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 18.65% in 2012, increasing to 18.80% in 2013. Subsequently, it decreased steadily to 16.44% in 2015, remaining relatively stable at 16.48% in 2016, and then increasing to 17.13% 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$652 million in 2015 and reached its lowest point at a loss of US$815 million in 2016. A partial recovery occurred in 2017, with economic profit reported as a loss of US$221 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, ranging from -1.02% to -5.10%. Generally, the ratio demonstrates a pattern of initial improvement followed by deterioration and then a partial recovery. Economic profit consistently remained negative throughout the period, though its magnitude varied.

Economic Spread Ratio Trend

The economic spread ratio improved from -3.21% in 2012 to -1.41% in 2013, and further to -1.02% in 2014. However, a significant decline occurred in 2015, reaching -3.56%, followed by a further decrease to -5.10% in 2016. The ratio showed some recovery in 2017, increasing to -1.35%.

Economic Profit Trend

Economic profit decreased from a loss of US$467 million in 2012 to a loss of US$222 million in 2013. This trend continued with a loss of US$166 million in 2014. A substantial increase in the loss was observed in 2015, reaching US$652 million, and further worsening to US$815 million in 2016. The loss decreased to US$221 million in 2017.

Invested Capital Trend

Invested capital generally increased from US$14,553 million in 2012 to US$18,327 million in 2015. A decrease was noted in 2016, falling to US$15,963 million, followed by a slight increase to US$16,366 million in 2017. The fluctuations in invested capital do not appear to directly correlate with the changes in the economic spread ratio.

The most substantial deterioration in financial performance, as indicated by both the economic spread ratio and economic profit, occurred between 2014 and 2016. While 2017 showed some improvement in both metrics, economic profit remained negative, and the economic spread ratio remained below zero, indicating that returns on invested capital were not exceeding the cost of capital.

The economic profit margin exhibited considerable fluctuation between 2012 and 2017. While negative throughout the observed period, the magnitude of the negative margin varied significantly year to year. A review of the economic profit reveals a similar pattern of inconsistency.

Economic Profit Margin Trend

The economic profit margin began at -3.48% in 2012, improved to -1.50% in 2013, and further to -1.06% in 2014. However, a substantial deterioration occurred in 2015, with the margin falling to -4.36%. This negative trend continued into 2016, reaching a low of -5.95%. A partial recovery was observed in 2017, with the margin increasing to -1.49%.

Economic Profit Relationship

The economic profit figures correlate directly with the economic profit margin. The largest negative economic profit occurred in 2016 (-815 US$ millions), coinciding with the most negative margin (-5.95%). Conversely, the smallest negative economic profit was recorded in 2013 (-222 US$ millions), aligning with the least negative margin (-1.50%). The substantial decline in economic profit from 2014 to 2015 (-166 US$ millions to -652 US$ millions) is reflected in the corresponding margin decrease.

Adjusted Net Sales Impact

Adjusted net sales generally increased from 2012 to 2014, peaking at 15,685 US$ millions. A decrease was then observed in 2015 and 2016, falling to 13,688 US$ millions. Sales recovered somewhat in 2017, reaching 14,878 US$ millions. Despite the sales increase between 2012 and 2014, the economic profit margin did not improve proportionally, suggesting that increases in costs or adjustments to net income offset the revenue gains. The decline in sales in 2015 and 2016 coincided with a significant worsening of the economic profit margin, indicating a potential link between revenue and profitability.

Overall, the period demonstrates a lack of consistent economic profitability. While the economic profit margin experienced some improvement in the early years, it ultimately declined significantly before a modest recovery in the final year. The fluctuations in both economic profit and adjusted net sales suggest a complex interplay of factors influencing the company’s financial performance.