Monsanto Q3 Earnings Strong, Q4 May Provide Buying Opportunity

| About: Monsanto Company (MON)
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By G C Mays

As pre-announced Monsanto (NYSE:MON) posted strong revenues and earnings compared to the year earlier period. The company earned $1.74 per share on a GAAP basis on revenues of $4.22 billion compared to EPS of $1.28 on $3.6 billion in sales a year earlier. Through the first 9 months of the 2012 fiscal year revenues totaled $11.4 billion, which is only 3.5 percent or 414 million short of the company's total revenues for all of its fiscal 2011. Setting an all time record for revenues is within easy reach. That said, holding off on investing in the stock for a few more months might be the most prudent thing to do. I'll explain why I think so as we move through the quarter.

Seeds and Genomics

34 percent growth in sales of corn (NYSEARCA:CORN) seed and traits compared to the same quarter a year ago was the primary driver of 18 percent growth in the company's seed and genomics business. Sales of soybean (NYSEARCA:SOYB) seed and traits contributed 15 percent year over year growth.

Monsanto Seed & Genomics Revenues in 3Q 2012
(Click to enlarge)

Source: The Mays Report

Estimates of corn acres planted increased 4.3 percent to 95.9 million acres while the corn seeds and traits share of total seed and genomics revenues rose 6 percentage points to 48.4 percent. Monsanto estimates that farmers planted its Genuity® reduced refuge corn seeds on more than 25 million acres, which is about 26 percent of the current estimated corn acres planted in the US. Farmers planted the company's Genuity® Roundup Ready 2 Yield® soybean seeds on an estimated 30 million acres, or 41 percent of the total acres planted in the US.

Cotton (NYSEARCA:CTNN) seed and traits revenues grew only 0.6 percent year over year and its share of total seed and genomics revenues fell by 2.7 percentage points as cotton acres planted in the US declined by 10.7 percent to 13.2 million acres. Continuing problems in Europe have caused sales of vegetable seeds to tumble by -9.7 percent compared to the same period last year. Vegetable seed sales are also down by -9.7 percent for the current fiscal year to date. The company expects the vegetable business to return to form next year. Given the ongoing problems in Europe that is wishful thinking in my view.

Agricultural Productivity

Year over year growth slowed to 15.7 percent from 57 percent in fiscal 2011. Growth came from higher than expected sales from its Roundup®, lawn and garden and selected herbicides business.

Monsanto 3Q 2012 Agricultural Productivity Revenues
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Source: The Mays Report

Margins were also impressive as gross and net profit margins show year over year improvement in the 3rd quarter as well as fiscal year to date. Operating expenses expressed as a percentage of sales also fell by more than 2 full percentage points.

Monsanto Margin Data 3Q 2012 vs 3Q 2011
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Source: The Mays Report

Despite another great quarter the stock remains fairly valued to slightly overvalued in my opinion. However, the 4th quarter could offer a good opportunity to buy the stock. The company's revenues are seasonal in nature, due to this seasonality a 4th quarter loss is typical for Monsanto. On a GAAP basis the company has earned $4.21 per share through the first 9 months of its fiscal year. It recently raised its full year earnings guidance to $3.73 to $3.78 per share. This implies a Q4 loss of between ¢0.43 - ¢0.48 per share, which at the low-end of the range is roughly double last year's loss of ¢0.21 per share.

Monsanto FY 2012 Revenue & EPS by Qtr
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Source: The Mays Report

Monsanto's stock has traded near its 52 week lows in the last 3 calendar years between September 30th - October 30th, which has coincided with its Q4 earnings release and its annual 10-K filing a few weeks later. In 2012 the stock has traded as low as $69.89 a share. Just because this has occurred for 3 consecutive years does not mean it will happen in the future. However, with the company posting a larger 4th quarter loss than it has in the last 3 years it may create an opportunity worth waiting for.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.