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Will Weak Q2 at Monsanto Drag Agriculture ETFs?

Monsanto Company (MON) came up with downbeat results for 2Q16 with both lines falling short of estimates. Let’s take look at the headline numbers and the behavior of the Monsanto stock and the related ETFs.

2Q in Focus

The company’s earnings came in at $ 2.42 per share, which missed the Zacks Consensus Estimate of $2.45. Earnings were also lower than the year-ago figure of $2.90 per share.

Second-quarter revenues of $4.53 billion, down 12.8% year over year, fell shy of the Zacks Consensus Estimate of $4.88 billion. Weak business from seeds and genomics led to this revenue underperformance. Revenues from Agricultural Productivity declined 29.8% year over year.

If this was not enough, Monsanto cuts its fiscal 2016 earnings per share projection from the lower end of the $5.10–$5.60 range to $4.40–$5.10 per share range.

ETF Impact

Needless to say, following the earnings and revenue miss as well as a weak guidance, shares of Monsanto did not respond favorably. The company’s shares remained almost flat in the last two days following the earnings release (as of April 7, 2016). The stock has a Zacks Rank #4 (Sell).

Monsanto has a sizable exposure in various agricultural and materials ETFs like MSCI Global Agriculture Producers ETF (VEGI), Materials Select Sector SPDR (XLB), iShares U.S. Basic Materials ETF (IYM) and Market Vectors-Agribusiness ETF (MOO).

This suggests that the performance of these funds is highly dependent on Monsanto. Below, we have discussed these ETFs in detail:

VEGI in Focus

This global ETF invests about $25.2 million of assets. In its 126-stock portfolio, the in-focus Monsanto takes the second spot with 12.12% allocation.

Sector-wise, materials take the top position with 46.7% share followed by food and beverages (22.1%). Country-wise, the U.S. accounts for about half of the portfolio while Switzerland (12.4%) and Canada (8.2%) occupy the next positions.

The ETF charges about 39 bps in fees a year and has a dividend yield of 2.51%. The fund lost about 0.14% in the last two days following the earnings release (As of April 7, 2016).

XLB in Focus

Investors looking to tap the rise in Monsanto in ETF form can also invest in XLB. Here also, Monsanto takes up the third position with 7.6% of assets. The fund’s asset base of $2.39 billion is spread across 29 securities (see all Materials ETFs here).

The ETF relies heavily on the chemical sector which accounts for 72.3% of the asset base. XLB charges a fee of 14 basis points annually. The fund has recorded a loss of 0.3% in the last two days since the earnings release (as of April 7, 2016). XLB has a Zacks ETF Rank #5 (Strong Sell).

IYM in Focus

This fund holds 52 stocks in its basket. Again, Monsanto takes the third spot at 7.46%. From a sector perspective, Chemicals make up for about 70% of assets. The ETF, with about $462 million in AUM, charges 44 bps in fees. The fund was down about 0.7% in the last two days (as of April 7, 2016). IYM has a Zacks ETF Rank #5.

MOO in Focus

Like VEGI, this fund provides exposure to the global agribusiness industry. The fund has an asset base of $747.0 million. The ETF charges 57 bps in annual fees (read: Reap Long Term Returns from These Agribusiness ETFs).
 
In total, the fund holds 52 securities in its basket. Of these firms, the stock under consideration – Monsanto – takes the second place, making up roughly 7.9% of the total assets. In terms of country allocation, U.S. (51.5%), Switzerland (8.1%) and Canada (7.7%) occupy the top three spots. The fund retreated nearly 0.2% in the last two days (as of April 7, 2016).

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MONSANTO CO-NEW (MON): Free Stock Analysis Report
 
ISHARS-M GL AGR (VEGI): ETF Research Reports
 
SPDR-MATLS SELS (XLB): ETF Research Reports
 
ISHARS-US BA MA (IYM): ETF Research Reports
 
MKT VEC-AGRIBUS (MOO): ETF Research Reports
 
DOW CHEMICAL (DOW): Free Stock Analysis Report
 
DU PONT (EI) DE (DD): Free Stock Analysis Report
 
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