Edited Transcript of Monsanto Company Q4 2014 Earnings Conference Call…
Company: Monsanto Company (MON)
Event Name: Q4 2014 Results Earnings Conference Call
Date: October 8, 2014 09:30 AM ET
Monsanto Q4 2014 Results Earnings Call – Webcast audio
Operator: Greetings and welcome to the fourth quarter 2014 Monsanto Company earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Bryan Hurley, Investor Relations Lead for Monsanto. Thank you, you may begin.
Bryan Hurley – IR
Thank you, Jessie, and good morning to everyone. Thanks for joining our fourth quarter earnings update. I am joined this morning by Hugh Grant, our Chairman and CEO; Brett Begemann, our President and Chief Operating Officer as well as Pierre Courduroux, our CFO. Also joining me from the IR team are Ashley Wissmann, Tim Boeker, and Laura Meyer.
This call is being webcast and you can access the webcast, supporting slides and the replay at monsanto.com. We have provided you today with EPS measures both on a GAAP and on an ongoing business basis where we refer to non-GAAP financial measures, we reconcile to the GAAP in the slides and in the press release, both of which are on our website.
This call will include statements concerning future events and financial results. Because these statements are based on assumptions and factors that involve risk and uncertainty, the company’s actual performance and results may vary in a material way from those expressed or implied in any forward-looking statement. A description of the factors that may cause such a variance is included in the Safe Harbor language in our most recent period report of the SEC and in today’s press release.
This morning, our focus is on the outlook for our next fiscal year where we expect to deliver continuing strong growth. While today’s call will focus on that outlook, let me set up the conversation with the couple of key points from our fiscal year ‘14 results on Slide 4.
With year-end ongoing EPS of $5.23 and free cash flow of $959 million, our final results came in ahead of our updated guidance. Just as importantly, we said a priority in 2014 was to demonstrate Seeds and Genomics would return as the biggest driver of our growth, and with the final results, Seeds and Genomics delivered the majority of our gross profit growth, creating the right momentum as we think about what matters in 2015.
So with that, let me hand it to Hugh to take us through our updates this morning and the next step in our growth outlook.
Hugh Grant – Chairman and CEO
Thank you, Bryan, and good morning to everybody on the line.
The fourth quarter is traditionally the point where we focus on the outlook for the next 12 months. That look forward is particularly important as we set up our fiscal year ’15. And even with the more challenging commodity environment, Monsanto is set to deliver strong growth both in the near-term and over a multiyear horizon.
We closed the fiscal year ‘14 a bit above our earnings guidance demonstrating our ability to deliver growth against more headwinds and marking our fourth consecutive year of strong earnings growth. We expect that growth to continue in 2015.
Let me share the key themes in that 2015 outlook as laid out in Slide 5. First, it begins with who we are. We’re a growth company. Our opportunity is built on innovation, our value to our farmer customers as a technology provider, and we have a portfolio and product pipeline that separates us from the commodity world.
That sets up the most important theme in our outlook, 2015 as a leverage year for Monsanto, in which we’re able to commit the strong growth today and at the same time step up significant incremental investments to unlock future growth.
There are a few companies as well positioned to dedicate a level of spending to deliver truly transformational long-term platforms while maintaining tangible near-term growth. This is an either/or situation of growth or investment. We plan to do both in 2015, and that’s the key opportunity this year.
As we deliver growth in 2015, as we stay focused in our customers, and as we continue to invest to unlock new growth, we can widen our long-term competitive position in an industry that’s particularly near-term focused right now.
There is no doubt that our 2015 growth is important, and we’re really focused on delivery. This morning, we laid out our EPS guidance of $5.75 to $6 reinforcing our confidence in our ability to deliver the double-digit to mid-teens growth that we targeted for 2015. That confidence comes directly from the strength in our core business as there is no hesitation that our seeds-and-traits engine is set to deliver strong growth that’s the pacesetter for our EPS growth this year.
So in a year where delivery matters, we’ll be clear about how that growth plays out. This year, the industry will certainly face the headwinds of a more challenging agricultural environment. We’re not immune, and our guidance factors that in, but our more balanced global business also gives us more tools to manage the puts and takes. The proof of that came in 2014 as soybean emerged as a true differentiator balancing the shifts in the global corn environment.
With macro factors that change every year and a business that has become more global, the pattern of the flow of the business through the year has been changing. That will be true again in 2015. Brett and Pierre will cover the key factors, but practically we’d expect the shift that creates a smaller Q1 and builds growth as we reach our large market seasons over the course of the year.
2015 is also a year where we have more tools. We’re now more aggressively using the strength of our cash generation and our balance sheet, providing a structural benefit through our $10 billion share buyback program that supports our growth of returning more value to our owners.
So, all of that’s important because it sets up the opportunity beyond one year, and that’s my final theme.
Over the course of 2014, we took a bolder approach and outlined the five-year target to at least double our ongoing EPS, and we feel as good today as we did when we outlined our goals both in the near-term springboard of 2015 and the multiyear path.
At macro level, the fundamentals of agriculture on Slide 6 continue to be compelling. Global grain demand is expected to grow every year through the end of the decade. The reality is with grain stocks replenished from this year’s harvest, we’re in a better position to meet normalized demand, and there’s already the first signs of increased use across exports, ethanol, and animal feed. And given availability, costs in the environmental footprint, adding new acres isn’t likely to be the long-term answer to this demand.
So, the world needs to increase the rate of gain seen in the last five years by around 2x in corn and by 5x in soybeans, just to meet baseline demand. That means yield and innovation are going to matter more than ever, and that’s who we are.
At company level, we have more clear catalysts and more levers across our business than we’ve ever had before. And that’s furthered by our focus on next-generation platforms that have the potential to be transformational in our growth horizon. So our roadmap over the next five years is in place and it’s just clear as it’s ever been. It’s not distant growth at the backend of the decade. We’ll expect strong growth in 2015 that builds a cadence of consistent growth carrying from 2016 to 2019.
We’ve everything that we need to make it happen and we’re focused on execution. Perhaps more importantly for the long-term opportunity, this is a gateway year where our strategy, technology, and opportunity can actually extend our leadership position and unlock the next leg of growth over the next five years in our business.
So with that, let me hand it to Brett, to walk you through the operational plans to back up this outlook. Brett?
Brett Begemann – President and COO
Thanks, Hugh and good morning to everyone on the line.
We are anchored on a five-year growth opportunity on Slide 7. The opportunity to at least double our ongoing earnings per share by 2019 is a compelling target that speaks to our confidence in growth this year and for the remainder of the decade. And we’re on pace for what we need to deliver in the first year.
Just as importantly, we haven’t lost sight of our customers as they deal with softer commodities and macro trade-offs. We have made progress and applied our learnings over the past few years. So being consistent and staying close to our customers this year is important in holding that momentum so that we’re in a good long-term position as agriculture comes out of this transition.
From that, we’ve built our operational plans, and there are three key factors on Slide 8, I’m focused on this year.
Number one is seeds-and-traits growth. Simply put, we expect seeds-and-traits delivers double-digit gross profit growth, which is the primary driver of our earnings growth.
Number two, seeds-and-traits is balanced against our continued strategic management of the Roundup business. Overall, we feel good about the expected full year Ag productivity contribution for 2015 as well as the long-term steady state outlook. We do, however, expect the contribution from our Ag productivity business to soften in 2015 as the overall market normalizes after a strong 2014.
The biggest variable in 2015 is actually the timing of Ag productivity earnings more than any strategic factor. We would expect the majority of the year-over-year earnings decrease shows up in Q1, reflecting some changes in timing and product mix as we’ve moved more of our volume in ’15 from the non-branded supply business to sales in our flagship brands.
Number three, this is a year where the strength in our core business will allow us to aggressively invest to drive Climate and other new platforms.
Against those factors, the metrics that matter this year are on Slide 9. First, we’re going to build on the record soybean year in 2014 as we expect it to become one of our most meaningful platforms and the first of our billion dollar plus growth drivers.
Soybeans were real differentiator in 2014, providing the offset to the macro corn shifts. That record-setting year in soybeans also drove our bottom line results, providing the business lift for us to reach the high end of our overall guidance.
The biggest contributor in 2015 is clearly the Intacta opportunity in Latin America on Slide 10. We are on track with the 10 million to 12 million acre target we laid out, marking a record second year adoption pace for a soybean trait. Penetration of Intacta at this level effectively places us at the tipping point of adoption in FY15 and sets us on an accelerating trajectory across soybeans over the next few years.
That’s furthered by Roundup Ready 2 Xtend on Slide 11, which moves into the final commercial preparation in 2015, setting up soybeans for a multi-trait multi-geography opportunity, covering a market of almost 200 million acres in North and South America during our five-year growth horizon.