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Before the opening bell on April 1, Monsanto Company (MON) came up with downbeat 2Q15 results, missing the Zacks Consensus Estimate for both lines. This provider of agricultural products also lowered its full-year EPS outlook. Yet the stock soared in the session following the earnings release.

2Q Earnings in Focus

The company reported earnings from continuing operations of $2.90 per share, down 7.9% from the year-ago quarter. Earnings lagged the Zacks Consensus Estimate of $2.96 per share. The bottom line was mainly hurt by margin pressure (read: Agribusiness ETFs in Focus on Monsanto's Mixed Q1 Earnings).

Second-quarter revenues of $5.2 billion, down 10.9% year over year, fell shy of the Zacks Consensus Estimate of $5.8 billion. The top-line decline was mainly triggered by a fall in price of generic glyphosate and currency headwinds.

Alongside weak quarterly results, the cut in the guidance took the sheen out of Monsanto earnings totally. After accounting for deterrents like lower corn production in U.S. and appreciation of the greenback, Monsanto expects the low end of the $5.75–$6.00 earnings per share.

The guidance includes an adverse impact of $0.35–$0.40 from currency translation. The company also expects to achieve the low end of the free cash flow guidance of $2 billion to $2.2 billion for the full fiscal year. However, irrespective of such issues, the company aims to double EPS by 2019 end.

Per Bloomberg, investors completely shrugged off the earnings weakness after the company reported “that plantings of its newest genetically modified soybeans jumped fivefold in 2015 and will double next year.” Management also indicated that planting of Intacta soybeans will reach 30 million acres in 2016. Brazil itself is planned to receive over 150 varieties.

MON currently has a Zacks Rank #3 (Hold).

ETF Impact

Courtesy of an optimistic outlook over soybeans plantings, shares of Monsanto jumped around 4% in the key trading session on Wednesday on elevated volumes which were double the regular trading. Needless to say, investors who lost hope on the stock after such soft earnings and guidance, turned out to be ‘April Fools’. The fund tricked the market and gained about 0.1% after hours.

Monsanto has a sizable exposure in various agricultural and materials ETFs like MSCI Global Agriculture Producers ETF (VEGI), Materials Select Sector SPDR (XLB), iShares U.S. Basic Materials ETF (IYM) and Market Vectors-Agribusiness ETF (MOO). This suggests that the performance of these funds is highly dependent on Monsanto. Below, we have highlighted some of these ETFs in detail (see all Materials ETFs here):

VEGI in Focus

This global ETF looks to track the MSCI ACWI Select Agriculture Producers Investable Market Index and invests about $32.8 million of assets. In its 131-stock portfolio, the in-focus Monsanto takes the top spot with a 14.47% allocation.

Sector-wise, materials take the top position with 50.3% share followed by food and beverages (18.96%). Country-wise, the U.S. accounts for about half of the portfolio while Canada (11.4%) and Switzerland (8.4%) occupy the next positions.

The ETF charges about 39 bps in fees a year. The fund has gained about 2.3% in the year-to-date time frame (as of April 1, 2015) while it added 0.87% in the key trading session.

XLB in Focus

Investors looking to tap the rise in Monsanto in ETF form can also invest in XLB. Here, Monsanto takes the second position with 9.41% of assets. The fund’s asset base of $3 billion is spread across 31 securities.

The fund appears quite popular as indicated by its trading volume of about 4.5 million shares a day. The ETF relies heavily on the chemicals sector which accounts for 74.3% of the asset base. XLB charges a fee of 15 basis points annually. The fund has recorded a meager gain of 0.8% on the year-to-date basis and was up 0.29% in the key session and 0.12% after hours.

IYM in Focus

This fund follows the Dow Jones U.S. Basic Materials Index, holding 56 stocks in its basket. Again, Monsanto takes the second spot at 8.7%. From a sector perspective, chemicals make up for 78% of assets.
 
The ETF is also popular, with about $1495.2 million in AUM while its expense ratio came in at 0.43%. The fund was down about 0.7% from the year-to-date look and added just 0.02% in the key trading session.

MOO in Focus

Like VEGI, this fund provides exposure to the global agribusiness industry by tracking the Market Vectors Global Agribusiness Index. It is a pretty popular choice in the space with AUM of over $1.3 billion. The ETF charges 55 bps in annual fees (read: Reap Long Term Returns from These Agribusiness ETFs).
 
In total, the fund holds 57 securities in its basket. Of these firms, the stock under consideration – Monsanto –takes the second place, making up roughly 7.64% of the total assets. In terms of country allocation, U.S. (48.4%), Canada (10.8%) and Switzerland (8.5%) occupy the top spots. The fund added nearly over 2% in the year-to-date time frame and 0.7% on April 1.

Bottom Line

As evident by the portfolio pattern above, most of the ETFs in this space have a huge holding in MON, suggesting that the returns in this stock may be helpful for the funds in the space. However, dollar strength will remain in the news in the coming days which might trouble material ETFs on the whole. Investors could thus take advantage of the latest unexpected surge in Monsanto in a cautious manner.
 
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MONSANTO CO-NEW (MON): Free Stock Analysis Report
 
ISHARS-M GL AGR (VEGI): ETF Research Reports
 
ISHARS-US BA MA (IYM): ETF Research Reports
 
MKT VEC-AGRIBUS (MOO): ETF Research Reports
 
SPDR-MATLS SELS (XLB): ETF Research Reports
 
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