The fiscal-first quarter for Monsanto Co. (MON) couldn't have been much more profitable, as the biotechnology company more than doubled profits.
Most of that was driven by glyphosate-based weed killer "Roundup" sold in Latin America, along with overall corn seed sales.
Another factor in the solid profits was the pricing strategy implemented by Monsanto, as they increased corn seed prices by between 15% to 20% while looking to increase prices this year by up to 25%, said the company.
For Monsanto and other companies, the question becomes whether the price increases will be able to hold, as their original increases came before commodities got hit hard. If commodities don't come back fairly quickly, it'll be hard to maintain those increases in a soft market.
If that doesn't happen soon, management of costs will be a significant factor in Monsanto's profits going, as they may have to cut their projected price increases if farmers aren't able or willing to pay Monsanto's wanted price.
Another concern in the sector is the very real possibility of a worldwide seed pricing war, which according to Monsanto CEO Hugh Grant, they won't participate in, and will hold their projected pricing to maintain their margins.
The thought there is competitors will be forced to revert to increasing prices even if they gain some temporary market share, as it'll cut significantly into profits. That seems to be a risky strategy, but at the same time it's also risky for competitors over the long haul.
For the fiscal first quarter ending November 30, net income surged from $256 million last year to $556 million this year. Sales grew to $2.65 billion for a record first quarter, an increase of 29 percent.
The company also increased its guidance to a range of $4.40 to $4.50 from $4.20 to $4.40 on an ongoing basis.
Going forward, Monsanto is continuing on with its strategy of introducing its SmartStax corn seed, which include eight genetic changes, and developed to take the place of triple-stack corn seeds.
The drought-tolerant corn of Monsanto is also near the end of its research and development stage, and is awaiting approval from the U.S. Food and Drug Administration. Assuming approval from the USDA and targeted nations, seed is scheduled to be marketed in 2012.
Even with the great news of Monsanto's performance, the key going ahead is whether they can maintain their aggressive pricing without losing significant market share. Increased supply into the market and competitors' responding by lowering prices could put downward pressure on profits for the company.
Still, to perform like they have under these economic conditions is quite an accomplishment. Long term they seem to be a solid company to invest in.
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