Seed giant Monsanto (NYS: MON) hit the right note by reporting a good 15% jump in its second-quarter bottom line. The record quarter, combined with positive industry developments, has prompted the company to raise its full-year earnings guidance.
There certainly are reasons to believe the world's largest seed company should continue to do well in the near future. Take a look at what makes me so upbeat.
One of the primary factors that drove Monsanto's seeds and genomics sales up nearly 5% from the year-ago quarter was the early start to the U.S. planting season. As I'm writing this, reports of temperatures hitting record highs across the nation in the past few weeks are pouring in. Warm weather, particularly in important crop-growing regions like the Midwest, has encouraged farmers to plant earlier than usual this year. According to the Department of Agriculture, U.S. farmers have already planted 3% of the total annual corn crop by April 1, a pace not seen since 1980.
Remember, the planting season has yet to take off fully. Going by the current pace, one can expect a good season. And the crop that stands out is corn, as it is the biggest business driver for Monsanto.
Corn's the leader
Monsanto's corn seed and traits business accounts for more than 70% of its total seed and genomics sales. Revenue from this business climbed 17.5% in the second quarter with a 20% jump in gross profit. What's worth noting is that Monsanto's corn seed sales rose despite doubts surrounding its bug-resistance capabilities.
Monsanto's drought-tolerant corn is ready for on-farm testing after being deregulated by the USDA. The company is expects a commercial launch in 2013 or 2014. The company is also upbeat about its reduced refuge corn products and is targeting more acres this year. But competition is heating up fast, with DuPont (NYS: DD) introducing 154 new corn hybrids and refuge products this year, eyeing North American growers.
The good news is that there seems to be plenty of room for all, as the USDA has predicted record U.S. corn plantations this year. Corn stockpiles as of March 1 were at an eight-year low, indicating growing demand. Apart from warm weather, U.S. farmers are also busier because of lower yield in major corn-producing countries like Brazil and Argentina. With fertilizer heavies like CF Industries (NYS: CF) also predicting higher acreage and record corn plantations this year, Monsanto can look forward to a great 2012.
What's going to power Monsanto further is its expansions in the emerging markets. It is expanding its 11-year-old joint venture with Sinochem, China's largest fertilizer distributor -- a smart move to capture the potential of the world's largest corn-consuming nation. The company is also keen to gain a stronger foothold in Latin America, not just through corn products but also soybeans. It is gearing up to launch a key insect-protected soybean product in Brazil next year.
The Foolish bottom line
Monsanto's doing well by putting the bug fiasco behind it and churning out a great performance. The seed business should stay fertile so long as farmers grow to feed the burgeoning global population.
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At the time thisarticle was published Neha Chamaria does not own shares of any of the companies mentioned in this article. The Motley Fool owns shares of CF Industries Holdings.Motley Fool newsletter serviceshave recommended creating a synthetic long position in Monsanto. The Motley Fool has adisclosure policy.We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days.
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