Zacks Analyst Blog Highlights: Monsanto Company, Syngenta AG, Ruby Tuesday, Biglari Holdings and Sonic

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Jan 07, 2011, 09:55 ET

CHICAGO, Jan. 7, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Monsanto Company (NYSE: MON), Syngenta AG (NYSE: SYT), Ruby Tuesday Inc. (NYSE: RT), Biglari Holdings Inc. (NYSE: BH) and Sonic Corp. (Nasdaq: SONC).

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Here are highlights from Friday's Analyst Blog:

Monsanto Beats Zacks Estimates

Monsanto Company (NYSE: MON) announced better-than-expected results for the first quarter of fiscal 2011. During the quarter, net income was $6 million compared with a loss of $19 million in the corresponding quarter of 2010.

Earnings per share (EPS) (excluding a restructuring expense) were 2 cents compared with a loss per share of 2 cents in the year-ago quarter. It surpassed the Zacks Consensus Estimate by a penny per share. The increase was due to higher revenue and lower operating costs.

Revenues inched up 7.8% to $1,830 million from $1,697 million during the same period in the previous year. However, the Zacks Consensus Estimate was $1,779.0 million. The growth in revenues was attributable to a 12.8% increase in revenues from Seeds and Genomics segment, which contributed approximately 64% of total revenue in the first quarter of fiscal 2011.

Seeds and Genomics' revenue growth is driven by higher yield performance of SmartStax corn seed and RR2Y soybean seed.

Roundup and other glyphosate-based herbicides revenues rose 2.8% to $523 million from $509 million in the first quarter of fiscal 2010. However, revenues from all other agricultural products fell to $144 million, representing a decrease of 8.3% year over year.

Gross margin increased by 120 basis points to reach 44.7% in the reported quarter. Selling, general and administrative expenses (SG&A) dropped by 460 basis points, but Research & Development (R&D) grew by 90 basis points. However, Monsanto reported an operating income of $58 million from an operating loss of $38 million in the first quarter of fiscal 2010.

At the end of the first quarter of fiscal 2010, net cash by operating activities was $624 million compared with a negative operating cash flow of $1.4 billion at the end of the corresponding quarter of the previous year. Free cash flow was negative $500 million from a negative $1.6 billion at the end of the first quarter of fiscal 2010.

Outlook

We are optimistic on Monsanto based on the improved visibility on the yield performance of its SmartStax corn seed and RR2Y soybean seed in the coming years. SmartStax and RR2Y posted a decent yield on completion of its 95% harvest in fiscal 2010, which enhances our long-term perspective on the stock.

Although the agricultural productivity segment has encountered significant market changes last year, the company's pipeline of agricultural biotechnology products stands unmatched in the industry.

For fiscal 2011, management expects EPS in the range of $2.72–$2.82 and anticipates free cash flows in the range of $800–$900 million.

However, we are concerned about the decrease in the prices of Roundup herbicides, which forced fiscal 2010 EPS to reach $2.41, almost halved from $4.41 in fiscal 2009. Further, an intensely competitive environment posts additional challenges for the company.

Monsanto competes head-to-head with Syngenta AG (NYSE: SYT). We maintain our Neutral recommendation on the stock. The stock at present retains its Zacks #3 Rank (short-term Hold rating).

Ruby Tuesday Tops, Reaffirms

Ruby Tuesday Inc. (NYSE: RT), a casual dining restaurant operator, recently reported its second-quarter 2011 adjusted earnings of 7 cents a share, surpassing the Zacks Consensus Estimate by 2 cents and the year-ago quarter's earnings by 6 cents.

Total revenue in the quarter increased 6.2% year over year to $290.5 million attributable to a rise in comparable-store sales. The revenue came in way ahead of the Zacks Consensus Estimate of $280.0 million.

Inside the Headline Number

Comparable-store sales at domestic franchised restaurants rose 1.6%. Restaurant sales were up 6.3% at $289.0 million, while franchise revenues dropped by 5.4% to $1.5 million due to lower levels of fees along with temporarily reduced royalties for certain franchisees.

Ruby Tuesday has been witnessing improving trends in comparable-store sales and traffic at company-operated restaurants. After falling 3.1%, 1.7% and 0.7% in the first, second and third quarters of 2010, respectively, comparable-restaurant sales were positive for three consecutive quarters. In second quarter 2011, Ruby Tuesday recorded comparable-store sales of 4.2%, which beat the benchmark index Knapp-Track on a one-year basis by almost 3 points.

The restaurant level operating margin expanded 140 basis points (bps) year over year to 15.1% (as a percentage of company-operated restaurant sales), reflecting a 70 bps drop in payroll and related costs to 34.5%, and a 100 bps drop in other restaurant operating costs to 21.2% partially offset by a 40 bps rise in cost of merchandise to 29.3%.

Stores Update

During the quarter, the company did not open any new company-owned restaurant, but closed one. Two domestic and international franchise restaurants were opened and four were closed.

For 2011, the company expects to open one or two in line restaurants, and close seven to nine company-owned restaurants, while converting five to seven company-operated restaurants to other high-quality dining concepts. Eight to ten franchised restaurants will likely be opened in 2011, out of which a maximum of five will be international. Ruby Tuesday is also planning to acquire more franchisee restaurants in fiscal 2011, in addition to the twenty three restaurants it bought back in the first half of 2011.

Financial Position

Ruby Tuesday ended the quarter with cash and cash equivalents of $8.2 million, long-term debt of $283.3 million and shareholders' equity of 562.7 million. Capital expenditures at the end of the quarter were $6.7 million.

Outlook

Management reiterated its fiscal 2011 earnings guidance in the range of 76 cents to 86 cents. The current Zacks Consensus Estimate is 87 cents per share for fiscal 2011.

Ruby Tuesday also continues to expect 2011 comparable-store sales for company-owned restaurants in the range of flat to positive 2%, and relatively flat restaurant operating margins. Capital expenditures are estimated between $29 million and $33 million.

Our Take

We remain enthusiastic about the company's second quarter performance and future strategies including improving margins, stable outlook of food costs in 2011, low risk revenue growth, acquisition of franchise-partner units and returning excess cash to shareholders. The company also has enough financial flexibility owing to its recently received new credit facility.

However, uncertainty prevailing in the economy, stiff competition from peers, and continued investment in product offerings as well as different other initiatives may strain its margin and cash flow generation. The company also maintained its 2011 guidance, which also leaves less room for surprise.

Ruby Tuesday currently retains a Zacks #2 Rank, which translates into a short-term Buy rating. We are also maintaining our long-term Neutral recommendation on the stock.

Major competitors of the company include Biglari Holdings Inc. (NYSE: BH).

Sonic Misses Estimate

Sonic Corp. (Nasdaq: SONC) the drive-in fast food chain posted reported first-quarter fiscal 2011 results after the closing bell on Tuesday. The company reported earnings of 12 cents per share, surpassing the Zacks Consensus Estimate by 2 cents. Earnings included a tax benefit of 2 cents per share. In the prior-year quarter, Sonic had earned 10 cents per share.

Total revenue in the reported quarter slipped 5% to $129.1 million from $136.5 million in the year-ago quarter, due to drop in comparable same store sales. However, the company slightly outperformed the Zacks Consensus Estimate of $129 million. Sonic's overall same-store sales fell 2.4% with same-store sales decreasing 2.5% at franchise drive-ins and 1.9% at company-owned drive-ins.

Sonic's operating costs and expenses decreased 4.0% year over year to $84.7 million, and selling, general and administrative expenses inched up 0.9% to $16.3 million. Lackluster revenues resulted in a 17.1% year-over-year reduction in operating income to $18.0 million, while operating margin fell 200 basis points to 14.0%.

Store Update

During the first quarter, Sonic launched 9 franchised drive-ins, compared with 22 in the year-ago period, and expects to open 40 to 45 new franchise drive-ins in 2011. Sonic has no plan to open company-owned drive-ins in 2011, as it remains focused on improvement rather than expansion.

Financial Position

During the quarter, Sonic bought back $62.5 million worth of senior notes in a privately negotiated transaction. The extinguishment of the notes benefited the company by approximately $5 million. The company concentrates on deleveraging, thereby reducing long-term debt to $449.9 million from $529.9 million in the year-ago quarter.

At the end of the first quarter, the company had $30 million of unrestricted cash balance for general corporate uses and shareholder equity of $31.6 million.

Outlook

Oklahoma-based Sonic expects sequential improvement in same-store sales throughout fiscal 2011. Restaurant-level margins are expected to improve slightly due to labor efficiencies. Selling, general and administrative expenses are expected to range within $67–$68 million and depreciation and amortization within the $41–$42 million.

The company projects Interest expense to be roughly $33–$34 million and the income tax rate to be approximately 37% to 38%. Capital spending is likely to be in the $20–$25 million range.

Our Take

As the company is taking several initiatives to attract traffic and drive sales, we expect estimates to go up in the coming days. The Zacks Consensus Estimate for 2011 and 2012 is 54 cents and 60 cents, respectively.

Sonic currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock.

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