Monsanto 2Q figures

On Wednesday Monsanto, the agriculture company, released their Second Quarter Financial Results , which were not great. The market was expecting worse than they delivered, the share price jumped 4% on the results.

Revenue for the quarter dropped $5.2 billion (est was for $5.59 billion) from $5.8 billion last year this time. The EPS also dropped to $2.90 a share from $3.15 a share, the guidance for the full year though was still in the range previously indicated. EPS for the full year is expected to be at the low end of the $5.75 to $6.00 a share range, which will still beat last years EPS of $5.22.

The reason for the poor results is of their biggest division (Corn) having sales down by 15%. There have been strong corn harvests in the US as of late which has resulting in a large inventory build up, so farmers are planting less corn this time round. One of the crops that is being planted more now is Soy Beans, which on a per hectare basis works out less profitable to Monsanto than corn.

GMO seeds and foods are controversial, with the more recent shot coming from the WHO. The report from the WHO says that "glyphosate" the active ingredient in one of Monsanto's herbicides is linked to cancer. Management say that the report hasn't impacted sales, they are fighting it and the report is at odds US and EU regulars stances on the product.

I dont see the pushback against GMO's going away anytime soon, I also don't see the need to feed an increasing global population going away either. CNBC Africa had a guest on this morning who said that 40% of Africa's children are not getting enough food on a daily basis; GMO will go along way to solving this problem. The yield on some African land is 30 times less than it is on land in the US and EU.

Given the expected 10% growth in EPS this year, the share is not cheap on a 23 P/E. I still see a great need for their products and they have built a solid "moat" around their business in the form of their brand with farmers and their annual spend on R&D.