Monsanto Company MON reported weak results for second quarter of fiscal 2015 (ended Feb 28, 2015). Cyclical fluctuations of the agricultural industry, strengthening of U.S. dollar and lower U.S. corn production were mainly responsible for the poor results.  

The company reported adjusted earnings of $2.90 per share, which lagged the Zacks Consensus Estimate of $2.96 per share.

Cost & Margins

Monsanto’s cost of sales fell 9.5% year over year, representing 41.5% of total revenue versus 40.9% in the year-ago quarter. Gross margin inched down 60 basis points to 58.5%.

Operating expenses were recorded at $1,019 million, down 1% from the year-ago quarter, reflecting 19.6% of total revenue. Interest expense stood at $92 million as against $40 million recorded in the year-ago comparable period.

Balance Sheet and Cash Flow

Exiting fiscal second-quarter 2015, Monsanto’s cash and cash equivalents increased to $2.732 billion from $2.367 billion at the end of fiscal fourth-quarter 2014. Long-term debt in the quarter was $7.9 billion, up 4.9% from the end of fiscal 2014.

In the first half of fiscal 2015, Monsanto generated cash of $1,518 million from its operating activities, down from $1,846 million recorded in the year-ago quarter. Capital spending rose 8.5% year over year to $511.0 million. Dividend payments in the first half totaled $475 million.

Free cash flow soared 240% year over year to $986 million in the first half of fiscal 2015.

Outlook

Taking into account industry headwinds such as lower corn production in U.S. and appreciation of U.S. dollar, Monsanto expects to achieve the low end of the $5.75–$6.00 earnings per share (“EPS”) range. The guidance includes 35–40 cents of impact from currency headwinds led by depreciation of other currencies with respect to the U.S. dollar. However, irrespective of such issues, the company aims to double its EPS growth by 2019-end and also enhance margins by strategically lowering operating expenses in the near future.  

With a market capitalization of $54.39 billion, Monsanto currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include First Majestic Silver Corp. AG, Asanko Gold Inc. AKG and Air Products & Chemicals Inc. APD. All three stocks hold a Zacks Rank #2 (Buy).