Monsanto Light on Revenues, Looks Light Ahead

The company reaffirmed its guidance for the 2015 fiscal year but it noted that its EPS and free cash flow estimates would now be at the lower end of these ranges. This was the result expected due to industrywide headwinds of declining corn acres and the strengthening of the U.S. dollar. Monsanto expects full-year EPS to be in the range of $5.75 to $6.00 and free cash flow to be $2.0 billion to $2.2 billion, compared to a consensus estimate of $5.83 in EPS for the 2015 fiscal year.

In terms of its segments, the Seeds and Genomics segment reported $4.18 billion in revenue, down 10.1% from the same quarter in the previous year. The Agricultural productivity segment had $1.02 billion in revenue, which was down 13.6% from last year.

Hugh Grant, chairman and CEO of Monsanto, said:

The key milestones we achieved in the first half of fiscal year 2015 are a cornerstone to the long-term growth drivers needed to propel us to our target to more than double ongoing earnings per share by 2019. As we move into the second half of the year, we remain focused on our long-term growth drivers, with disciplined near-term execution and focus on our customers.

At the beginning of March, Barclays initiated coverage of Monsanto with an Equal Weight rating and a price target of $131, implying upside of 16% from current prices. Just the day before earnings were reported, Canaccord Genuity reiterated a Buy rating and lowered its price target to $143 from $149, implying upside of 27%. The consensus analyst price target is $135.15.

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Recently Monsanto encountered some difficulty with a report from the World Health Organization (WHO), alleging that the herbicide Roundup had the potential to cause cancer. Roundup is commonly used by farmers and homeowners to kill weeds. We have yet to see the full impact of this report, but Monsanto is fighting it.

Shares of Monsanto closed Tuesday down 0.3% at $112.54. Following the release of the earnings report, shares were down another 0.8% at $111.61 in premarket trading Wednesday. The stock has a consensus analyst price target of $135.15 and a 52-week trading range of $105.76 to $128.79.