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Executives

Bryan Corkal -

Pierre Courduroux - Chief Financial Officer and Senior Vice President

Hugh Grant - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Bryan Hurley - Director of Investor Relations

Analysts

Michael Picken - Cleveland Research Company

P.J. Juvekar - Citigroup Inc, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Laurence Alexander - Jefferies & Company, Inc., Research Division

Michael E. Cox - Piper Jaffray Companies, Research Division

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Vincent Andrews - Morgan Stanley, Research Division

Monsanto (MON) Q4 2011 Earnings Call October 5, 2011 9:30 AM ET

Operator

Greetings, and welcome to the Fourth Quarter 2011 Monsanto Company Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bryan Hurley, Investor Relations Lead for Monsanto. Thank you. Mr. Hurley, you may begin.

Bryan Hurley

Thanks, Kevin, and good morning to everybody on the line. Thanks for joining Monsanto's Fourth Quarter Earnings Conference Call. I'm joined this morning by Hugh Grant, our Chairman and CEO; by Pierre Courduroux, our CFO; and also joining me are Manny Cruz; and our new colleague in Investor Relations, Bryan Corkal. This call is being webcast and you can access the webcast and supporting slides at monsanto.com.

The replay will also be available at that address. We're providing you today with EPS measures, both on a GAAP basis and on an ongoing business basis. Where we refer to non-GAAP financial measures, we reconcile to GAAP in the slides and in the press release, both of which are posted on our 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 statement. 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.

For today's call, Hugh will walk you through the context for our fiscal year 2011 earnings and then focus on how these results set up our growth into 2012. Here, we'll lay out the translation of that growth into our guidance and financial outlook for 2012. With that, let me move directly to Hugh to begin our review today.

Hugh Grant

Thanks, Bryan, and good morning to everybody on the line today. I see the year end as a punctuation mark for us in fiscal year 2011. It closes out an important year and it puts a final emphasis on the results and execution that we've seen building over the course of the fiscal year. So that's where I want to focus today.

But before I get to that, as I did in the last quarter, I'll start with one update on the reporting adjustment noted in our press release today. As I shared with you on our third quarter conference call, the staff of the SEC is conducting an investigation regarding the financial reporting of our customer incentive programs related to glyphosate products. Following the SEC notification, we initiated our own review, and the audit and finance committee of the board retained independent advisors to conduct a full investigation.

As a result of that work, Monsanto will adjust and restate portions of the financial statements from 2009 through 2011. As a result of the pending restatement for the prior financial statements, we don't provide comparisons with our prior financial periods for Ag Productivity or total company in today's earnings release. However, we do include the relevant comparisons for the Seeds and Genomics segment.

So let me briefly walk you through the expected changes. First, the adjustments will be made only to Ag Productivity. They mainly relate to the accounting treatment and the timing of accruals for annual customer incentive programs for our glyphosate products. These programs had been treated in an individual accounting year and are now associated with other fiscal periods. Ultimately, total revenues and total costs for the company for these years, taken as a whole do not change.

While these particular incentive programs are no longer in place, the adjustment on timing of the accounting for them will be reflected across multiple years. In fiscal year 2009, the adjustment reduces the full year EPS by $0.05 to $0.10 negative. For fiscal year 2010, full year EPS would reflect the change of a negative $0.02 to a positive $0.03, and the fiscal year 2011 ongoing EPS of $2.96 that we are reporting today includes a benefit of $0.05 of EPS change from these accounting adjustments. All of the adjustments will be reflected when we make our 10-K filing later this month.

These changes don't affect any prior financial information for the Seeds and Genomics segment. Importantly, the fiscal 2011 financial information that we're reporting today includes all the adjustments that we're making for the 2011 fiscal year. As I indicated when I first discussed this last quarter, we take this matter seriously and we'll continue to cooperate fully with the SEC.

If you step back from those adjustments, what does it mean for 2011? Practically, 2011 is a higher base. But given the strong performance in the core of the business this year and the growth opportunity next year, we will grow mid-teens earnings of that higher base in 2012. I'll let Pierre handle the specifics of our guidance. But fundamentally, there's a compounding effect to our guidance as the 2012 growth is additive to a larger 2011. And that actually frames how I see 2011 and how that in turn sets up 2012 which we cover on Slide 5.

First, 2011 was a year of reestablishment for Monsanto. And with what we've accomplished this year, we've turned the corner. We've reignited the core momentum in our business, and we've returned to growth mode on a wider stage. With these financial results, we've proven that we can deliver mid-teens earnings. If you pair that with our ability to generate strong free cash flow, then we emerge from 2011 with strong fundamentals.

Second, from a business perspective, we reconnected with our farmer customers, and we turned that into positive momentum that we now carry into 2012. That's most visible in the U.S., where we overhauled our strategy and we told farmers that our focus would be on what helped us earn our leadership in the first place, bringing more innovation and creating more incremental value for our grower customers than anybody else. The response to date has been very good and the results shine through in our numbers this year.

Third, from a strategy perspective, in 2011, we've set in motion increasingly global opportunities and previous iterations of what I term as breakout years, we'd be quick to highlight a primary product for our region that drove the results. That's not the case in 2011. The sources of our growth this year whether sliced by crop or by geography were more diverse. That's by design.

Our core will continue to revolve around the U.S., but with the ascension in Latin America in particular, fiscal 2011 ushered in the next evolution of Seeds & Traits and takes it to a more global stage.

We have reestablished our business in 2011, and I see that momentum continuing into 2012. If we go to Slide 6, our focus on the strategic drivers for this next phase. At the top of the list is the opportunity to capitalize on the strong response that we've seen to our product and pricing strategy in the U.S.

As Brett Begemann mentioned a few weeks ago on our preharvest update, the positive feedback from our customers has been a highlight this year, but we don't take it for granted and there's still work to do. So here's the keys for 2012. If 2011 was all about establishing our platforms in corn and soybeans, 2012 is about accelerating them to become our lead business drivers.

If you start with soybeans on Slide 7, with the step up of more than 10 million acres in 2011, Roundup Ready 2 Yield was planted on 17 million acres and has clearly achieved the status as our key platform in soybeans. That 10 million acre growth pace is a good trajectory as we see our platforms expanding, so we'll anchor off that increment again in 2012. Practically, that means that we expect Roundup Ready 2 Yield penetration to step up to around 27 million to 30 million acres in 2012.

The step up does 2 things. That means Roundup Ready 2 Yield is the primary product in our soybean brands, reflecting approximately 3/4 of our branded volume in 2012. Just as importantly, the acceleration puts us squarely on the penetration trajectory to allow us to upgrade our soybean platform to Roundup Ready 2 Yield well ahead of patent expiration of the first generation Roundup Ready. If we move to corn on Slide 8, the strategy and the core outlook are similar.

In practice, our platform revolves around 3 products in the Genuity Reduced-Refuge family. Genuity SmartStax, VT Triple PRO and VT Double PRO. As with soybeans, we saw a 10 million acre step up in 2011, establishing our platform in its second year, at 13 million acres.

We plan to step up again next year anchoring off a similar 10 million-acre increment in the third year of this new platform, as we expect total acres to expand to 22 million to 24 million acres in 2012. That tracks with the earlier history that we saw as triple stacks ramp up and it means that we expect the Reduced-Refuge family will reach about 3/4 of the total peak penetration of triples in just its third year of availability. We expect the Reduced-Refuge family will be the majority of our volume, in both DEKALB and across all our corn brands in 2012, and we're going to take full advantage of our competitive lead with these products.

For SmartStax in 2012, we now project that we'll have more than 100 hybrids available across all channels. We've been able to build a deep portfolio offering for growers in the core Northern Corn Belt for SmartStax as the lead product. Likewise, all of our branded SmartStax will be SmartStax RIB complete, positioning it as the industry's only 5% single bag RIB product for above and below ground insect control, and we see this driving continued interest and adoption. Following the regulatory approval, we also expect that the Double PRO volume that we have in 2012 will be RIB complete as well.

I also recognize a key differentiator in these platforms is performance, so it's particularly timely that we can give you an update in some of the very early harvest results coming in. As you know, we're less than a quarter into the total U.S. harvest, so I won't get ahead of the data with a deep dive. But on Slides 9 through 11, we've given you a snapshot of progress and early results where harvest is most advanced.

I'd summarize it by saying that in areas where we have good data like the data for Triple Pro coming out of the early southern harvest, we're squarely on track with our expectations and we're delivering the yield advantages that will differentiate our products. In the areas where harvest is still pending like the northern areas that are home to our SmartStax volume and the later soybean harvest for Roundup Ready 2 Yield, the early single plus and the anecdotes reinforce our confidence in our product performance.

We'll update harvest data at our upcoming November Investor Day, but I think my early take is that in a year where heat and stress are going to depress overall yields, our products are going to show yield advantages that will differentiate us from competitors and reinforce that we've the best product offerings for our farmers. That's the perfect segue for the final area of emphasis for 2012 in the U.S., and that's volume growth. Coming into 2011, we anticipated our new product strategy would reignite volume growth in the U.S., and it did.

With our returns now finalized, we can definitively say, our branded corn volume grew by the largest increment in the last 3 years. Even if you consider a continuum of where the ultimate acre base lands for 2011, our volume outpaced the market expansion and we've achieved organic share growth in DEKALB and across our brand platform.

In soybeans, the strong uptake of Roundup Ready 2 Yield allowed us to end the share erosion that we've seen in the past 2 years, and we've stabilized our brand share.

In cotton, even in a significantly expanded market, we've seen a resurgence in Deltapine as our breeding improvements pay off, and volume and share were up significantly in 2011.

These overall trends project globally as well, as our global Seed & Trait volume increased in 2011, and for a global crop like corn, we grew volume in every significant corn-growing country. Embedded in our planning for 2012 is our expectation that volume growth continues. So in key areas like the U.S., we elect to use our new product strategy to both enhance mix and drive continued volume growth.

The next place where we expect momentum to accelerate in 2012 is in Latin America, starting on Slide 12. In particular, we expect the ramp-up of the corn opportunity in Brazil and Argentina will be one of the single largest sources of new growth in the next few years. The core drivers are the same as the U.S.; it will be about volume growth and mix expansion from Seeds & Traits. But the starting point and the pace are quite different and they speak to the ability for our Latin American business to ramp up its relative financial contribution so significantly.

In the U.S., we launched corn biotech traits on a branded footprint of about 10%. In Brazil and Argentina, our branded footprint are multiples of what existed in the U.S., so we expect our ability to promote trait penetration and upgrades within our own brands can move the needle for the overall market.

In Argentina, with the volume growth, our share is above 50%. Against that, we'll expect to grow volume and most significantly, accelerate the conversion of double stacks to Genuity Triple PRO, which brings new insect protection and value that bolsters our mix.

Brazil, you'll see in Slide 13 that we hold the industry-leading share position with more than 40% in our brands. On that footprint, we've expanded trait penetration from 0 to more than 64% in just 3 years. With recent approvals for second-generation stacks, we expect the margin upgrade in 2012 will get a double shot, as we simultaneously ramp up our overall trait penetration and upgrades from first-generation products to higher value second-generation traits.

We saw the early indicators of the Latin American acceleration show up in the fourth quarter, but the point of emphasis for me is that this opportunity has now graduated from an area of potential to a central component of our growth, and that's why it's now become a key driver.

Not surprisingly, with a more balanced business with global contribution, the opportunity in the U.S. and Latin America is complemented by growth from our other key areas. In the interest of time this morning, I won't dissect each area today, but we also expect to see growth from our other international corn geographies and the continued contribution from cotton in the U.S., India and Australia. Also in 2012, we expect to see further growth in the gross profit of vegetables, as we focus on our growth crops and our emerging pipeline.

I focused on what drives 2012, but these drivers are at the heart of our core business. We'll spend more time on this at our Investor Day in November, but as a prelude, let me finish up today with a strategic thought that sets the scene for our investor event.

As you can see on Slide 14, it's a macro environment that clearly needs more grain over the next decade to satisfy escalating demand curves. That productivity focus plays to our strengths and I think that you'll see a couple of structural trends driving opportunity in the next decade.

First, the stage is set for geographic expansion that creates yield and it drives growth. Second, the underlying genetics are becoming more important as improvements in seed drives yield potential and value in every region. And third, optimizing yield ultimately won't be enough, so innovation becomes the differentiator that will take new yield that comes from innovation in breeding, in biotech and in agronomic approaches and that's -- and Monsanto is in the best position to provide that.

We turned an important corner in 2011. It shows up in the financials, but also speaks the deeper strategic opportunity as we've reignited growth in our businesses. And ultimately, 2011 is the platform from which we can head straight in 2012, as we capitalize in the momentum and we see the pieces of our strategy start to come together globally. So with that, let me hand the remainder of the time over to Pierre, who'll give you the specifics on how this translates in our guidance outlook for 2012. Pierre?

Pierre Courduroux

Thanks, Hugh, and good morning to everybody on the line. Today, I'm going to focus on translating the fiscal year '11 endpoints and the priorities Hugh described into the core elements of our earnings guidance for 2012. But before I do so, I'd like to start on Slide 15 and step back to summarize my view around where we stand from a financial point of view.

First, as Hugh said, we built our mid-teens earnings growth for 2012 from a higher base. And this reflects both the fact that our business came in above our revised guidance, as well as it takes into account the benefit of the $0.05 change from the financial statements adjustment in Ag Productivity. But the bottom line is our growth in 2012 builds on the strong financial base established in 2011.

Second, through the year, we've been able to translate a greater portion of our growth into free cash. I'll spend more time on this in a minute. But this reflect both our ability to convert core earnings into cash and the strong business position we're in to realize the benefits of a record year in collections.

And third, the sources of our underlying financial results this year speak to the balance and flexibility that's emerging in our business. Agriculture is by nature, variable, but with the growth of our International business, we've diversified our financial profile and that creates more flexibility across more crops and more geographies to address annual variability and deliver on our bottom line earnings commitments.

So I think the best way to see the translation of strategy into guidance is to walk you through the key lines of the financial statements on Slide 16. If we start with bottom line earnings, our ongoing EPS guidance range tracks mid-teens growth of the FY '11 endpoint of $2.96, which translates to $3.34 to $3.44 per share for fiscal year '12. That expected mid-teens growth is underpinned by 2 things. The core growth we delivered from our base business complemented by the below-the-line leverage as we maintain our operational discipline.

So above the line, the source of projected growth in 2012 is again, going to come from our Seeds and Genomics slide -- segment on Slide 17. You can see the base of that growth in the record quarter we had in Seeds and Genomics in the fourth quarter. On the strength of the emerging Latin American business, total Seeds and Genomics gross profit was $719 million in the quarter, a record contribution and more than a 50% improvement versus the fourth quarter last year.

Given that strong fourth quarter, our overall gross profit for Seeds and Genomics for the year ended at $5.3 billion, coming in considerably stronger than even the high end of the full year range of $5.2 billion we projected in the third quarter. And in each of our core crops, corn, cotton and soybeans, gross profit was up by double digits for the year.

As you would expect from the priorities Hugh laid out, we expect Seeds and Genomics to step up again in 2012. Practically, we expect Seeds and Genomics gross profit to be in the range of $5.7 billion to $5.85 billion this year, with the biggest contributors coming from volume growth and mix upgrades.

On the high end of our target, this is an incremental step up of more than $0.5 billion. And it fits with the pattern of annual GP contribution we observed during our previous growth trajectories. The other above the line contributor will be Ag Productivity. After the accounting adjustments, Ag Productivity delivered $773 million in total gross profit in fiscal year 2011.

That strong showing in the first year filling our Roundup repositioning reflects the positive shift to branded volume and good response to our Roundup Ready PLUS strategy. And in addition, the Lawn-and-Garden business concluded its second strongest year ever, adding the contribution from all the crop protection businesses. Given those, we expect that we've reached a new base level for GP in these segments and we project total gross profit for the segments in the range of $800 million in 2012.

If we now move below the line, this is a key area on the financial walkthrough, as we are focused on maintaining a disciplined approach to our spending so we can leverage the top-line growth of the business. Within these, the place to start is SG&A. We ended 2011 with SG&A at about $2.19 billion as SG&A ran a little higher consistent with a significant uptick in our Seeds and Genomics gross profit.

Going into 2012, we expect SG&A to be in the range of $2.25 billion to $2.35 billion. That is consistent with our expectation that SG&A will grow at or slightly above inflation. Over the past several years, we've significantly reduced our SG&A spend rate as a percent of sales, and our 2012 range will maintain that trend.

On the R&D line, we ended fiscal year 2011 with an R&D spend of $1.39 billion. As discussed during our third quarter call, we accelerated some of our planned R&D spend into the fourth quarter of '11 to support our Latin American opportunity. As a consequence, our net 2012 R&D spend will grow at a lower rate than we've seen in the past few years. Practically, that translates to an expected R&D range of $1.4 billion to $1.45 billion which reflects a roughly 1% to 5% year-over-year increase.

The final factor in our earnings guidance is the tax rate. With our year-end rates right at 30% for fiscal year 2011, we project our annual tax rate in the range of 30% to 32% for 2012. And practically, these rates reflects the geographical distribution of our earnings, as we see increased growth from some of our x U.S. businesses. Combined with our expectation, we'll realize some discrete items.

If I now bring all the P&L elements together, let me tell you how I expect to see the flow of earnings throughout the year on Slide 18. With the ascension of Latin America, I think we'll see 2012 as the first year of some structural changes to our historical earnings pattern. Our first quarter will still be a small quarter. But with more contribution from the growth in Brazil and Argentina, it will start to reflect a higher percentage of full year earnings.

So while we don't traditionally give specific projections for the first quarter, we wanted to provide some better clarity during the transition. In 2012, that means we'd expect first quarter ongoing earnings in the range of $0.10 to $0.15 per share. The bulk of our earnings will still fall in our second and third quarters, as those quarters reflect the majority of our Seeds & Traits business. And the fourth quarter will still be a loss, but likely slightly less than we saw in 2011, as the same Latin American effect begins to contribute more earnings to offset our full load of expenses.

The last piece I'll cover is the outlook for free cash flow on Slide 19. At the beginning, I mentioned one of the highlights of the year was that we were able to generate such significant cash flow in fiscal year 2011. For the full year, our free cash flow was $1.8 billion.

I look at 2011 as a transition year where we enjoyed significant and stronger than expected tailwinds from a cash viewpoint. Simply put, the step up in cash reflects a record year for collections, with the highest ever collection for the full year, as well as in the fourth quarter. Those strong collections also benefited from our restructuring actions that streamlined key elements of the business for 2011, and the benefits of restructuring also show in our inventory and payable percentages. Taken together, we've been able to improve our balance sheet position for working capital, excluding cash and cash equivalents, by nearly $600 million in 2011.

As we look to fiscal year 2012, I don't expect us to repeat that type of improvement again, although we will maintain our discipline and focus on working capital. We expect free cash generation in the range of $1.3 billion to $1.5 billion which, if we exclude the 2011 benefits, means we expect our free cash generation will track very closely to the growth that we see from net income.

And that earnings to cash correlation is certainly the way to look at how we see our free cash profile in 2012. But it also becomes a good pattern to track how we see the cash generation capability of our business. Converting earnings into cash and maintaining a strong balance sheet continues to be one of my fundamental priorities. I see cash generation as critical to support our business opportunity and to return value to our owners. In particular, it's not our intention to build reserves of cash on the balance sheet.

In fiscal year 2011, we used more than $1.1 billion for dividends and share buybacks, almost 2/3 of the free cash we generated. And this is consistent with how I look at that as a priority for cash deployments.

While an earnings call like this turns the attention to the fiscal year in front of us, there are 2 pieces of context I don't want to lose as we lay out guidance. First, our first priority was to deliver in our guidance and we did that. We saw the growth where we wanted to see it and we showed the right discipline on the below the line factors we control.

Second, the base we established in 2011 sets us up very well for 2012. We'll continue our mid-teens earnings growth from a higher base, so the compounding benefit of an expanding business plays out nicely in our growth strategy.

With that, let me turn it back over to Bryan for the question period.

Bryan Hurley

Thanks, Pierre. We'd now like to open the call for questions. [Operator Instructions] So with that, Kevin, I think we're ready to take any questions that are on the line.

Question-and-Answer Session

Operator

. [Operator Instructions] Our first question is coming from the line of David Begleiter from Deutsche Bank.

David L. Begleiter - Deutsche Bank AG, Research Division

The gross profit in 2012, do you expect margins to expand given the mix impact? And how will the impact of higher production cost impact the margin in that business?

Hugh Grant

David, we missed the first part of your first sentence there, you blanked out on us.

David L. Begleiter - Deutsche Bank AG, Research Division

I'm talking about corn seed gross profit in 2012 versus 2011, expectations from margins next year versus this year, given the impact of mix and higher cost.

Hugh Grant

I'm going to be asking Pierre to make a comment on our margins.

Pierre Courduroux

So speaking specifically about corn. I mean, the way we look at it, there is definitely an opportunity. I mean, based on the mix upgrades, we've been talking about to see margin expansion. Now obviously, I mean, based on the geographic mix and I mean, the choices farmers are going to make, that margin improvement, I mean, will vary, but there's definitely a potential there.

Hugh Grant

I mean, if you'd -- maybe a way to look at it is Latin America and North America. So in Latin America, as we mentioned, strong footprint. First-generation traits washing through and nice margin upgrade as growers reach for those next levels of technologies, David. And I think you'll see the margin upgrade there. And then in the U.S., as we've retooled that brand ladder, so we've put more rungs in the ladder, so we're giving growers more options, but we expect we'll see some of them step up to these better-performing hybrids and better-performing technology and there will be a lift there in those segments.

Pierre Courduroux

And I realize I didn't answer the second part of your question which was regarding production cost. So as you know, there's been a lot of conversations around productions, I mean, mainly in the U.S. this year. And I mean, based on our production, in terms of -- I mean, the northern hemisphere and the southern hemisphere and based on the investments we've made in productivity around the globe, I mean, we feel that we are in the range of the assumptions that we build regarding our margin so we are not, at this point in time, concerned about the impact of those production costs.

David L. Begleiter - Deutsche Bank AG, Research Division

And you just -- on cash, what's your expectation for the use of cash next year? Do you need to keep $3 billion on the balance sheet over the course of the year?

Pierre Courduroux

So as I said, this is not -- it's just definitely not our philosophy. Our philosophy has not changed. And in the same way as we've been thinking about, I mean, using our cash this year through acquisitions within the technology space. I mean, we are obviously looking at all of the opportunities in this area, and we also, as I said during the script, we gave back 2/3 of our cash to our owners this year. So definitely, our intention is not to pile up cash on the balance sheet, but we'll need to consider, I mean, the opportunities we have in the business and we'll obviously let you know.

Operator

Our next question comes from Vincent Andrews from Morgan Stanley.

Vincent Andrews - Morgan Stanley, Research Division

My question is just on the South American order book. If you can just -- obviously, you had a great quarter there and from the guidance, it sounds like you've got a lot of confidence in how the next quarter is going to play out. I just want to understand if and how the South American order book differs in sort of the way that it's put together relative to the one that the U.S. one does from a timing perspective. And then also, is there a difference from an SG&A perspective in terms of, did you pay commissions down there in South America, relative to the U.S.?

Hugh Grant

I'll take the second piece. We do pay commissions so -- and that rises as a function of sales rising. So it's different in that respect and we've also, to Pierre's point, we made some incremental investment in Brazil in the last year and bolstered our sales team in anticipation of our Roundup Ready VT double-stacked soybean coming on stream, so we lifted the investment in our sales organization there a little bit pre-launch. Pierre, a little bit on order book and timing?

Pierre Courduroux

So Vincent, I mean, although the order book is not as structured as it is in the U.S., what we've seen, and that's actually been one of the drivers for our cash flow in Q4. We've been actually very happy to see prepaid coming from South America as you can see on the balance sheet in the deferred revenue lines. So although it's not of the magnitude that we see in the U.S., I mean, those prepaids and those early orders in South America make us feel pretty good about our first quarter right now.

Vincent Andrews - Morgan Stanley, Research Division

Okay, maybe just as a follow-up, there's an increase in acreage it sounds like from what I'm reading in both corn in both Brazil and Argentina. So is the driver -- how much of the driver of the strength in South America is just that increase in acreage? And how much of it do you think is going to come from sort of gaining share?

Hugh Grant

Well it's -- there's 3 legs there still. A piece is acreage expansion, a piece that will be share growth and a piece of that to the previous question is increased technification. And the fascinating thing in Brazil, for the last couple of years, acres were flat to down, but the bushels that they produced were up. And I think that's the underlying evidence that even in flat to down acres, those big growers were technifying and driving yields. So I think it's intensive yield farm [ph] production, and there's still a long way to go in Brazil if you look at Brazil versus U.S. cotton yields. It's intensive production, it's growth in share and it's expansion on acres. And that -- the 3 of them are important.

Operator

[Operator Instructions] Our next question is coming from Kevin McCarthy from Bank of America Merrill Lynch.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Hugh, I understand it's still early, with less than 25% of the U.S. crops pulled out of the ground, but based on the data you've seen so far, perhaps in the South, is it your expectation that your yield differentials versus competitive products will increase, decrease or stay about the same for this harvest?

Hugh Grant

Still early, Kevin. I mean, we're -- it's hard to call a year or call a season based on southern data. I would expect it's going to be probably the same, but I'd rather get the harvest in. What we're seeing this year is because of the high temperatures in the summer, we're seeing bigger variability than usual. So I think the performance in some of those cases is going to be magnified because of that variability, but early, still early days. We'll have to get more in the Midwest and up in the northern country before we'd opine on that. I think come Investor Day, we're all going to be a lot smarter.

Kevin W. McCarthy - BofA Merrill Lynch, Research Division

Fair enough. Just as a follow-up, Hugh, with regard to the 22 million to 24 million acre range you put forth for the Genuity family of products next year, what is the U.S. planted acreage forecast that, that is predicated upon? And do you expect the mix or the composition among the constituent product family SmartStax, VT Triple PRO and Doubles to change materially in '12 versus '11?

Hugh Grant

We'll see the continued ramp in the reduced refuge piece. I think that the interest -- so the family you see becoming disproportionately important and occupying about 3/4 I think of the Triple PRO -- Triple market. So steady advancement. I think the interesting thing when you plot growth -- we're in our third year, so it's not too many years ago that the number of acres unless you could lose behind so far, it was really quite small. Three years in Kevin, if you look at that growth ramp over 3 years, it tracks almost exactly for our Triple PRO growth -- no, Triple growth was in the early years. So we saw phenomenally fast growth in Triples. And if you look at that reduced refuge family, it tracks exactly on the same curve. And then on acre assumptions, we've not released that yet, but we've tried to, we're usually conservative and we try to take a realistic band on that, but I'd rather get this year harvested before we go open it up.

Operator

Our next question is coming from the line of Don Carson from Susquehanna International Group.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

Hugh, a question on your launch strategy going forward. When I was at the Farm Progress Show, some of your researchers indicated that you've revamped your launch strategy a bit. Specifically, they cited drug-tolerant corn, how it's going to be hopefully unregulated before next planting season and you'll do some pretty wide-scale testing. So are you kind of making a shift from sort of fast and furious launches to get up to speed as quick as you can to a slower more deliberate approach? And if so, what do you think the benefits of this new launch strategy might be?

Hugh Grant

So the short answer is yes. So we're modeling this loosely on some of the beta testing the other companies have done over the years in other industries. So getting smarter, faster and working more directly with growers in the earlier years and getting their feedback early, I think will stand us in good stead. So if you think -- I was talking earlier about that ramp, or that growth curve in years 1, 2 and 3. The first year is financially immaterial, but the market reception tends that you're not one year is disproportionate as important. So we're going to spend -- back to the future, we're going to spend more time with our growers in that first year and we're actually working through that beta test model in Brazil, I think with a couple of hundred farmers. Yes, a couple of hundred farmers in Brazil on our Roundup Ready Bt product, and the beauty of that is you can fit 200 in a room together. So they'll be our ambassadors and enactor and we're going to learn a whole bunch more about that product directly from them as we go in and set it during our launch. And that's our intention with our first drought rate that we will narrow that approach in the U.S. So there's a lot of benefit -- as the truism, there's a lot of benefit in staying close to your customers.

Donald Carson - Susquehanna Financial Group, LLLP, Research Division

So as a follow-up, is one of the benefits here that hopefully, with more extensive testing, you can find out where you might have some genetics, trait interactions that don't work out at all that well and avoid some of the issues that you saw on Roundup Ready beans and SmartStax in certain germplasm?

Hugh Grant

Yes, that's absolutely right. And the other benefit is you create the coffee shop so you have a community of 200 people who are going to be immersed in that early experience who are very proud to be part of it and they're in an environment where they can give us direct unvarnished feedback. So we are in an early stage in this, but I really like the model and the feedback from our grower customers has been very good.

Operator

Our next question comes from Jeff Zekauskas from JPMorgan.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

I was hoping that you might speak a little bit more at length about your success in the Corn segment. In that through the first 3 quarters, your revenue growth had been a little bit less than 10% than high single-digits. And likewise, your gross profit growth had been similar. But this quarter, your revenues were up, call it 60% and your profit doubled. So what was it about the fourth quarter that was so different from the other 3 quarters? Were there any special features? Were there currency effects? Sort of what made the numbers so good in the fourth compared to the previous 3 quarters?

Pierre Courduroux

So the way we look at the fourth quarter. So first of all, we had an extremely strong business performance in South America that definitely drove our margins up. And the second elements, I mean, that impacts also our overall margin in the fourth quarter is, I mean, some of the true ups we do at year end that have been ending up being favorable in certain cases. So these are the major drivers for the reason in the fourth quarter that we see this improvement in the margin.

Jeffrey J. Zekauskas - JP Morgan Chase & Co, Research Division

And so if I could follow-up, how big were the true ups? And with the Brazilian currency weakening by 15% versus the dollar since the end of August, how will you contend with that in the first fiscal quarter?

Pierre Courduroux

So regarding the true ups, I mean, I don't have the precise numbers. I mean, this was basically fairly small. These were the returns that we saw in the U.S., the adjustments on the returns we saw in the U.S. And as it relates to the first quarter in Brazil, so I mean, during the month of September, we've been working with a set of assumptions regarding currency. And definitely, we are watching how the currency is evolving. But so far, we are still within the range of assumptions we've been using to build our plan.

Operator

[Operator Instructions] Our next question is coming from P.J. Juvekar from Citigroup.

P.J. Juvekar - Citigroup Inc, Research Division

You've given lower yields in North America due to heat stress. Has that impacted your seed production at all? And do you have to do more winter production in Latin America this year?

Hugh Grant

P.J., I'll maybe let Pierre say a few words as well. So we feel good -- so the short answer is we saw some impact on seed production as did the whole industry with warmer temperatures this summer, particularly evening temperatures. We get diverse production spread across the U.S., so all our eggs are in one basket there and we still use the mitigating effect of production in Latin America and we've been watching our cost in that. But I think today, we would say, there might be constraints in some varieties. But if the market grew significantly next year, we feel we'd be in decent shape to supply that expansion. I'll maybe ask Pierre just to say a few words on cost and how we're looking at that relative to covering that cost.

Pierre Courduroux

So as I mentioned, thanks to the investments we made over time in productivity in the U.S., x U.S. Thanks to the diversity of production sites we are using, we've been able, for the most part, to mitigate the impacts of those heat conditions. And although there has been an impact, I think we are still within the range of the assumptions we've built our plan around in terms of cost.

P.J. Juvekar - Citigroup Inc, Research Division

Okay. And then secondly, as you grow your share in acres in Latin America, even today, there are trait fees and prices are lower than the U.S. So can you quantitatively talk about your profitability per acre in Latin America versus U.S.?

Hugh Grant

P.J., our trait pricing expense is really quite similar to the U.S., So on the technology side of the house, it's very similar. The challenge -- and it's changing quickly. The challenge in those Latin American markets has been the pricing on germplasm and you can see that if the U.S. average yield in the last couple of years was 150 bushels per acre, then average yields in Brazil, India and Mexico were 50 to 60 bushels an acre. So it's changing really, really fast because the technifying and the first big wave of technification is embracing better performing germplasm. So the tech side of the -- the biotech side, pricing's pretty similar. On the seed side, when you go down and you talk to these growers, they absolutely get it in germplasm and they're looking to trade up and drive more bushels off an acre rather than breaking ground and bringing new acres in. So it came up in an earlier question, technification is really the central driver in this because that unlocks bushels.

Operator

Our next question is coming from Michael Cox from Piper Jaffray.

Michael E. Cox - Piper Jaffray Companies, Research Division

How do you expect the later harvest, and as well some of the recent volatility in grain prices to impact the U.S. fall order book over the next couple of months?

Hugh Grant

Hard to say. I mean, last week was choppy with the USDA -- second tranche of USDA. There's uncertainty in that. But the conversations that I've had and the feedback from our teams, even with cotton at these prices, growers are really focused on -- are really focused on unlocking yield. When you look at the shift in commodity prices that's occurred relative to the assumptions that we made when we took the pricing decisions that we did. And there's always a really -- there's a long sequence in those. But as we looked at our pricing trajectory and the conversations we've had around where we would place our pricing, even with these commodity prices, we feel very good with the decisions that we've made. So I can't speak for the growers. But the conversations that I've had, they are laser-focused on driving yield even with a slippage in commodity prices, they're going to optimize yield and they're going to be looking for the best performing stuff. There is some chatter in the countryside about seed availability and I think that's going to heighten their focus as they go on at the back end of the year. But there's still time to go. We have to get through harvest first but that would be -- if you're looking for a color, that would be my experience in the last few weeks.

Michael E. Cox - Piper Jaffray Companies, Research Division

Okay, that's great. And one quick follow-up, pricing expectations for glyphosate as you move into the 2012 season?

Hugh Grant

I'm expecting that we'll continue our pricing on glyphosate. Did you ask glyphosate? Sorry, I missed the question.

Michael E. Cox - Piper Jaffray Companies, Research Division

Yes.

Hugh Grant

We'll continue our approach of laying that price pretty much squarely on top of Chinese generics and competing aggressively with those Chinese imports.

Michael E. Cox - Piper Jaffray Companies, Research Division

Care to share any volume expectations?

Hugh Grant

I don't know. Maybe Pierre, you can say a few words on volume?

Pierre Courduroux

The way our plan is built is, it's around the 250 million to 300 million gallons we've been talking about this year. I mean, consistent with what we've seen this year.

Operator

Our next question is coming from Mark Connelly from CLSA.

Mark W. Connelly - Credit Agricole Securities (USA) Inc., Research Division

Hugh, I'm just trying to get a sense of how to put the 100 SmartStax varieties in perspective. You've often given us charts showing how this launch works relative to other ones. But obviously, you can't compare this directly to the VT launch because it's such a different geography. But can you help us think about the geography of SmartStax and where this would place this launch in its evolution relative to where you would have been with VT in that same geography?

Hugh Grant

Yes. It puts us buying on target with hybrid expansion and previous historical launches, the difference would be the concentration. So we've really migrated or concentrated the Northern cotton market. And our 100 hybrids there pretty much colors in the map for that region. So it would be thinner in the Central Belt but where the market exists and where growers are looking for this edge with technology, 100 hybrids, we're where we need to be.

Operator

Our next question is coming from Laurence Alexander from Jefferies & Company.

Laurence Alexander - Jefferies & Company, Inc., Research Division

I guess first, I guess I just wanted to ask, in the past, you've given a gross profit multiplier for the migration from the single traits to double traits. Can you give a sense for what that gross profit multiplier will be in Brazil?

Hugh Grant

It's a good one. You've got to scramble in here. Of where we index that or?

Bryan Corkal

This is Bryan. We've looked at that and I think as you kind of make the similar ascension in technology, you're going to make similar step up in value. So if I isolate down onto a place like Brazil, and then isolate down onto what's currently commercial, you really go first with the first generation insect control trait and if you index off that, it's the baseline. When you're talking a step up to the second generation of the double stack, you're really talking about better than a 50% increase in the value there. So it's a similar kind of ultimate trajectory that we would see in trait price with the U.S., because as Hugh mentioned, the trait pricing, particularly on the insect trait in Latin America is very similar to the U.S., so you would expect the step up to be similar as well.

Hugh Grant

Yes. That's a good point.

Laurence Alexander - Jefferies & Company, Inc., Research Division

And then just to round out that picture, the gross profit multiplier of the single trait compared to the new traited product? Just so that we can build out the bridge?

Bryan Corkal

Some of the new traited products that literally haven't come online yet will certainly be additive to that. But since we haven't priced those, we haven't broken those out in particular.

Operator

Our next question is coming from the line of Michael Picken from Cleveland Research Company.

Michael Picken - Cleveland Research Company

A couple of questions. Number one, given that the farmers are potentially looking at a tight supply of hybrids for corn. We've heard some talk that some guys are maybe trying to order from multiple suppliers to ensure they get the best hybrids. I mean, how do you guys sort of prevent farmer hoarding of maybe the top hybrids? Is there a way to do that? And would the return policy potentially change next year given a potential for tight supplies of the best hybrids that the farmers want?

Hugh Grant

I'll tell you, I just -- I love the idea of farmers ordering full stocks. So I'm always happy to be at the end of the field and take that first order. Every year there's complexity and they have choice to buy from multiple people and they do. My experience, and I saw this last year, is some of these hybrids are literally ordered from the combine. So as he's cutting corn, he's on a cell phone trying to get a hold of that top performing hybrid for the coming year. So all that goes on in a normal year. There is some talk this year of tight supply and that will probably heighten sensitivity. But you can only do what you do. And for us, it's making sure we got adequate supplies, making sure we're working directly with those growers. It's early days, quite early through harvest. But even with the shift in commodity prices in the last week, it wouldn't surprise me if this was a record income year for growers in the U.S., and if it's not a record year, it's going to be in the top 2 or 3. So they're really, really focused on optimizing genetics. And I've seen a heightened awareness on the performance of genetics and a heightened awareness on individual hybrid performance. So to your question, they may be laying off orders against multiple suppliers. But this eventually shakes out and those orders firm up. And at the end of the day, you get through the noise and you make sure that you get the best possible stuff priced properly. So that's kind of where we've been focusing on this.

Michael Picken - Cleveland Research Company

Okay, and just as a follow-up question, there's been a lot of talk about potential shortages of corn hybrids. I mean, did the freeze particularly have any impact on soybean seed availability for next year? And do you see that being an issue in any of the regions? Or do you think there's going to be an adequate supply of soybeans?

Hugh Grant

In general, no. There's maybe some crimping in the extreme north, but the challenge was warm summer temperatures and there will be some squeeze in some areas. But I think broadly speaking, we're going to be tight but okay.

Bryan Corkal

Kevin, this is Bryan. I think I see we're running up against our time here. I do want to leave just a brief moment for Hugh to give a quick wrap up, so I think we'd like to move to that.

Hugh Grant

So thanks. I just -- I will be very brief because we ran over a little bit. But I just wanted to thank you for joining us on the call this morning. I think the obvious benefit on a call like this is we now officially turned our focus to 2012 and the opportunity that we see ahead in the next fiscal year. And I think you gather from the tone today, we see real opportunity. So if we look into 2012, let me tell you how we think that it sets up.

First, with '11 complete, we are well set up for '12. We've carried a focus on execution and delivery through our last 4 quarters, and we accomplished what we needed to do this year to set up well to achieve mid-teens earnings growth in '12 off a higher base.

Second, we have good momentum going into '12. Beyond the financial opportunity, I would underscore that we feel good about where we stand with our strategy. More importantly, we feel good where we stand with our grower customers and the positive direction that we take into this new fiscal year.

And finally -- and it's the obvious, but finally, all of that is wrapped up in a larger, longer-term opportunity that we see as the global grain demand expands and that there's opportunity created for companies that can deliver new innovation to drive real productivity gains. And that's at the heart of our business model.

So we'll speak to more of this at our upcoming Investor Day in November. I hope that you'll be able to join us there, and I look forward to sharing more with you at that time. Thanks very much for your attention this morning.

Operator

This does concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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