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, and 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 change.

Cost of Capital Trend

The cost of capital began at 18.61% in 2012, increasing to 18.77% in 2013. A decreasing trend followed, reaching 16.41% in 2015, with a slight increase to 16.45% in 2016, and then to 17.09% in 2017. The relatively stable cost of capital, with a slight upward trend at the end of the period, indicates consistent financing conditions, though potentially increasing costs.

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, and a slight 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 -US$462 million in 2012, improving to -US$217 million in 2013. Further improvement to -US$161 million occurred in 2014, but then deteriorated significantly to -US$646 million in 2015 and -US$810 million in 2016. A recovery to -US$216 million was observed in 2017. The consistently negative economic profit indicates that the company’s returns are not exceeding its cost of capital, despite improvements in certain years.

The interplay between NOPAT, cost of capital, and invested capital results in a volatile economic profit. While NOPAT and invested capital fluctuate, the cost of capital remains relatively stable, suggesting that changes in operational performance and investment levels are the primary drivers of economic profit. The final year shows some improvement in economic profit, but the company still does not generate returns exceeding its cost of capital.

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 -1.37% to -5.07%. A general observation is that the ratio is consistently negative, indicating that the company’s return on invested capital is less than its cost of capital throughout the analyzed timeframe.

Economic Spread Ratio Trend

The economic spread ratio decreased from -3.18% in 2012 to -1.37% in 2013, representing an improvement in the difference between return and cost of capital. This improvement was short-lived, as the ratio deteriorated to -3.52% in 2015 and further to -5.07% in 2016, the lowest point in the series. A partial recovery was noted in 2017, with the ratio increasing to -1.32%.

The economic spread ratio’s movement appears to correlate with changes in economic profit. The largest negative economic profit values in 2012, 2015, and 2016 coincide with the most negative economic spread ratios. Conversely, the least negative economic profit values in 2013 and 2017 align with the least negative economic spread ratios.

Relationship to Invested Capital

Invested capital generally increased from 2012 to 2015, peaking at US$18,327 million. A decrease was observed in 2016 to US$15,963 million, followed by a slight increase in 2017. Despite the increase in invested capital, the economic spread ratio remained negative, suggesting that increased investment did not translate into sufficient returns to cover the cost of capital, particularly in 2016.

The substantial decline in the economic spread ratio in 2016 warrants further investigation. While invested capital decreased, the economic profit also became significantly more negative, indicating a potential issue with operational efficiency or revenue generation during that period. The partial recovery in 2017 suggests some corrective actions may have been taken, but the ratio remained negative, indicating continued underperformance relative to the cost of capital.

The economic profit margin exhibited considerable fluctuation between 2012 and 2017. While adjusted net sales generally remained stable, economic profit and consequently the economic profit margin demonstrated a volatile pattern over the observed period.

Economic Profit Margin Trend

The economic profit margin began at -3.44% in 2012, improved to -1.46% in 2013, and further to -1.03% in 2014. However, a significant decline occurred in 2015, with the margin reaching -4.32%. This downward trend continued into 2016, resulting in a margin of -5.92%, the lowest point in the observed timeframe. A partial recovery was noted in 2017, with the margin increasing to -1.45%.

Relationship to Adjusted Net Sales

Adjusted net sales increased from US$13,435 million in 2012 to US$14,875 million in 2013 and peaked at US$15,685 million in 2014. A slight decrease to US$14,933 million occurred in 2015, followed by a more substantial decline to US$13,688 million in 2016. Sales rebounded to US$14,878 million in 2017. Despite these sales fluctuations, the economic profit margin did not consistently correlate with sales volume. The largest margin decline occurred in 2015 despite a relatively small decrease in sales, suggesting factors beyond revenue impacted profitability.

Economic Profit

Economic profit itself moved from a loss of US$462 million in 2012 to a reduced loss of US$217 million in 2013, and further to US$161 million in 2014. A substantial increase in the loss occurred in 2015, reaching US$646 million, followed by an even larger loss of US$810 million in 2016. The loss decreased to US$216 million in 2017, mirroring the partial recovery observed in the economic profit margin.

The substantial volatility in the economic profit margin and economic profit suggests underlying issues impacting the company’s ability to generate returns exceeding its cost of capital. Further investigation into the components of economic profit – net operating profit after tax and the cost of capital – would be necessary to pinpoint the specific drivers of these fluctuations.