Will Accelerated Buyback Overcome Weak Monsanto Guidance?

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Monsanto Co. (NYSE: MON) reported fourth-quarter and fiscal 2015 results before markets opened Wednesday. The fertilizer and seed maker reported quarterly an adjusted diluted net loss of $0.19 on revenue of $2.36 billion. In the same period a year ago, Monsanto reported a net loss of $0.27 on revenue of $2.63 billion. Fourth-quarter results also compare to the Thomson Reuters consensus estimates for a net loss of $0.02 and $2.76 billion in revenue.

For the full year, Monsanto reported adjusted diluted earnings per share (EPS) of $5.73 on revenues of $15.0 billion, compared with EPS of $5.23 and revenues of $15.86 billion last year. Analysts were expecting EPS of $5.75 on revenues of $15.4 billion.

For fiscal year 2016, Monsanto is forecasting EPS of $5.10 to $5.60. The company said the forecast “reflects in part an estimated $0.35 to $0.40 of headwinds from currency, $0.50 to $0.85 of headwinds from Agricultural Productivity pricing declines and $0.20 to $0.30 from elevated cost of goods for corn and the anticipated launch costs of Roundup Ready® Xtend soybeans.”

The current consensus EPS estimate for the first fiscal quarter is $0.48, compared with EPS of $0.47 per share a year ago. Analysts are looking for first-quarter revenues of $2.87 billion, flat with revenues in the first quarter of fiscal 2015. The consensus estimate for 2016 full-year EPS is $6.20 and revenues are estimated at $15.73 billion.

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Monsanto completed a $6 billion share buyback program in 2015 and the company said it “plans to enter into a new $3 billion accelerated share repurchase program under its current share repurchase authorization.” The accelerated program will begin in the “near-term” and be completed “sometime in the next six months.”

The company’s CEO said:

The fundamentals of our business are strong and Monsanto remains the best positioned company in the industry. As we look to 2016, focus and discipline become increasingly important. We will continue to focus on executing on key milestones within our core seeds and traits business, and we plan to remain disciplined in our agricultural productivity strategy, drive further optimization in spend through strategic restructuring actions and accelerate our progress toward our targeted capital structure. A focus on these priorities will set the foundation for expected rapid growth, with our strong core business and several growth drivers continuing to underpin our confidence to meet our target of more than doubling fiscal year 2014 ongoing EPS by fiscal year 2019.

Given the miss on full-year earnings and revenues, and guidance that is far below expectations, Monsanto’s shares traded down about 4.4% in premarket trading Wednesday morning, at $84.20, in a 52-week range of $81.22 to $126.00. Thomson Reuters had a consensus analyst price target of around $117.18 before Thursday’s report.

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