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Today's edition of the Saxo Morning Call features the SaxoStrats team discussing the continuing weakness of the US dollar as commodity prices recover ground and in the wake of key US equity indices hitting all-time highs Thursday.
Article / 27 March 2015 at 11:20 GMT

Earnings Watch: Will Monsanto show first signs of FX headwinds?

Head of Equity Strategy / Saxo Bank
Denmark
  • Strong iPhone demand to boost Foxconn sales 
  • Monsanto shares plunged on WHO pesticide comments
  • Monsanto also contending with strong dollar
By Peter Garnry

Next week is light on earnings with only seven earnings releases in the S&P 1200 Global Index. The two most important releases will come from Hon Hai Precision and Monsanto.

Hon Hai Precision (Q4 earnings on Monday)

The technology company also known as Foxconn is expected to report EPS 3.43 in Q4 up 18% y/y driven by rising demand for Apple's iPhone. Sales are expected to rise 10.1% y/y in Q4. Analysts have raised their quarterly EPS estimates by 6% in the last six months.

The latest news on Foxconn is a new partnership with Apple to venture a new Chinese trade-in programme, removing balance sheet risk from Apple. If the trade-in programme resembles the structure Apple has with Brightstar in the US, then the Foxconn partnership will be a key driver for Apple to subsidise local iPhones in China in a low-risk way. Apple's revenue in China rose to $16.1B in Q4 up from little less than $10B a year ago. 

Hon Hai Precision daily share price since December 2013
Foxconn share price
Source: Saxo Bank 

Monsanto (Q2 earnings on Wednesday before market opens)

Monsanto shares have traded sideways this past year as margins have contracted and sales have slowed down, turning negative in Q1 (ending November 2014). Since late February the share price is down 10% and the recent declines have been sparked by comments from the WHO that Glyphosate (commonly known as Roundup) is "probably carcinogenic". This caused massive uncertainty in the herbicide industry. Monsanto generated $5.1bn in revenue from herbicide in 2014.

monsanto
Under pressure: WHO's negative comments and the strong USD hurt Monsanto. Pic: iStock
 
Analysts are expecting Monsanto to report EPS of $2.94 in FY15 Q2, down 6.6% y/y. Sales are expected to decline 4.2% y/y as Monsanto cannot easily adjust prices upwards on customers. Earnings estimates are down 8% in the past six months and one of the drivers is the stronger USD which acts as headwind for the top line. What makes Monsanto's earnings release even more interesting is that it is one of the first releases comprising the period with the rapidly rising USD. Management's outlook and the impact from the stronger USD may be the first early signs we get into the potential negative surprise in the Q1 earnings season in April.

Monsanto daily share price since December 2013
Monsanto share price
Source: Saxo Bank 

– Edited by Clare MacCarthy

Peter Garnry is head of equity strategy at Saxo Bank
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Earnings Watch - 2015-03-30

4y
fxtime fxtime
I notice Dreyfus have reported earnings to be flat due to $ exposure
4y
Peter Garnry Peter Garnry
Thanks for heads up fxtime
4y
Peter Garnry Peter Garnry
I would also like to point out that the EPS growth figure in the PDF on Kingfisher is wrong and due to a data error because of an outlier estimate.

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