Premium agricultural chemicals firm Monsanto Company MON is scheduled to report first-quarter fiscal 2016 results before the opening bell on Jan 6, 2015. Last quarter, the company woefully missed the earnings estimate with a negative earnings surprise of 1,800%.
Let’s see how things are shaping up prior to this announcement.
Factors to Consider
Monsanto’s restructuring strategies, aimed at enhancing productivity as well as competitiveness by undertaking cost-cutting measures, are expected to act as the primary growth driver for fiscal first quarter of 2016. The company expects these initiatives to yield cost savings within $125–$150 million in 2016. As a matter of fact, sound cash flow from operations and robust profit margins add to Monsanto’s strength.
Moreover, rising demand for improvement in production of food, fiber, feed and fuel has largely driven Monsanto’s innovation-led growth strategy in the past and is expected to do the same for the soon-to-be-reported quarter. Also, the company’s expertise in biotechnology and breeding research and its lucrative product pipeline including offerings like Intacta, Bollgard II XtendFlex cotton and Roundup Ready 2 Xtend soybean will likely be conducive to growth during fiscal first-quarter 2016.
Despite these positives, unfavorable macroeconomic factors like reducing acres and currency fluctuations are anticipated to pose as headwinds for the upcoming quarter. Moreover, the inherent cyclical pressures in the global agricultural industry, climatic vagaries and intensifying competition may hurt the performance of the “Agricultural Productivity” segment, thereby proving to be a major drag on Monsanto’s financials.
This apart, deteriorating net income and generally higher debt management risks add to the company’s woes. At the same time, rising operating expenses led by restructuring charges might hurt the company’s first-quarter 2016 results.
Earnings Whispers
Our proven model does not conclusively state that Monsanto is likely to beat earnings in the quarter under review. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. That is not the case here as we will see below.
Negative Zacks ESP: Monsanto has an Earnings ESP of -3.70%, which is the difference between the Most Accurate estimate of a loss of 28 cents and the Zacks Consensus Estimate of a loss of 27 cents.
Zacks Rank: Monsanto currently has a Zacks Rank #3.
Note that we caution against stocks with Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.