Monsanto Company (NYSE:MON) Q4 2013 Earnings Conference Call Transcript


Monsanto Company (NYSE:MON)

Q4 2013 Earnings Conference Call (Transcript)

Held on October 2, 2013, 9:30 AM Eastern Time

 Section I: Management Presentation



Greetings, and welcome to the fourth quarter 2013 Monsanto Company earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (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, Mr. Hurley. You may begin.

Bryan Hurley – IR

Thanks a lot, Kevin. And good morning to everyone. Thanks for joining this earnings update and acquisition announcement. I’m joined this morning by Hugh Grant, our chairman and CEO; Brett Begemann, our president and chief commercial officer; Pierre Courduroux, our CFO, and additionally Rob Fraley, our chief technology officer who will join us for the Q&A period. Also joining me from the IR team are Ashley Wissmann, Tim Boeker and Manny Cruz.

With our announcement this morning that we signed a definitive agreement to acquire The Climate Corporation and with the usual focus on our outlook for next year, our emphasis this morning will be laying out our vision for how we plan on driving an additional leg of long-term growth. Before we do that, let me start with the logistics. This call is being webcast, and you can access the webcast and supporting slides, including slides and information about today’s acquisition announcement on The replay will also be available at that address.

We’ve provided you today with EPS measures on both a GAAP and on an ongoing business basis. Where we refer to non-GAAP financial measures, we reconcile to the GAAP measures in the slides and in the press release, both of which are on the 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 statements. A description of the factors that may cause such a variance is included in the safe harbor language in our most recent 10-K and today’s press release.

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We’ll move quickly to the heart of this strategic discussion and as we do, let me underscore a very brief anchor from our year-end results on slide 14 in the financial section of the slides. We closed out fiscal year 2013 near the high end of our guidance with ongoing EPS of $4.56 and nearly $2 billion in free cash flow. Those results represent greater than 20% ongoing earnings growth and closes out our third consecutive year of strong growth. It’s also a reflection of the strength in our global portfolio as the diversity of our business drivers achieve that growth even against greater than usual variability in fiscal year 2013. Those portfolio drivers continue to have a key role in our outlook for fiscal year ‘14.

So with that, let me hand it to Hugh to bring this together in our strategic view. Hugh?

Hugh Grant – Chairman and CEO

Thank you, Bryan and good morning to everybody on the line. At the risk of stating the obvious, this isn’t a typical earnings call for Monsanto. We’re talking about the outlook for another strong year, a breakthrough addition to our company, and how the next step on our integrated farming efforts establishes a platform for the next decade.

So here is my headlines for today. Number one, as our confidence in the core business, after three straight years of strong performance, we’re on track for continued growth. If you set aside our acquisition for a moment, 2014 is a year where we’d be talking again about growth at our historical rates. That will still show through in our operational growth for the year. That performance gives us the ability to invest in breakthrough new areas that extend our leadership and deliver the next meaningful tool for our farmer customers.

Number two, our announcement today to acquire The Climate Corporation increases our confidence that our continued development of Integrated Farming Systems or IFS can be a full-fledged transformational platform. The first wave of IFS revolves around a single product, but with what we’ve just assembled, we’re now talking about a true platform with tools that span from planting the seeds to many of the key variables that growers deal with throughout the growing season. Looking to the future, growers will need every available tool to produce more yields on the same acre.

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Strategically, we believe we are putting the best-in-class analytical capability on the largest global agricultural footprint. The combination with Climate Corp unlocks new strategic opportunities and strengthens our growth rate over the next decade. It’s a significant use of cash that in one transaction we achieved an important leadership position that otherwise would require considerably more money and time to develop on our own.

For several years, we’ve talked about the convergence of biology and information and agriculture, that’s covered in slide six. We see today us fulfilling that potential. We now have the tools to make farming more precise. This helps farmers manage increasing variability and meet the increasing challenges of climate change. Look at the influence of weather. Nine of the 10 warmest years on record have occurred in the last decade. Farmers today are challenged to make key decisions for their farms in the face of increasingly volatile weather conditions. Because of this, we believe there’s real opportunity and value in working with farmers to manage the risks that affect them every year from planting to harvest.

We won’t do that single-handedly. It’s an opportunity that cuts across the industry and we will use an open source approach, like the one that we’ve used in the past with biotech traits. That means we’ll prioritize building this platform as a network across all seed companies, our retail partners, equipment leaders and input providers. This is a natural extension of our industry leadership and the same way that we invested in biotech and breeding, we believe the combination of biology and analytical capability on slide seven has that same transformational potential.

The Climate Corp isn’t from the traditional ag industry but their analytical capability and their immediate set of products set them apart in this emerging space. Importantly, they also become the integral piece of our full platform for us. That’s an important early mover advantage as we become a leader with Climate Corp in taking the big data capability used in other industries and making it relevant to agriculture. I have been able to see this technology first hand and I’m excited about what we can do to further drive yield. I’ve also felt the early palpable excitement that underlies the meetings as our science teams get together and discuss how powerful our combined capability can be to our farmer customers.

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Here so we see this working start on slide eight. I think this will be most intuitive to farmers. They deal with variability every day. Every year they make approximately 40 key decisions on every single field, each interrelated and ultimately play out on the bottom line. They tell us they’re looking to use more of the data coming from the fields and their tractor cabs to improve their productivity and their profitability. The bottom line is many growers are already looking at this area. They recognize there’s opportunity there.

On the farms of tomorrow, we see farmers applying their data to drive nearly all of those 40 key decisions as they fine-tune dozens of variables with the same meter-by-meter precision that we see in FieldScripts today. And since this is a technology that doesn’t have the regulatory component involved in biotech or in chemistry, it moves more like the rapid cycle upgrades for computer software.

On slide nine, we show how we see that initial product portfolio shaping up for our farmer customers. The first thing that we’ll do is build on our FieldScripts by using Climate Corp’s data insight to make those prescriptions even more powerful by overlaying historic and real-time weather information, creating a better blueprint for planting. From there you add tools to help with planting through harvest as well as end-season spray recommendations for pest and disease control. These help growers make better decisions field by field. That builds on Climate Corp’s Total Weather Insurance, a tool that gives farmers a way to supplement conventional crop insurance using predictive analytics again for every field. This is also one of the first ways that Climate Corp monetized this capability, leveraging this analytical insight to allow insurers to underwrite supplemental insurance.

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