Monsanto Co. (NYSE:MON)

The period under review demonstrates fluctuating financial performance as measured by economic profit. Net operating profit after taxes (NOPAT) exhibits variability, while the cost of capital generally decreases before increasing slightly in the final year. Invested capital also shows fluctuations, impacting the overall economic profit calculation.

NOPAT Trend

Net operating profit after taxes increased from US$2,247 million in 2012 to US$2,743 million in 2013. This was followed by a decrease to US$2,633 million in 2014, then a further decline to US$2,361 million in 2015. A significant drop to US$1,816 million occurred in 2016, before a recovery to US$2,582 million in 2017. This suggests operational performance is subject to considerable year-to-year variation.

Cost of Capital Trend

The cost of capital began at 18.64% in 2012, increasing to 18.80% in 2013. Subsequently, it decreased steadily to 16.43% in 2015, remaining relatively stable at 16.48% in 2016, and then increasing to 17.12% in 2017. The overall trend indicates a reduction in the cost of financing, though this trend reversed in the final year.

Invested Capital Trend

Invested capital increased from US$14,553 million in 2012 to US$15,770 million in 2013 and continued to rise to US$16,260 million in 2014. A substantial increase was observed in 2015, reaching US$18,327 million. However, it decreased to US$15,963 million in 2016, followed by a modest increase to US$16,366 million in 2017. These fluctuations suggest changes in the company’s asset base and investment strategy.

Economic Profit Trend

Economic profit was negative throughout the entire period. It began at a loss of US$467 million in 2012, improving to a loss of US$222 million in 2013, and further improving to a loss of US$166 million in 2014. However, economic profit deteriorated significantly to a loss of US$651 million in 2015 and reached its lowest point at a loss of US$814 million in 2016. A partial recovery occurred in 2017, with economic profit reported as a loss of US$220 million. The consistently negative economic profit indicates that the company’s returns are not exceeding its cost of capital.

The interplay between NOPAT, cost of capital, and invested capital results in a volatile economic profit. While NOPAT and cost of capital show some degree of fluctuation, the substantial changes in invested capital appear to have a significant impact on the overall economic profit. The persistent negative economic profit suggests a need to evaluate capital allocation strategies and operational efficiency.

The financial data reveals certain trends in profitability for the analyzed company over a six-year period ending August 31, 2017.

Net Income Attributable to the Company

Net income shows an overall fluctuating pattern across the years. It increased steadily from 2045 million US dollars in 2012 to a peak of 2740 million in 2014. Subsequently, it experienced a decline to 2314 million in 2015 and a more pronounced decrease to 1336 million in 2016, indicating a significant setback in profitability during that year. However, the net income rebounded sharply to 2260 million in 2017, signaling recovery but not reaching the earlier peak levels.

Net Operating Profit After Taxes (NOPAT)

NOPAT similarly experienced variations over the examined period. It rose from 2247 million USD in 2012 to 2743 million in 2013, before slightly declining to 2633 million in 2014. The value then decreased further to 2361 million in 2015 and took a more substantial fall to 1816 million in 2016. In 2017, NOPAT saw a notable recovery to 2582 million. This suggests operational efficiency or profitability challenges during 2015 and 2016 with improvement thereafter.

Overall, both net income and NOPAT indicate a peak generally around 2013-2014, followed by declines in 2015 and notably in 2016. The recovery in 2017 reflects a positive turnaround. The inconsistency observed in both metrics suggests volatility in profitability and operational performance during these years, highlighting a period of financial challenges mid-cycle with subsequent recovery efforts yielding results by the final year reported.

Income Tax Provision from Continuing Operations

The income tax provision from continuing operations exhibited a fluctuating trend over the six-year period. Starting at 901 million USD in 2012, a slight increase to 915 million USD was observed in 2013. This upward movement continued more notably in 2014, reaching a peak of 1,078 million USD. However, the subsequent years showed a declining pattern: it decreased to 864 million USD in 2015, further dropped to 695 million USD in 2016, and reached its lowest point at 626 million USD in 2017. Overall, despite an initial rise until 2014, the income tax provision has generally declined in the latter part of the timeframe.

Cash Operating Taxes

Cash operating taxes demonstrated more volatility relative to the income tax provision. Beginning at 708 million USD in 2012, there was a steady increase to 821 million USD in 2013, followed by a substantial spike to 1,179 million USD in 2014. The upward trend continued into 2015, peaking at 1,272 million USD. However, unlike income tax provision, cash operating taxes experienced a sharp decrease in 2016, falling to 801 million USD, and then a further decline to 719 million USD by 2017. Despite the fluctuations, the values at the end of the period remained higher than the initial 2012 figures.

Comparative Observations

Both income tax provision and cash operating taxes display a pattern of increasing values through the early years, reaching peaks around 2014 or 2015, followed by a notable decline in the last two years. The cash operating taxes showed more pronounced increases and decreases compared to the income tax provision, suggesting greater variability in actual tax cash outflows relative to the accounting provisions. The consistent decline in both items after 2015 might indicate changes in tax strategy, operational performance, or tax regulations affecting the company's tax liabilities.

The financial data reveals several important trends and shifts over the six-year period ending August 31, 2017.

Total reported debt & leases

This metric shows a notable increase from 2012 through 2015, rising sharply from approximately $2.4 billion to $9.5 billion. The peak occurs in 2015 with a slight decline thereafter, dropping to $8.6 billion by 2017. This suggests a significant increase in leverage or borrowing activities during the mid-period, followed by some reduction in debt levels.

Total Monsanto Company shareowners’ equity

Shareowners’ equity exhibits a declining trend over the years. Starting at about $11.8 billion in 2012, equity increases slightly in 2013 but then declines steadily to a low of $4.5 billion in 2016. A partial recovery to $6.4 billion in 2017 is observed. This decreasing equity position alongside rising debt levels in the earlier years indicates possible financial restructuring or share buybacks impacting the equity base.

Invested capital

Invested capital shows a general upward trend from 2012 through 2015, rising from approximately $14.6 billion to $18.3 billion before declining to around $16.0 billion in 2016. A slight increase to $16.4 billion in 2017 occurs. The growth in invested capital up to 2015 parallels the increases in both debt and equity during that period, suggesting expansion or acquisition initiatives. The subsequent decrease and stabilization may reflect a period of consolidation or reevaluation of capital investment.

Overall, the data suggest that the company experienced increased leverage with a peak in debt around 2015, accompanied by declining shareholders’ equity after 2013. Despite fluctuations, invested capital remained relatively high, implying continued commitment to the company's operational base or growth efforts. The partial recovery in equity and reduction in debt post-2015 could indicate a strategic shift towards strengthening the balance sheet and deleveraging.

The economic spread ratio exhibited fluctuations over the observed period. Initially, the ratio was negative, indicating that the company’s return on invested capital was less than its cost of capital. This negative spread persisted throughout the entire period, though its magnitude varied considerably.

Economic Spread Ratio Trend

The economic spread ratio began at -3.21% in 2012 and improved to -1.41% in 2013, suggesting a narrowing of the gap between return and cost of capital. This improvement was short-lived, as the ratio worsened to -3.55% in 2015, and further deteriorated to -5.10% in 2016, representing the most significant negative spread during the period. A subsequent improvement was observed in 2017, with the ratio increasing to -1.35%, indicating a return towards a more favorable position, though still negative.

The economic spread ratio’s movement appears to correlate with changes in economic profit. The largest negative economic spread in 2016 coincided with the largest negative economic profit of -$814 million. Conversely, the least negative spread in 2017 occurred alongside a smaller negative economic profit of -$220 million. This suggests a direct relationship between the two metrics.

Invested Capital

Invested capital generally increased from $14,553 million in 2012 to $16,260 million in 2014. However, it decreased to $15,963 million in 2016 before rising slightly to $16,366 million in 2017. These fluctuations in invested capital may have influenced the economic spread ratio, although the primary driver appears to be the economic profit itself.

Overall, the company consistently failed to generate returns exceeding its cost of capital during the analyzed timeframe. While there were periods of improvement, the economic spread ratio remained negative throughout, indicating a consistent destruction of shareholder value as measured by EVA principles.

The economic profit margin exhibited considerable fluctuation between 2012 and 2017. While adjusted net sales generally remained stable, economic profit demonstrated volatility, directly impacting the economic profit margin.

Economic Profit Margin Trend

The economic profit margin began at -3.47% in 2012 and improved to -1.49% in 2013. This improvement was followed by a further, though smaller, positive shift to -1.06% in 2014. However, 2015 saw a significant decline to -4.36%, representing the lowest margin during the observed period. The margin deteriorated further in 2016, reaching -5.95%. A substantial improvement occurred in 2017, with the margin increasing to -1.48%, though still remaining negative.

Relationship to Economic Profit

The economic profit margin’s movements closely mirrored those of economic profit. The largest negative economic profit values in 2012, 2015, and 2016 directly corresponded with the lowest economic profit margins. The reduction in negative economic profit in 2013, 2014, and 2017 resulted in corresponding improvements in the economic profit margin.

Relationship to Adjusted Net Sales

Adjusted net sales showed a general upward trend from 2012 to 2014, peaking at US$15,685 million. A slight decrease was observed in 2015 and a more pronounced decrease in 2016. Sales recovered somewhat in 2017, reaching US$14,878 million. Despite these sales fluctuations, the economic profit margin’s volatility suggests that changes in economic profit, rather than sales volume, were the primary driver of margin performance.

Overall, the period was characterized by consistent negative economic profit margins, indicating that the company’s returns were not exceeding its cost of capital. The substantial fluctuations in the margin highlight the sensitivity of profitability to factors impacting economic profit.