Monsanto's 3Q17 Earnings Delivered a Positive Surprise

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Part 3
Monsanto's 3Q17 Earnings Delivered a Positive Surprise PART 3 OF 7

Analyzing Monsanto’s Gross Margins in 3Q17

Gross margins

In the previous part of this series, we discussed Monsanto’s (MON) 3Q17 sales performance by each of its reporting segments. Now, we’ll dig deep into how each of the reporting segments’ gross margins performed in 3Q17.

Analyzing Monsanto&#8217;s Gross Margins in 3Q17

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Segment margins

Overall, Monsanto’s gross margins during 3Q17 fell slightly YoY (year-over-year) from 56.8% in 3Q16 to 56.4% in 3Q17. The Seeds and Genomics segment saw its gross margins fall YoY from 48.9% to 47.6%. The segment’s margins likely contracted due to the Corn Seed and Traits segment, which saw its gross margins fall from 23.3% to 21.8%.

Similarly, the Vegetable Seeds segment’s gross margins fell from 2.6% in 3Q16 to 2.3% in 3Q17. The Other segment’s gross margins fell from 8.8% in 3Q16 to 3.3% in 3Q17.

In contrast, the Soybean Seed and Traits segment’s margins expanded during 3Q17 to 13.9% from 9.3% in 3Q16. The Cotton Seed and Traits segment’s gross margins rose during the quarter from 4.9% to 6.3% YoY.

Agricultural Productivity segment

Monsanto’s Agricultural Productivity segment’s gross margins weren’t impressive. The segment’s margins rose by 87 basis points to 8.8% from 7.9%. Gross margins are calculated as the Agricultural Productivity segment’s gross income over total sales. When we calculate the gross margin using this segment’s sales, the sales were almost flat YoY at 33.8%.

To alleviate the issue of gross margin contraction, companies (MOO) including Monsanto, Dow Chemical (DOW), DuPont (DD), and PotashCorp (POT) have resorted to consolidation. They want to be more cost effective in their operations along with increasing their market footprint.

Monsanto’s merger with Bayer is still pending. We’ll discuss the merger later in this series.

In the next part, we’ll discuss Monsanto’s overall profitability which includes operating and net margins.


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