Investors are getting nervous about the market’s gyrations, with the potential for steep single-day drops lurking at every ring of the opening bell. However, before the markets opened today, one company — Monsanto (MON) — provided auspicious news for those seeking both safety and growth in 2015.
Monsanto earnings this morning came in well ahead of Wall Street’s expectations. To be sure, earnings and revenue fell in the quarter, but MON stock remains positioned for outsized performance as the seed company explores cutting edge technologies and farmers around the world try to boost yields amid challenging growing conditions.
Monsanto Earnings
The agricultural business is cyclical and given to unexpected variables such as weather and crop yields that either exceed or miss expectations. Before the market opened this morning, Monsanto reported that its earnings dropped 34% in its first quarter of fiscal 2015, largely because of temporarily reduced planting among farmers in emerging markets.
But that news isn’t as bad as it appears. In fact, it carries the seeds of future growth.
U.S. farmers reaped a record bounty of soybeans and corn in 2014, pushing down the prices of those essential commodities, which in turn prompted farmers in South America to reduce planting acreage. Reduced planting dampens demand for Monsanto’s genetically modified organism (GMO) seeds and ancillary herbicide products.
Monsanto’s first-quarter earnings came in at $243 million, or 50 cents per share of MON stock, down from $368 million or EPS of 69 cents in the same period a year ago. Nonetheless, the results handily beat analysts’ expectations for EPS of 34 cents. Revenue reached $2.87 billion — a year-over-year drop of about 8%.
That said, the company weathered a tough quarter in better shape than expected and simultaneously built a solid foundation for 2015. Management reaffirmed its full-year fiscal 2015 EPS guidance of $5.75 to $6.
Investors are wringing their hands over the falling price of oil, as well as the shakiness of the global economic recovery. These worries are impeding the performance of even the strongest agricultural players, but sector weakness should prove ephemeral.
Despite wavering GDP growth in certain emerging countries, Asia and South America are showing an insatiable appetite for grain, as rising middles classes in those regions pocket more disposable income and embrace a Western diet that’s heavy on meat and processed convenience foods. However, hostile growing conditions stemming from climate unpredictability and limited arable acreage make it imperative for these farmers to find ways to significantly boost crop yields to meet demand.
That’s where Monsanto comes in. As a producer of seeds that protect crops from hostile growing conditions, Monsanto directly benefits from these trends.
MON Stock: Food for Growth
Despite the company’s modest fiscal first quarter performance, Monsanto earnings should spike in 2015 and beyond, boosting MON stock. Indeed, Monsanto management is projecting double-digit earnings increases over the next decade from emerging markets, especially China, Brazil and Argentina.
Monsanto’s forte is the development and marketing of GMOs, a politically controversial technology that, despite its occasional bad rap in the press, shows no signs of getting hindered by regulators. At the same time, the courts have consistently ruled in Monsanto’s favor, upholding the company’s claims on GMO seed patents.
The vast majority of crops are grown with GMO seeds; Monsanto is the leader in the field. Monsanto’s engineers are now working on a sophisticated genetic innovation called “RNA interference” to destroy crop-eating pests. As the world’s burgeoning population craves ever-more grain, MON stock will feed investors hungry for gains.
As of this writing, John Persinos did not hold a position in any of the aforementioned securities.
