(MON) Monsanto 2011 Third Quarter Earnings Preview

Agricultural product major Monsanto Company (MON) will unveil its third- quarter earnings on Wednesday, June 29, 2011. The company will be an attractive stock to watch, as it has been in turnaround mode.

The third quarter 2011 Zacks Consensus Estimate for earnings per share (EPS) is $1.11, representing annualized growth of 36.54%.

With respect to earnings surprises, over the trailing four quarters, MON outperformed the Zacks Consensus Estimate in three quarters, while lagging behind in one quarter. The average earnings surprise was a positive 13.22%, implying that the company outperformed the Zacks Consensus Estimate by the same magnitude over the last four quarters.

Second Quarter Highlights

Monsanto Company posted earnings per share of $1.87 from its ongoing business in the second quarter of fiscal 2011 compared with $1.70 in the year-earlier quarter, beating the Zacks Consensus Estimate of $1.84. The increase was attributed to revenue growth as well as increased operating margin.

During the quarter, net income was $1,017 million compared with $887 million in the year-earlier quarter. Revenues were up 6% to $4,129 million from $3,890 million in the year-earlier quarter, ahead of the Zacks Consensus Estimate of $4,125 million. The growth in revenues was attributable to the growth in both the Seeds and Genomics and Agricultural Productivity segments.

Agreement of Estimate Revisions

In the last 30 days, out of the 18 analysts providing estimates, only 1 decreased its EPS estimates for the fiscal year 2012. No other analyst pulled the estimate up or down as there was no catalyst for such change.

Magnitude of Estimate Revisions

Estimates over the last 30 days remained intact for the third quarter of 2011 at $1.11 per share, representing a year-over-year growth of 36.54%.

Estimate for fiscal year 2011 remained intact at $2.81 while that for fiscal year 2012 was intact at $3.34. These estimates represented a year-over-year growth of 16.69% for 2011 and 18.81% for 2012.

Our Take

Monsanto Company is likely to post impressive results in the third quarter of 2011 based on expectation of rise in EPS and higher revenues. Company’s robust product development, cost optimization programs, improved cropping system as well as strategic technological collaborations strengthen our outlook on the stock.

For fiscal 2011, management expects EPS in the range of $2.72-$2.82 and anticipates free cash flows in the range of $800-$900 million.

Monsanto Company is a leading global provider of agricultural products for farmers, operating in Seeds and Genomics and Agricultural Productivity segments. Monsanto’s biotechnology research and innovations positions it as a market leader above its peers, such as Syngenta AG (SYT), The Scotts Miracle-Gro Co (SMG), The Dow Chemical Company (DOW), BASF SE.

We currently maintain a long-term Neutral recommendation on the stock. MON has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).

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