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Monsanto Is Dropped from TPG-Axon’s Portfolio

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TPG-Axon sells its stake in Monsanto

TPG-Axon closed its position in Monsanto (MON) by selling all the 696,330 shares held. Monsanto is part of the iShares MSCI Global Agriculture Producers ETF (VEGI) with an exposure of 15.79% and the Materials Select Sector SPDR Fund (XLB) with an exposure of 9.59%.

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Monsanto’s Roundup herbicide could cause cancer

WHO’s (World Health Organization) International Agency for Research on Cancer (or IARC) recently assessed the tendency of a certain class of pesticides and herbicides to cause cancer. As per the agency’s evaluations, published as a report dated March 20, 2015, herbicide glyphosate was declared as “probably carcinogenic to humans.” Monstanto’s Roundup herbicide is a glyphosate-based product. The results of the IARC study will likely have a negative impact on Roundup sales.

Fiscal 2Q15 revenues and profit fall due to decline in corn seeds and Roundup sales

Net sales for fiscal 2Q15 fell 11% on a year-over-year basis to $5.19 billion. Net income fell 15% on a year-over-year basis to $1.43 billion. Diluted EPS (earnings per share) was reported to be $2.92, a 7% fall over the prior-year period.

Net sales for the company’s Seeds and Genomics segment fell 10% compared to the prior-year period to $4.2 billion. The decline in net sales for corn seed and traits was driven by lower volumes in the US as a result of the appreciation in the US dollar, which makes the company’s products expensive in Latin America and other regions of export.

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As per data from the National Agricultural Statistics Service (NASS) of the US Department of Agriculture, the US harvested 14.2 billion bushels of corn in 2014, which surpassed the previous record of 13.8 billion bushels in 2013. Monsanto’s chief executive officer, Hugh Grant, expressed in the company’s recent earnings call that this record production over the past two years has resulted in excess corn supply, and thus lowered acreage.

Net sales for the Agricultural Productivity segment fell 14% to $1.02 billion during fiscal 2Q15 on a year-over-year basis. This was primarily due to a decline in sales of glyphosate-based herbicides such as Roundup.

Monsanto uses a relatively high level of debt in its capital structure, as indicated by its DE (debt-to-equity) ratio of 1.0x, which is similar to 0.7x for DuPont (DD) and much higher than 0.3x for Syngenta (SYT).

About Monsanto

Monsanto is a global supplier of agricultural products to farmers. The company’s precision agriculture, herbicide, bio-technology traits, and seed products offer solutions to farmers for enhancing productivity, lowering farming costs, and creating better feed for animals and food for consumers. The company operates its business via two segments.

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Seeds and Genomics

This segment is involved in the production of major brands of seeds and developing bio-technology traits that help in insect and weed control. Precision agriculture solutions help farmers in making better decisions. Monsanto also offers genetic material to other seed companies.

Agricultural Productivity

This segment is involved in the manufacture of herbicide products, including the Roundup branded herbicide products.

In the next part of this series, we’ll look at TPG-Axon’s closed position in Alibaba Group Holding (BABA).

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