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 18.67% in 2012, increasing to 18.82% in 2013. A decreasing trend followed, reaching 16.45% in 2015. The cost of capital then rose slightly to 16.50% in 2016 and further to 17.14% in 2017. These changes may reflect shifts in market conditions or the company’s capital structure.

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 to US$18,327 million occurred in 2015, followed by a decrease to US$15,963 million in 2016. Invested capital then increased modestly to US$16,366 million in 2017. These fluctuations indicate changes in the company’s asset base and funding requirements.

Economic Profit Trend

Economic profit was negative throughout the observed period. The initial loss of US$470 million in 2012 improved to a loss of US$226 million in 2013, and further to a loss of US$169 million in 2014. However, economic profit deteriorated significantly to a loss of US$655 million in 2015 and reached its largest loss of US$817 million in 2016. A partial recovery occurred in 2017, with economic profit decreasing to a loss of US$224 million. The consistently negative economic profit suggests that the company’s returns are not exceeding its cost of capital, despite the NOPAT recovery in the final year.

The interplay between NOPAT, cost of capital, and invested capital results in a volatile economic profit profile. While NOPAT demonstrates some recovery towards the end of the period, the consistently negative economic profit indicates that the company is not generating returns sufficient to cover its capital costs.

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 negative, the ratio demonstrated improvement before declining significantly and then showing a degree of recovery. Economic profit consistently remained negative throughout the period, though with varying magnitudes.

Economic Spread Ratio

The economic spread ratio began at -3.23% in 2012 and improved to -1.43% in 2013, indicating a lessening of the gap between return on invested capital and the cost of capital. However, the ratio deteriorated substantially to -3.57% in 2015, and further to -5.12% in 2016, representing the largest negative spread during the period. A partial recovery was observed in 2017, with the ratio increasing to -1.37%. This suggests a cyclical pattern of performance relative to the cost of capital.

Economic Profit

Economic profit moved from -470 million in 2012 to -226 million in 2013, mirroring the improvement in the economic spread ratio. The largest negative economic profit occurred in 2015 at -655 million, coinciding with the most negative economic spread ratio. A decrease in the magnitude of the loss was seen in 2016 (-817 million) before a substantial improvement to -224 million in 2017. This indicates that while the company consistently failed to generate economic profit, the scale of the loss varied considerably.

Invested Capital

Invested capital generally increased from 14,553 million in 2012 to 18,327 million in 2015. A decrease was then observed in 2016 to 15,963 million, followed by a slight increase to 16,366 million in 2017. The fluctuations in invested capital do not appear to directly correlate with the changes in economic profit or the economic spread ratio, suggesting other factors are influencing profitability.

Overall, the period was characterized by consistent negative economic profit. While there were periods of improvement in the economic spread ratio, the company consistently failed to generate returns exceeding its cost of capital. The substantial decline in the economic spread ratio in 2015 and 2016 warrants further investigation to understand the underlying drivers.

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 -3.50% in 2012, improved to -1.52% in 2013, and continued to improve to -1.08% in 2014. A significant decline was then observed in 2015, with the margin falling to -4.38%. This downward trend continued into 2016, reaching a low of -5.97%. The margin experienced a partial recovery in 2017, increasing to -1.51%.

Relationship to Economic Profit

The economic profit margin’s movements closely mirrored those of economic profit. The largest negative economic profit value, recorded in 2016 at -817 US$ millions, corresponded with the most negative economic profit margin of -5.97%. Conversely, the smallest negative economic profit in 2013 (-226 US$ millions) coincided with the least negative margin of -1.52%.

Relationship to Adjusted Net Sales

Adjusted net sales showed a general increase from 2012 to 2014, peaking at 15,685 US$ millions. A decrease was then noted in 2015 and 2016, before a slight recovery in 2017. However, the fluctuations in adjusted net sales do not appear to be the primary driver of the economic profit margin’s volatility; the margin’s changes are more strongly correlated with the changes in economic profit.

Overall, the period under review was characterized by inconsistent economic profitability, as reflected in the fluctuating economic profit margin. While sales remained relatively stable, the company’s ability to generate economic profit varied significantly year to year.