Monsanto Company (MON) recently announced a public debt offering of $300 million, bearing an interest rate of 2.75%. These notes will be issued at 99.787% and result in a yield of 2.796%. The notes will mature in five years on April 15, 2016. The first interest will be paid on Oct. 15, 2011.
Management stated that the proceeds form the offering will be used for general corporate purposes. The company will also use the proceeds to repay a debt due to Pfizer Inc. related to Monsanto’s acquisition of the Chesterfield Village research facility.
Earlier, Monsanto announced the financial results of second quarter of fiscal 2011. Revenues came in at $4,129 million, up 6% from the year-earlier quarter, driven by growth of 5% and 10.3% in the Seeds and Genomics and Agricultural Productivity segments, respectively.
Moving to margins, gross margin grew 200 basis points from the year-earlier quarter to 56% in the reported quarter. Operating margin was 36% compared with 32.9% in the year-earlier quarter. The growth was attributed to higher gross margins and decline in selling, general and administrative expenses, which was partially offset by increased research & development expenses.
Earnings per share from the ongoing operations came in at $1.87, compared with $1.70 in the year-earlier quarter, beating the Zacks Consensus Estimate of $1.84. The growth in earnings was led by higher revenues and increased operating margins.
At the end of the second quarter of fiscal 2011, free cash flow was $917 million compared with a negative $89 million at the end of the second quarter of fiscal 2010.
The company reiterated its 2011 EPS expectation of $2.72–$2.82 and believes that mid-teens earnings growth for fiscal 2011 is on track.
For fiscal 2011, management expects free cash flows in the range of $900–$1,100 million, up from the previous range of $800- $900 million, attributable to superior working-capital management and favorable economic climate in agriculture.
In the long-term, the company will benefit from improved visibility on the yield performance of its SmartStax corn seed. However, an intensely competitive environment poses additional challenges for the company.
Monsanto competes directly with Syngenta AG (SYT). We maintain our Neutral recommendation on the stock. The stock at present retains its Zacks #3 Rank (short-term Hold rating).
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