay, at monsanto.com. We have provided you today with EPS measures both on a GAAP and an ongoing business basis. Where we refer to non-GAAP financial measures, we reconcile to the GAAP in the slides and in the press release, both of which on the website.
This call will include statements concerning future events and financial results. Because these statements are based on assumptions and factors that involve risk and uncertainty, the company's actual performance and results may vary in a material way from those expressed or implied in any forward-looking statements. A description of the factors that may cause such a variance is included in the Safe Harbor language in our most recent 10-K and in today's press release.
We’ll move quickly to the heart of our strategic discussion. As we do, let me anchor it on a brief point of our first quarter results on slide four in the financial section of the slides. Our first quarter EPS was $0.67, which was ahead of last year’s Q1, and reflects the first increment of growth, in line with our expectation, as we outlined our full year outlook and earnings flow at the beginning of the year.
Likewise, our free cash flow for the quarter was $457 million, which includes the expected investment in the Climate Corporation acquisition and incremental capex that are built into our full year guidance. Combined, both measures reinforce confidence in our full year outlook.
So with that, let me hand it to Hugh for the strategic view of this first quarter.
Thank you, Bryan. Good morning, and happy new year to everybody on the line. The first quarter is an important milestone, as it sets the tone for the year, so I think what’s important about this first quarter is, on the key measures, we’re exactly where we expected to be.
Even at this early point, that’s the validation that our business is delivering on our expectations. We have the right growth strategy in place and fiscal year ’14 is off to the right start. Brett and Pierre will walk through the specific details, but let me set out the key points that I feel for Q1 and the strategic context of both fiscal year ’14 and also our multiyear growth outlook.
First, with everything on track, we’re confirming our full year guidance today, as shown on slide five. All of our indicators continue to line up to deliver a projected mid to high teens operational growth and bottom line ongoing EPS guidance. That’s no small point, particularly in a year where there’s more volatility and more headwinds across agriculture than there has been in the past few years.
Secondly, while Q1 isn’t a big quarter in terms of dollars, it’s a quarter that featured several key milestones that reinforce this year’s outlook and our midterm growth, ranging from the strength of the order book and strong prepays to the visibility of our 3 million acre launch of Intacta in South America.
It is still early, and with the end of the Latin America second season and the full northern hemisphere season ahead, so while our early indicators are right on track, we’re going to stay focused on delivering in each of those seasons before we declare success.
I’d also highlight that we have another key milestone, our second quarter in a row with record use of cash for share repurchases. We’ve now bought more than $1.1 billion in shares over the last two quarters, as we’ve moved from addressing dilution to meaningfully reducing share count.
As we look ahead from the first quarter, we’re now in the period where there’s always a lot of speculation about acres and shifts, so it’s a year where our balanced portfolio is a real benefit. Commodities and acres are shifting this year, more than the last few, but our balance provides hedges in different crops, products, and geographies that balance those year-to-year ups and downs.
Maybe more importantly, the broad opportunity in agriculture on slide six creates a long runway outside of the shifts in any one year. The simple reality is that demand continues to grow, and even at conservative rates that don’t yet factor further demand with lower commodity prices, there’s a long horizon of opportunity ahead for companies like Monsanto that can leverage technology to help farmers meet this demand in new ways.
And that’s my final point. This quarter always reflects our annual update on our R&D pipeline. It’s the innovation in this pipeline that’s going to continue our leadership in driving yield and productivity to serve that demand.
It’s leadership that’s reflected in the fact that we have a record number of advancements in the pipeline this year. But it’s also leadership in defining what’s next for this industry. With the new platforms, we’re ramping up in precision agriculture and biologicals. We have more technology and more platforms to drive that next increment of yield and productivity than ever before.
So with that, let me hand it over to Brett to add some color to these key milestones.
Thanks, Hugh, and happy new year to everyone on the line. Hugh noted that our business results came in right as expected, an early indicator that we’re on track to deliver the growth we expect in 2014. At an operational level, I’d take that one step further. In the first quarter, the visibility has improved across the board on our key growth drivers shown on slide seven.
As we entered the year, I said my emphasis would be on margin expansion. We’re seeing the pricing uplift as we upgrade the portfolio, the mix lift with technology upgrades, contributions from our global business, and the benefit of an improved cost of goods position. And with one quarter of results in hand, margins in both corn and soybeans are showing the first increment of improvement we expected.
Let me make that practical, as I focus on the metrics that matter. The biggest of those is one of the most important metrics at this time of year, the U.S. order book, on slide eight. We’re coming off several strong years for the U.S. business, and we’re in a good position to continue that again in 2014. At the end of the calendar year, the order pace for the U.S. portfolio is strong, and tracking very well with our growth targets.
That’s particularly important given that farmers are ordering against a lower expected planet acre base than would have driven the intensions for corn last year at this time. U.S. customer prepays are up over last year, and provide a good indicator that there are solid commitments behind the order book. The deadlines for prepayment and cancellations were in December, and with those behind us, we now have strong clarity on our position ahead of our primary shipment season.
That’s also reflected in the quality of the order book, where we see the mix uplift we expected that backs our plans. In corn, we’re on track with the germplasm portfolio upgrades that drive the 5% to 10% price mix uplift. Likewise, in soybeans we see order book strength, which is relevant in a year where we see some shifting in acres between crops. The order book is a good indicator, but we’ll stay focused until the business proves out. At this point in the year, I feel as good as I can about the order pace, mix, and growth opportunity.
The order book is also a reflection of the strong wrap-up of the U.S. harvest for our products, and that’s part of the improved line of sight I mentioned. It provides another year of strong product yield performance that Rob will highlight. As our teams work with our grower customers, that’s a critical component that reinforces our performance advantage year-in and year-out.
The other key post-harvest milestone is the better visibility on the cost of goods improvement we expected. With the production in full swing, we’ve seen the benefit begin to flow through and that underscores our confidence in our cost position and margin improvement.
The next critical drivers take us to Latin America, and specifically the Intacta opportunity on slide nine. With most of the South America soybean acres planted, we’ve achieved a major milestone. We have very good visibility into the success our largest-ever soybean launch, with an expected 3 million acres of Intacta. Practically, we’ve been very focused on making sure farmers have a good experience, as the record pace this year starts a slingshot for what we expect is a faster ramp up than any previous soybean launch.
This is a year where some heavy insect pressure actually showcases the benefits of Intacta more visibly. Across Brazil, there are common reports of growers already spraying normal soybean fields four to five times to deal with heavy pressure.
When you can reduce two to three sprays with Intacta, it speaks to the direct value and savings that gets combined with the improved yield. Our South American teams are working closely with growers, our channel partners, and across our brands, to bulk up the right varieties in the marketplace to enable a quick ramp up in both Brazil and Argentina against the 100 million acres of opportunity.
Moving to corn, despite the fact that there were less planted summer acres in Brazil and Argentina, we are still seeing the trade upgrade that’s critical to our longer term growth. Those upgrades are happening consistently, as next-generation traits are expected to represent around 50% and 60% of our trait mix in our brands in Brazil and Argentina, respectively.
In the larger portfolio, our ag productivity business is on track, with the stable to stronger outlook we provided, and we are benefitting from our consistent and disciplined pricing approach. Effectively, we are seeing the contribution from the price accumulation that occurred in 2013 as we compare back to the first quarter of last year.
As we move forward, we expect this to normalize and have not built our plans around price increases, but rather to a flat to potentially declining generic price. Specifically, in places like the U.S. and Brazil, where indicators point to a significant number of soybean acres planted, and growers are looking for solutions to manage tough to control weeds, we expect demand for glyphosate to stay strong over the coming year and to further drive our mix toward our branded products. And today, that branded mix is already at some of the highest levels we’ve seen over the past few years.
And finally, let me emphasize on that doesn’t drive the financials this year, but sets much of the opportunity ahead, and that’s our precision ag platform on slide 10. 2014 will be a year of strategic milestones, and we’ve already had several major advancements since our November investor day.
First, we recognize we want to turn our early head start into a major long term advantage, and you do that by building your organization for speed. We’ve formally united Integrated Farming Systems, Precision Planting, and the Climate Corporation teams into a focused, operating group. It is being led by David Friedberg, the Climate Corporation CEO, and will report directly to me.
This is a business structure that will drive the natural connections between these technologies and will have the autonomy and flexibility to optimize the dollars we’re investing in the platform and deploy technology at a software industry pace. The biggest priority for Dave’s team will be the commercial launches of FieldScripts, Climate Basic, Climate Pro, and multiple precision planting upgrades, in addition to expanding Climate’s risk management operations.
Just as we’ve looked at the order book for our seed business earlier, you can project a similar outlook for these products and services, and I’d tell you we’re making good progress against our targets, and we expect a strong first year base of subscription acres across our precision ag family of offerings.
The second critical priority in building the platform is to get anchor partnerships in 2014, and I’m pleased to announce today that we’ve entered into a memo of understanding with Winfield, our largest distribution partner and the largest U.S. agricultural retail distributor. We’ve agreed to work together to explore formal connections between our IFS and Climate Corporation tools in conjunction with their industry leading R7 precision ag offering. This is a giant first step, and we see this as a catalyst to accelerate the formation of an industry-wide information and decision tool platform.
So with that, let me hand it over to Pierre.
Thanks, Brett, and good morning to everyone. Brett outlined the significant milestones that reinforce our confidence in the business and underscore the growth opportunity for this fiscal year. I will now highlight a couple of points related to how I see this year’s financial outlook at the end of Q1.
First, as Hugh indicated, the financials for the quarter are right on track with what we expected, and although Q1 reflects less than 15% of our full year earnings, it reinforces our confidence in our full year projections and our ability to deliver on our commitments.
Second, over the last year, I have indicated that we would be more aggressive in taking action on our cash deployment, and in this quarter, we’ve been true to that priority. We’ve reflected our confidence in growth within the business through additional capex investments, we’ve invested in additional growth through the additions of the Climate Corporation and our alliance with Novozymes, and we’ve been deliberate in being more aggressive in returning value to our owners, as we’ve just completed our second quarter of record spending on share buybacks, which contributed to lowering the share count versus the first quarter of last year by about 8 million shares.
I’ll cover this cash deployment emphasis in more detail, but before I do so, let me briefly cover a couple of key points in the quarter and how they tie to our full year growth metrics, on slide 11. The most relevant financial milestone in the quarter is the incremental margin improvement we start to see in both corn and soybeans.
Importantly, we’re seeing the first steps toward the expected full year margin improvement, and we are squarely on track for a growth of around 3 points in corn and 6 to 8 points in soybeans. This is important, because this reinforces our confidence in our expected seeds and genomics gross profit growth for the full year.
In a small quarter, the bottom line performance reflects some of the anticipated changes from last year’s Q1, and all of the financials line up well with how we see the business playing out for the full year. As expected, a majority of the quarterly contribution came from our seeds and genomics segment.
The biggest factor there is the most strategic, the positive margin contribution coming from the trait and mix upgrades in corn and soybeans. This positive driver is balanced against the expected decreases in corn acres in Latin America, some acre and timing effects related to cotton in Australia, and a more normalized U.S. contribution pattern after the step up from last year’s accelerated season.
The first quarter also reflects the Roundup contribution Brett mentioned, as we saw the anticipated carryover benefit from last year’s pricing and some early volumes. For the rest of the year, we expect that to normalize to the steady to better view we now have on ag productivity.
Regarding operating expenses, we did see a quarterly increase coming from our early launches. In particular, some of the launches related to precision agriculture and Intacta required some early investments. While operating expenses will grow this year, we expect to continue with our disciplined approach to spending those investments, as we achieve milestones like launches and approvals.
As I think about the earnings flow from here, on slide 12, it’s helpful to work backwards from Q4. As we expect to see the positive contribution from soybeans royalties in both Brazil and the U.S. and don’t anticipate to see a repeat of some of the isolated factors that impacted Q4 in FY13, we expect the fourth quarter to be significantly less of a loss this year.
We expect Q2 to be the largest earnings quarter and contributing to growth, but with a more normalized U.S. season and some of the ag productivity timing benefits in the first quarter, we don’t expect to see the same magnitude of Q2 growth as we saw with last year’s accelerated U.S. season. Through the coming quarters, we expect to make incremental progress on our margin and EBITDA growth targets, with the full effect realized by the close of Q4.
From there, I want to focus on our cash generation and deployments on slide 13. In the quarter, we generated $457 million in free cash, reflecting strong prepays and the investment in the Climate Corporation. This keeps us on track for a full year free cash guidance of $600 million to $800 million. And to be clear, this guidance is inclusive of the $932 million purchase price already applied to the acquisition and the $300 million related to the recently announced Novozymes deal.
Over the last year, I’ve reinforced our commitment to use that cash generation to fund growth and continue to be aggressive in returning more of the value created to our owners. Within the quarter, we completed a $1 billion public debt offering, taking advantage of the favorable debt market and our strong balance sheet, largely to fund the acquisition of the Climate Corporation.
I think this demonstrates that we are willing to use the strength of our balance sheet to fund all the priority items we’ve called out, including our capex, share buybacks, and dividend programs. We’ve continued to fund organic growth, as demonstrated by the $300 million capex investment in the quarter. We’ve also continued to fund future growth as highlighted by the Climate Corporation acquisition, but also by the investments we’ve made in the alliance with Novozymes.
And we have continued to fund our share buyback program and for the second straight quarter we have set a record for buyback spending, with $561 million in Q1. Combined, we have repurchased approximately $1.1 billion over the last two quarters.
We closed out our previous share buyback authorization in just seven months, and are already making significant progress against the $2 billion program announced last June. That aggressive program is already showing fruit in the financials, as we’ve made a significant transition from only offsetting dilution to reducing share count.
We began this year with a lower share count than the same time last year, and we again expect to further reduce on a full year basis, ahead of planned ’15. And finally, we also stayed committed to funding our dividend program, as demonstrated by the increase in our annual dividend at the end of our fiscal year.
So, as I wrap up, let me emphasize that we are confident in our earnings growth for this year, and that we are focused on using the strong cash-generating capability of our business to continue that growth, while also being aggressive in delivering value to our owners.
With that, I will hand it off to Rob to talk about the continued opportunity created by our pipeline.
Thanks, Pierre, and good morning to everybody on the line. I’m going to jump right into the pipeline update, starting with slide four, and here’s the headlines. First, I think this is more than just a record year in terms of project advancements. It’s an exponential step change in the pace and breadth of our R&D engine.
We’ve expanded the number of projects and platforms as we capitalize on the only pipeline in the industry that truly targets a total system for yield and productivity. On slides five through eight, you can see we have more than 70 projects in the pipeline, and we advanced almost 30 of those this year. This sets a new trend, and with the expansion of the pipeline and the opportunity with some fast cycle technology, I think we’ve moved from the days of advancing a dozen or so projects to advancing waves in our new platforms each year.
Second, that’s important, because it sets the commercial opportunity. In this year, you’ll see a record number of projects graduating from the pipeline. You’ve heard me say we don’t do science for the sake of science. Our focus is on getting products to the commercial marketplace so they can help our farmer customers, and this is the proof point. There’s five products coming online this year, including game-changing technologies like Intacta and FieldScripts.
And that leads me to my final highlight. Among these advancements, some of the most exciting advances are coming from our new platforms. It’s not just that we have new platforms, but that these platforms build on the established lead we already have in breeding and biotech. That’s a tremendous competitive advantage, and we’re really entering a new era where we expect farmers will see waves of technology that build on each other in a total system, in the seed, in the bag, and in the field.
Given the number of advancements, I won’t go project by project. So I’ll highlight across key themes, starting with the strategic link we’ve made this year with our new platforms. We’ve added or advanced more than 10 projects in precision ag and biologicals, including several first-ever product launches.
The most powerful near-term catapult will come from the integrated farming systems pipeline, on slide nine, and there’s been big progress since our November investor event. Most importantly, the cross synergy we expected between the Climate Corporation and FieldScripts is already proving out.
With the first version of FieldScripts barely out of the pipeline, we are already working on the enhanced version that increases the power of FieldScripts by building in the hyper-local weather modeling capability from climate. From there, we’re adding on even more layers, as we’re working on prescriptions for varying nutrition and other inputs, and then positioning multiple corn hybrids and soybean varieties per field.
Likewise, the Climate Corporation team is supercharging their algorithms with the massive genetic database from Monsanto’s field testing, differentiating decision tools like Climate Pro with the scope and scale of data that we believe is unrivaled.
The pipeline is analogous to software upgrades in terms of timing and frequency, with rapid upgrade cycles adding features and functionality that help drive initial adoption and continuing added value. This is exciting work, and I’m thrilled with what we’ve been able to assemble, and the progress we’ve made in this area in such a short time.
Practically, our Ground Breakers program this past season was among the most successful and insightful that we’ve had, as it allowed us not only to test multiple types of prescriptions, but also the equipment and the delivery system.
Growers are more interested in this precision agriculture opportunity than I’ve seen with almost any other new technology, so as we make the early transition to the commercial arena this year, the first couple hundred thousand acres are strategically important, but they’re not material financially, as we start the ramp up with the early adopters for our precision ag family, for what we see as a transformational platform over the next few years.
We’ve made just as important strides in the area of biologicals, with the springboard year for both our BioDirect application and new microbials in our alliance with Novozymes. Our first topical BioDirect RNAi technology appeared in the pipeline only two years ago, and today, on slide 10, we’ve made advancements across multiple projects in insect, in disease control, and even bee health.
These projects are now in phase one, so there’s still work to do, but as you can see by the data and the photos on the slide, the results are extremely exciting, and so we’ll continue the development work as this is definitely a breakthrough technology that could create significant value in the next decade.
Our biologicals platform was accelerated with our recently announced bio-ag alliance with Novozymes. This is the premier microbial R&D engine in the industry, and while I hinted at it when we announced the alliance, we now have new research data that proves our testing capability can result in game-changing products.
On slide 11, this year we saw the early power of our testing network. In only first-year testing, but these early results are directional, however the data is very encouraging. In corn, we saw an average yield benefit of 4 to 6 bushels per acre, with key products that will be part of the alliance, marking a level of performance that compares with some of the most successful biotech traits.
Now, we’ll expand the field testing power with plans for an unprecedented 1 million yield plots over the next few years. Just as importantly, in this year’s research we saw encouraging results that tell us that there are variable reactions to microbial performance in different agronomic conditions. We believe there is a tremendous synergy between our microbial and precision ag platforms, where we can optimize the placement, performance, and realized benefit of microbial products.
Not to be lost is another key point that applies to both BioDirect and microbials. These are a different class of product than GMOs, and we expect many to have expedited regulatory approvals, lower cost development, and the ability to benefit markets where biotech traits aren’t relevant today.
If we shift to the next theme, it’s around breakthrough areas where Monsanto is developing technology that departs from anything anyone else in the industry has done. The best example of this is our corn rootworm 3 technology on slide 12, where we’ve developed the first insect-controlled product to use RNAi based modes of action inside the plant. So while the rest of the industry still focuses exclusively on BT genes, we have a completely novel approach.
The lead project advanced again this year to our precommercial testing in phase four, marking rapid progress through the development phases and setting us up for regulatory review, as we’ve submitted in the U.S. and in several international markets.
With that milestone, we’re transitioning from a project to a product that will be branded as Smartstax Pro. That keeps us on the right path for the next commercial upgrade of our Smartstax platform later this decade.
Just as importantly, last year we advanced the next generation of RNAi candidates, so we have a wave of unique modes of action coming to upgrade, solidify our durability, and to add incremental value for farmers.
Another technology unique to our R&D effort is the work we’re doing in yield and stress with the BASF collaboration. And today there are two pieces of new news. First, I’m pleased to announce that we’ve extended the yield and stress research and development collaboration with BASF, allowing us to continue this valuable partnership as we target new yield opportunities for farmers.
On the performance side, last year we mentioned that we were seeing early but promising signs in corn taking a multi-gene approach to increasing yield. On slide 13, you’ll see we’ve made some important progress this year as we’ve identified a new wave of promising gene candidates that gives us a pool of yield-enhancing options to test.
This is obviously early, but we see this ability to identify multiple yield genes as one of the differentiators in our BASF collaboration, and critical to being able to really address yield and stress on a broad scale.
As we move on, one thing that stands out in our pipeline is our depth. Others in the industry are still pursuing first and second generation products, while we’re generally focused on third and fourth generation upgrades with broad acre global potential. And the case study is clearly our weed and insect control programs, where we’ve made several advancements this year.
The biggest, of course, is Intacta, on slide 14. This blockbuster moves out of the pipeline as it enters the commercial market, but scientifically the step change is in the rapid deployment of next generation upgrades. In the U.S., a decade passed between first and second generation technologies. With Intacta, we just advanced our second generation to phase 4 in the same year we launched the first generation version. And look no further than this year to see why this matters.
As Brett said, with the significant outbreak of insect pressure, the better performance of Intacta is very visible. With that insect pressure so top of mind, next generation products that expand insect control and enhance durability really matter to growers, and that’s exactly what’s in our pipeline.
The next obvious example is weed control, where the Roundup Ready 2 Yield extend crop system starts a similar upgrade cycle for third and fourth generations. Both the biotech trait and the complementary chemistry are in phase four, with some of the new progress focused on our chemistry formulation we announced called XtendiMax with VaporGrip. And that’s designed to significantly reduce volatility while providing excellent weed control and residual activity.
With the increasing need for multiple modes of action in weed control, this product will be able to serve a large addressable market, with a fit on over 100 million acres across the Americas. We’re progressing towards commercial launch in both the U.S. and internationally. The recent Dicamba chemistry [over the top] label approval in Canada reflects a significant milestone of the first complete Xtend system approval of trait and chemistry.
We continue to see progress on approvals in the U.S., Argentina, and other key import markets. The recent announcement of progress on the Dow Enlist environmental impact statement provides us further encouragement that these product approvals are progressing on track in the USDA.
And we’re not stopping here. On slide 15, we’ve added two new third and fourth generation projects this year, both focused on building on our Xtend platform by incorporating additional modes of action for weed control.
The last theme I’d like to emphasize is our breeding engine, which I often describe as our biggest blockbuster. And it matters for two reasons. First, it provides the horsepower, as we upgrade our global germplasm portfolio every year, and most people appreciate that. But lesser appreciated is the power in breeding technology to target problems plant breeders simply couldn’t tackle five years ago.
And our disease resistance program is the perfect example. With the tools of high throughput screening and advanced markers, we’re able to supercharge our efforts here and that acceleration is evident this year.
On slide 16, we deployed this resistance capability in row crops, with four major advancements that target some of the most devastating diseases in corn, soybeans, and cotton. And likewise, we’ve leveraged those same tools in vegetables, and you can see on slide 17 that we’ve added two completely new projects and advanced another key project in our focused crops.
And as I complete the run of the technology platforms, I can’t stress enough the differential advantage we get because of our breeding engine across crops. Now, we did an extensive review of our data at our November event, but I have one significant new update to highlight today.
On slide 18, you can see our cotton results for this year, where the new cotton varieties we’re launching are delivering a similar step change in performance to what we’re seeing in corn. We’re outyielding the competitive best by 6%. And that’s about 74 pounds of cotton lint per acre, or nearly a $60 an acre advantage for Delta Pine cotton.
On slide 19, you’ll also see that we’ve now put back to back years together with a better than four bushel per acre advantage of Roundup Ready 2 Yield over the first generation product.
But the highlight for me continues to be our corn advantage, on slide 20. With our final results, our yield advantage is eight bushels an acre, and so even in a year where overall yields were some of the strongest we’ve seen, we’re still in that 7 to 10 bushel an acre advantage band. And it’s that consistency and performance that defines our DEKALB products and really forms the base of technology and performance across all of our products.
And that, I think, is an absolutely critical point, on slide 21. There’s always a lot of talk about new technologies or products, but everything we do is built on the best-performing seed in the industry. And increasingly it means that the more we pair our germplasm advantage with technology in the seed, in the bag, and in the field, the bigger our competitive advantage can become.
While our R&D leadership is key, it’s more than just the fact that we have a record number of advancements. The pipeline itself paints a compelling picture of where this industry is going. Increasingly, we’re moving beyond farmers making due with disconnected input components, and we’re on the leading edge of giving farmers real, integrated systems in their fields.
Think about it, you start with the seed that’s capable of delivering more yield than at any other point in history. And then we protect that with cutting edge traits embedded in the seeds. Wrap around that chemical and microbial seed treatments that fend off disease and increase the health of the plant. And then utilize sophisticated algorithms to plant and position all the inputs, meter by meter, across the field.
We’re talking about a prescription agriculture that looks a lot like individually personalized medicine, and that’s how we’re going to drive yield and productivity, and you can see all the elements coming together in waves that build on each other, and which drive the opportunity for our farmer customers and our company.
So thanks, and I’ll turn the call back over to Bryan for the Q&A.
Thanks, Rob. And with the extended conference call to accommodate the R&D update, we’ve planned for some additional time for questions as well. With that, we’d like to open the call for questions now, and as we typically do, I’ll ask that you please hold your questions to one per person so we can take as many questions from people as possible. You’re always welcome to rejoin the queue for a followup. So, operator, I think we’re ready to take questions from the line.
[Operator instructions.] Our first question comes from the line of Vincent Andrews from Morgan Stanley.
Vincent Andrews - Morgan Stanley
I just want to try to square some of your qualitative comments about the order book and where the year sits with what we saw in the quarter, as well as where your deferred revenue is. And I guess in particular, what I’m trying to understand is how the deferred revenue wound up being flat year over year. And the simple math that I’m doing is that we see corn acres down in Brazil, it looks like they’ll probably be down in the U.S., and so I’m assuming that means your overall volume will be down. And if volume’s down, I kind of think that means price mix must be up to keep deferred revenue flat. Is that too simple of a calculation? Or are there other moving parts?
Maybe I’ll let Pierre give a little bit more color on that, because there is a bit of algebra and geometry playing there. But I think the headline in this is we feel good about where our order book is.
Regarding the deferred revenue and the prepays and the order book, which all go together, we really feel we’re in a very good situation. And maybe what you missed in the criteria you listed is that remember last year’s season was extremely early. So actually with all the discussions around the acres that are going on right now, the fact that the season last year was way earlier, and farmers were trying to secure supply, actually being at the same level of prepays as we were - actually we’re a little up - versus last year, we feel is really a vote of confidence from the growers. So it’s still very early, but we feel actually very good about the situation regarding our prepays and deferred revenue.
Our next question comes from the line of Robert Koort of Goldman Sachs.
Robert Koort - Goldman Sachs
I appreciate the comments around the order book. Just sort of following onto that last question, just qualitatively it seemed like you indicated the mix was improving. That seemed maybe a little bit counter to what some might have thought with corn prices falling here. So I was just looking to see if there are any trends below the surface you’re seeing to indicate that farmers might be either trading down on the type of seed that they’re buying or that you’re seeing any increased competitiveness when it comes to pricing or discounting going on right now.
I think the danger is we always default to corn and the love affair with corn, and soy sometimes gets neglected. And I think Brett, you started this by talking about margin upgrades, and we’ve seen that in both corn and in soy, or the front end of that in corn and soy. Maybe just a word on mix and volume, how you’re feeling about that?
I think that’s a really important part of this. We started the year with a focus on margin, and that margin improvement comes from continued movement to second generation traits in South America, which albeit acres are down, but we clearly see our second generation traits moving up in our portfolio.
So I see famers stepping up, not stepping backwards. We see the strength in our portfolio, whether stepping forwards to our new germplasms, our new hybrids and varieties. And when I look at the U.S., I feel really good about the mix that we see in our early order book. As I look across, the farmers are not stepping back. They’re actually stepping up to the better performing products in the order book. So that’s why I feel so good about it right now.
From a competitive standpoint, to your point in the market, we’re back to a normal year, and there’s normal noise in the marketplace, but I don’t see anything out of the ordinary or what we would expect. The focus for us is we’ve got the best germplasm and performing products, the best trait packages, and we’ll stay focused on that.
Robert Koort - Goldman Sachs
And just a follow up, if I could, on Intacta. Just the difference between Intacta and the second generation of it. As Brett mentioned, we’re seeing a lot of pest pressure in Latin America in soybean now, and hearing a lot about corn earworm there. And I see on slide 14, it seems to indicate that maybe the second generation is providing more comprehensive protection. But could you just qualify if the Intacta that’s out there in the market today will be giving farmers a level of protection against corn earworm? Or is that something that’s coming in the second generation one?
We’re seeing, as Brett mentioned, a pretty heavy insect pressure across parts of the Brazil production areas, and the Intacta product has performed very well against caterpillar pressure, particularly in the earworm. As we bring the second generation product, with multiple modes of action, that performance will only increase, as will the durability of performance of the product. And we’re working on the third generation product as well, with additional weed and insect control benefits. So it’s clearly a major opportunity for technology and we have a pipeline of products that are very targeted to bring innovations over the next decade.
The next question comes from the line of Michael Cox from Piper Jaffray.
Michael Cox - Piper Jaffray
My first question is, I was a bit surprised to see the decline in corn gross profit, given your commentary around the biotech mix benefit in Latin America. I guess not withstanding some of the acreage issues there. But I was wondering if you could provide me maybe a bit more color around what drove this year over year decline in Q1.
Very consistently, what we were expecting, so what we’ve seen in the first quarter is first, what Brett was mentioning, I mean, in South America, both in Brazil and Argentina, we are seeing the trait upgrades we were expecting. So from a pure business perspective, things are going really well. However, as you mentioned, this is balanced by the reduction in acres that we’ve been seeing in South America and that we were anticipating.
And the other factor that’s been playing in the first quarter, and that we are watching very closely, is the currency. The real compared to last year has been way weaker against the U.S. dollar, and that’s something that we are watching, and taking a good look at, at this point in time.
But overall, I think what’s really important is really the margin improvement. We are very consistent with what we were expecting, and very consistent with our plans at this point in time.
Michael Cox - Piper Jaffray
And then just one quick follow up on FieldScripts. I think Rob mentioned in the prepared remarks that it’s important to get the first few hundred thousand acres done right, and is that a fair estimate for your expectations for FieldScripts this year, somewhere in that few hundred thousand acre range?
It will be on that order. I think the name of the game at the start of this, to Brett’s point on combining this group and letting David run it, the name of the game is happy, satisfied customers, really driving that experience and building subscription acres. I think we’ll be on that kind of order in the first year.
You know, the news this morning of the MOU with Winfield, I think is really huge. They’re the early pioneers in this space, they’ve done a bunch of work across a number of crops, and I’m really delighted that we’re strengthening and building that relationship with the team there. They’re really good people.
Our next question is from the line of Jeff Zekauskas from JPMorgan.
Jeff Zekauskas - JPMorgan
A couple of questions for Pierre. Did you collect any meaningful amount of revenues from your new Dupont royalty arrangement? And did that show up in the soybean gross profit line? And secondly, on your share repurchase, you bought back $561 million worth of stock, but your fully diluted shares actually went up sequentially from 531.5 to 532.6. So how did that happen?
Regarding the first question, there’s no revenue associated with our agreement with Pioneer booked in the first quarter. So the answer to that is no. All the revenue is coming from our Brazil business, which basically is related to Intacta. So that’s a big upside for us this year. And we are right on track there. And the second element is also the early season in the U.S., where we see very, very good momentum.
Regarding your questions regarding shares, one of the factors you see playing in the first quarter is the buybacks, but also some of the dilution factors we had related to our stock options programs. On the accuracy of the numbers, I’ll need to come back to those, but basically overall, when we’re looking at it from a pure quarter to quarter comparison, year-to-year we’ve been reducing by 8 million.
I think you’re comparing with the end of August, and I don’t have that number in front of me. But from a year-end to year-end, we’ve been able to reduce our share count by about 8 million now. Within the quarter you may have seen some dilution effects related to stock options. We may have to come back to you on this one.
Jeff Zekauskas - JPMorgan
And then just a quick follow up, were your glyphosate volumes up in the quarter, or down?
Volumes were marginally up. We’re seeing some timing benefits in the first quarter. What is really important, I think, beyond the pure volume side, and there is some, is the portfolio, the breakdown in between branded and nonbranded products has been really favorable to us in the first quarter. And remember also when you’re drawing the comparisons with last year’s numbers, in the first quarter last year we didn’t have the prices set at the same level as we’ve seen for the rest of the year, so in this first quarter you’re seeing a huge catch up in terms of pricing to get us consistent with the last three quarters of last year. That’s kind of the way it’s been playing out.
Our next question is from Don Carson with Susquehanna Financial Group.
Don Carson - Susquehanna Financial
Question for Rob on R&D. With the new platforms, precision planting and biologics, what impact is this going to have on R&D spending in both absolute dollars and percentage of sales in terms of perhaps a higher rate of growth? And you used to talk about how seeds and genomics R&D was roughly split 50-50 between breeding and biotech. How would you break it out with these two new platforms?
In general, we’re just starting the investment on the microbes and the BioDirect and the other IT platform, so there’s still, overall, a small portion of the R&D engine. I think when you look at our overall projections and expectations, I think we’ll still continue to be in that 11-12% band in terms of sales.
And I always make the point that one of the things that we’re able to capture and take advantage on is just the incredible efficiency gains that we get, both as a result of the new technology platforms. You know, I give the example of the cost of sequencing, the cost and data point per data marker is dramatically down. We’re a lot more efficient in terms of our use of IT tools across our breeding and R&D efforts.
So I expect us to stay in that band. We might have seen a little bit of uptick in the first quarter, because as was mentioned on the call we’ve had a number of product launches and a few startups, particularly with the microbes and some of the BioDirect projects. But I see us staying in that historical band as a percentage of sales.
Don Carson - Susquehanna Financial
Just a follow up, on corn rootworm 3, given your advance to phase 4, and given the greater efficacy and durability of RNAi versus BT, what are your thoughts as to the kind of value that’s inherent in that product in terms of a premium over what you might be able to charge on existing corn rootworm control products?
I would never take away the opportunity to price from Brett, but what I can tell you is from field testing this last year, the performance is outstanding, and the synergy. And we will deploy, as I mentioned in the prepared remarks, as an upgrade to Smartstax, and it will become our Smartstax Pro product towards the end of this decade. You know, having a new mode of action against a pest that is as important as corn rootworm, I think is a really big deal. Now that we’ve launched Intacta, I think you have to look at both the Smartstax Pro and the Roundup Ready 2 Extend in soybean and cotton as really the next two big biotech blockbusters coming out of the pipeline.
The next question comes from the line of Chris Parkinson of Credit Suisse Group.
Chris Parkinson - Credit Suisse Group
You mentioned this briefly on the call, but I noticed there’s some interesting advancements in cotton, on both the biotech and breeding fronts. Can you just further hit on some general thoughts here concerning the competitive oppositioning and the potential this market could bring over the next year or two given it hasn’t been a huge investor focus recently?
I’ll maybe ask Rob to say a bit more on the technology, but the interesting thing in cotton is, as in all these crops, performance really counts. And in cotton, it really really counts. And you see quite significant share movement when you have that performance edge. So I think the increment that Rob talked about today can translate into share gain in the next couple of seasons. And that cotton grower, given the economics of cotton right now and how much pressure there is, they’re looking for that next opportunity. But Rob, you talked about significant gains. Anything else?
Yeah, there’s a lot of exciting new technology targeted into cotton. I mentioned the breeding gains that really come from the full deployment of our markers. We’ve also seen some really nice breeding trait technologies, and I specifically highlighted the nematode tolerance. So then on the biotech front, the Roundup Ready 2 Extend will be a major technology addition for U.S. and South America growers. And we continue to make progress on the advancement of Bollgard III.
So the challenge in cotton is not the technology platform. The acres are more limited in cotton than in other crops. As you know, in Australia our market tends to be regulated by the amount of water and rainfall, and we’ve seen the challenges of course in India with the slowdown in regulatory acceptance for biotech products.
But overall, cotton remains an important crop for us. It’s a crop that we invest in proportionately to the fact that it is probably the third largest crop platform in our portfolio. But we also recognize that it’s one that we have to ensure that we extract the appropriate value for the technology.
Chris Parkinson - Credit Suisse Group
And just a quick follow up on some of the corn questions earlier. Given the South American corn acreage decline, how should we think about the offsets of some Eastern European acreage growth, particularly in the Ukraine and Romania? And if you could just give a quick overview of what you’re seeing there, including any market share developments?
I think that’s one of the big advantages we have today, is the geographic balance of our portfolio. Whether those corn acres happen in South America or Eastern Europe or in the U.S., we’re in a position to participate in a significant way. I think it’s really important, when we talk about corn acres, to step all the way back to the broad picture.
The reality is corn demand continues to grow around the world, and we don’t see anything that’s changing our expectation with that overall demand growth. Sure, we’ve seen the acres pull back a little bit in South America. There’s some discussion about where they’re going to be in the U.S. this coming year and what that means for Eastern Europe.
But at the end of the day, global demand is continuing to grow for corn. We have to figure out how we can increase the productivity of corn, and the acres are going to be a component of that that’s going to be a variable every year. And rather than trying to guess acres every year, we’re focused on the big demand for corn, how do we increase productivity, and we’ll use those tools on whatever acres get planted each year, because our profitability is going to come out of increasing the productivity and bringing new technology and tools and suites of tools to the farmer.
Your next question is from the line of Kevin McCarthy from Bank of America.
Kevin McCarthy - Bank of America Merrill Lynch
How would you assess the level of competitive intensity in U.S. corn this year versus last year? And specifically, I was wondering if you could comment on where you think your price mix contributions are tracking versus your target of up 5% to 10%?
I’d say this was more a normalized year in every respect, in terms of pace, in terms of drawdown of orders, the builds, and the order book, and also competitive intensity. So we saw some hot spots. But Brett, how would you compare it to last year?
I would say that the thing that we have to be careful of is when we start comparing to last year, with the tight seed supply no one was too interested in being too aggressive with anything. But what I see out there in the marketplace today is more like what I would call normal, when most seed companies are in a good position with supply, and the market’s a little tighter because there’s discussion about less acres and those kinds of things. It’s moving at a normal pace.
I’d call it normal. I’m not overly concerned about the activity that’s out there. You manage the hotspots, and you move on. And we’re fortunate today to have such a broad, deep portfolio of products that we’re offering in the marketplace, that it sets us up well to participate in those conversations.
Kevin McCarthy - Bank of America Merrill Lynch
And then as a follow up, for Brett, on the subject of glyphosate. It looks like we’ve seen Chinese technical grade prices come off over the last three months or so. What implications would you expect for Monsanto’s prices and volumes as the year progresses? And perhaps you could provide a bit more color on where your mix of branded product stands today, and how that’s trending?
Let me start with where you ended. As I look at the Roundup business, as I mentioned, our mix of branded product is the highest it’s been in many years. So I feel really good about that, and I see that intensifying this year, particularly with the increase in acres of soybeans in North and South America. And over the top applications tend to prefer the Roundup brand. So we’re in a good place there.
I kind of look at Roundup as, you know, we have a six month line of sight on what’s going on in Roundup. And we don’t pay as much attention to what’s going on with acid prices out of China as we do what the generics are doing, and how they’re pricing in the marketplace.
But as I look at that next six months or so, I don’t see a lot of change occurring in it. That’s why I’m looking at it as flattish prices to what we’re seeing today. The step up we got in this first quarter, as Pierre already mentioned, was the catchup in the first quarter year over year comparison to where we were last year.
So I don’t see a lot of change. Our history has been in that $10 to $12 range. We’re kind of floating towards the high end of that $12 range, and I still feel like, as we look to this year, that’s going to be a reasonable place. But I still think it’s flattish as we go through the next six months.
The next question comes from the line of David Begleiter with Deutsche Bank.
David Begleiter - Deutsche Bank
Given last week’s Cheerios news, what’s your view on this potential growing consumer resistance to GMOs and what can you guys do to offset that or put your case forward more aggressively?
The interesting thing with Cheerios, or with that particular brand, is they’re made from oats. And there are no biotech oats in existence today. You know, we’ve thought for years that we would support voluntary labeling, and that that was up to companies to do. I think what you saw last week was the first real live example of true voluntary labeling, and probably a little bit of marketing as well.
I would say this, the last six to eight months now, we’ve had a better dialogue with the broad food industry than I’ve seen in the previous 10 years. The back end of last year, September/October last year, you saw the food industry led by GMA getting out there and posting websites that talked about the safety and benefits of these technologies.
So it’s a lively debate. I think we’re going to see more of these market initiatives and more voluntary labeling. But I like the fact that there’s a dialogue, and I like the fact that the food industry is in the game and is actively discussing these technologies. It’s a lot healthier than it’s been the last 10 years, I think.
David Begleiter - Deutsche Bank
And just a quick follow up for Brett. Just on ag productivity, is your guidance still the same for full year, flat to up modestly? Or is it a little bit stronger than that now given the strong Q1?
I think it’s very consistent. It’s playing out as we had expected. We expected the step up in first quarter. But I’m still looking at pricing being flattish for the year. So it’s as expected.
Our next question is from the line of Mark Gulley from BGC Financial.
Mark Gulley - BGC Financial
Rob, I’ve got a question regarding yield in the field. It has to do with the kind of data you need to help growers make better decisions. Are you going to need to supplement the data you’re getting from weather, from Climate Corp, or something else, the field surveillance? I’m thinking in terms of robotics or something like that. Is that necessary to drive this forward? Or do you have enough to work with now?
In general, for us, let’s just focus on FieldScripts, which are the product that we’ll launch this spring. And we did the Ground Breakers last year. And for me, the highlight of the Ground Breakers, we tested a couple of different scripts, and our high intensity script, where we had knowledge that we worked with the grower both on past crop history, on fertilization levels, gave us a script that put us in the 5 to 10 bushel per acre yield benefit. So the information that we need to move forward with that first generation script, I think we’ve proven that and tested that last year.
You know, the other big thing that came from the testing last year was how well the system worked in terms of the wireless transmission, the delivery, the reliability, and the robustness of the iPad system that we have in the tractor cab. So I feel really good about our ability to execute on that first generation script and deliver value to growers, and we know clearly the information content there that’s important to deliver that yield benefit to the grower.
What we’ll see with the benefit from the Climate Corp capability is we’ll add to that basic script a weather-enhanced version. So we’ll be able to make even better selections on hybrids, make better recommendations on planting dates and which fields should be planted first. So that will only enhance the yield benefit of FieldScripts.
And then on the part, I would just highlight, it was mentioned in the call, we’re really working now to develop partnerships with the other companies that will expand on that base. And it’s great to be able to announce the MOU today on the partnership with Winfield, because they’re a leader in this space, and they bring both a footprint of additional crops that we’re not participating in, and that will be a nice opportunity to create incremental value for both companies.
Mark Gulley - BGC Financial
And then in terms of helping farmers increase their profitability, I’m intrigued by the comments you’ve made so far on soil fertility and application rates. I know it’s early days, and as you’ve just indicated, you’ve got a lot on your plate right now, but any long range view on what you can do to perhaps reduce application rates of various nutrients?
I think that’s something that we continue to work on. And as you see in our scripts, one of our next generation scripts will be variable nutrition. I think right now the most important benefit that we’ll see, as we vary the population, we will need to vary the nutrient proportional to the seed planting density. So our first focus is to optimize the use of nutrition to optimize yield, not necessarily to reduce it. And that’s the key.
The other factor that comes in, that is being built into the models and really I think is going to be a key benefit of the integration of all the technology with Climate Corporation is we know that the nitrogen uptake is both weather conditioned and hybrid specific. So being able to bring together the unique knowledge of the hybrids with precise field weather history is going to be really important as we think not only about the initial applications of nutrients, but the side dressing and in-crop feeding that may also be very, very important.
We’ll get some nice insights from Winfield as well.
I realize that we’ve extended the conference call a little beyond our normal stopping time, so why don’t we take two or three more questions here.
Our next question is from the line of Mark Connelly from CLSA.
Mark Connelly - CLSA
As you start to negotiate deals like Winfield, how are you thinking about your desire for market penetration versus maybe their desire for exclusivity? And is that going to be different in row crops versus fruits and vegetables?
We haven’t really done too much in fruits and vegetables yet. I guess as we think about the row crops, we’re thinking about expanding that pie. I think our early philosophy on broad licensing continues to apply. So the ethos of getting as many people in as we possibly can. I think the days of exclusivity are long behind us. And as I mentioned at the start, the grower experience, building grower confidence and really really driving subscription acres, is the goal. But I’m very very pleased that Winfield is the first partner up on the platform, and I look forward to the days when we’re announcing more in the future.
Mark Connelly - CLSA
And if I could just ask you a quick question to Dr. Fraley, in the past, sometimes your decision on pipeline dropouts have been almost as important as the things you move forward to. For example, when you decided that the corn for ethanol wasn’t attractive. Is there anything like that in the pipeline that’s dropping out this year that represents a major decision or significant shift for you?
There’s not really anything major this year. I think probably the only project that I’m aware of that dropped out of the pipeline is we’ve made a decision to stop some of the yield work in cotton that was part of the BASF collaboration. But that was a pretty minor effort. And as I mentioned in my prepared comments, we’ve extended that relationship, and it’s really focused on bringing those advanced yield traits in corn to the marketplace.
Your next question comes from the line of Frank Mitsch with Wells Fargo.
Frank Mitsch - Wells Fargo Securities
Apologies for beating a dead horse here on this ag productivity, but it was the best level that it’s been in like five years. Brett, I know you said that you expect flat pricing, but are you going to continue to see the mix of branded versus nonbranded increase, which obviously would bode well for your gross profit for the rest of the year? And I think you indicated that your expectation is to see it reach normalized levels, which I believe is a level below here. When are you thinking? What kind of timeframe are you thinking about that?
As I look at the year, I really look at it as good visibility for the next six months, and I don’t see any drivers that really encourage significant change in pricing. But of course we’ll always monitor that and watch where the generics are in the marketplace. We’re already at some of the highest levels of brand versus nonbrand that we’ve been in a number of years, and yes, that continues to strengthen. And part of what’s strengthening that this year is the higher soybean acres, and the demand for the over top product.
I remind you that when we think about our Roundup business, we make around 300 million gallons and sell around 300 million gallons. So yes, we’ll continue to improve with the mix gain, and we’ll do that as we can throughout the year. But we won’t have additional volume.
Frank Mitsch - Wells Fargo Securities
And then on TCC, they announced that they were launching Climate Pro while we were at the investor day in November. What’s been the receptivity for Climate Pro? And can you share with us any expectations in terms of acres for fiscal ’14 or fiscal ’15?
I have to tell you, I’m really excited about that whole space, as I shared on the call. We just brought all those businesses together between the Climate Corporation, our IFS work that we had already going on, and Precision, and putting that into a new business platform. And David’s leading that, and that’s all feeling really good. And yes, they launched the Climate Pro.
I would tell you, just like Rob said, this is an area where I see more farmer interest than most anything we’ve done in quite some time. And our focus in the early years, number one, is going to be around the whole suite of things that we’re bringing forward, and making sure that we help the farmer leverage the whole suite to get the biggest impact, buying the best genetics, protecting it as best that they can with what’s in the bag, and then what we can do to help them grow that crop.
And our focus is going to be on around a few hundred thousand acres in the early period with this, to really make sure the farmer has a great experience, and that gives us the momentum to build from. So this is strategically more about a great farmer experience than it is about acres in the near term, and then we’ll take it further beyond that. But Climate Pro will be a component of that.
Why don’t we take one last question and then we’ll wrap up with some final remarks by Hugh.
Your final question is from the line of John Roberts with UBS.
John Roberts - UBS
In terms of the Roundup pricing adjustment, should we think about the first quarter as annually being this sort of catch up, either up or down, on your pricing relative to generics?
I look at it as it was coincidental, that the pricing was somewhat stable through the last three quarters of last year, and that we’re catching up in this one. As I said, our price adjustments going forward over the year are going to be more based on where the generics are in the marketplace, so depending on when they choose to move around, that’s going to drive ours. So I think it’s coincidental, that it just happens to be the first quarter catch up, whether it’s up or down.
John Roberts - UBS
And then secondly, Rob, you kind of slipped in the wheat advancement to phase 2 in the appendix there. While it’s technically moved forward, has anything market-wise changed in terms of customer interest or receptiveness around having GM wheat?
I’m glad you noticed that. Yeah, we’ve field tested and advanced one of the first wheat biotech products based on improvements in weed control. And from an overall market perspective, the grain industry and the wheat industry, specifically the wheat trade industry, has remained very interested and supportive of biotech advances.
I mean, a wheat farmer is generally also a corn and soybean farmer, and they understand the benefits of the technology and the wheat industry has watched the benefits that this technology has brought to both corn and soybean. And so we continue to make advances. We’re still several years away from product launch, but it’s nice to see those products in the pipeline. Thanks for noticing.
And just to reemphasize Brett’s point, there is no seasonality of timing in this. We lay that Roundup brand price really close to that Chinese generic [unintelligible] price. So we’re in no doubt that we continue to compete with that Chinese generic material.
So let me wrap up. I’m conscious of the time this morning. So let me begin by thanking everybody for joining us on this call. As I mentioned in my opening, there’s no doubt that the first quarter, increasingly, provides an important milestone in affirming our confidence, and it reinforces the 2014 opportunity.
And in the near term, I think we’re seeing the right indicators for the important opportunities in Latin America as well as the ongoing delivery of our core businesses in the U.S. And that’s reflected in our confidence in delivering on our outlook, even in a year where agriculture is more variable than it’s been in the past few.
Beyond this year, with the R&D update that Rob walked through today, you can see that we’re in a better position than ever to add waves of technology that come together in the seed, in the bag, and in the field. And today, as we bring together the Climate Corp, IFS, and Precision Planting, we see the opportunity for collaboration and open architecture, with equipment partners, with crop nutrition, and with grain partners going forward. And that’s what will continue to drive our opportunities into the future.
So on behalf of the team here, I want to wish all the very best to you and yours as we start another new year. Thank you very much for your participation.
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