Monsanto Company (MON) announced results for the second quarter of fiscal 2010. During the quarter, net income decreased to $887 million from $1,092 million in the same quarter of 2008.
EPS (excluding a restructuring expense) was $1.70 compared to $2.16 in the year-ago quarter. The decrease was due to a fall in revenue and gross margin. However, the reported EPS was above the Zacks Consensus Estimate of $1.66.
Revenue decreased 3.6% to $3,890 million from $4,035 million during the same period in the previous year. Decrease in revenue was attributable to fall in prices of glyphosate-based herbicides produced by the company.
Revenue in the Seeds and Genomics segment increased 6.8%, while Roundup and other glyphosate-based herbicides segmental revenue decreased 40%. Revenue from all other agricultural productivity products also decreased 18.4% year over year.
Gross margin also decreased from 62.5% to 54.0% in the reported quarter due to a decrease in prices of glyphosate-based herbicides, particularly the Roundup brand.
The company managed to decrease operating costs during the quarter. Costs decreased 13% year over year in absolute terms and also decreased as a percentage of revenue by 240 basis points.
At the end of second quarter, free cash flow was negative $89 million from positive $1.1 billion at the end of second quarter of fiscal 2009. One reason for the decrease was the huge fall in net income compared to the first half of 2009.
Recently, the company completed its $200 million expansion outside New Orleans to increase production of Roundup herbicide. Roundup is a leading crop protection product.
This expansion will help boost Roundup production capacity by 20%. This is a huge project for Monsanto in scope and terms of financial investment.
We believe that the robust pipeline of new products and the continuous growth in the seeds and genomics segment along with strict cost control will help the company grow in the future.
An intense competitive environment as well a decrease in product prices force us to maintain our Neutral recommendation at present.
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