Monsanto-earningsI’m getting tired of the anti-GMO memes on social media. It’s so easy for people who don’t have any background and have plenty of food on their table to complain about the alleged “evils” of genetically modified organisms. But if you live in a country where food is scarce, companies like Monsanto (NYSE: MON) do a lot of good.

So while I’m rooting for Monsanto, I can’t say that its fiscal third-quarter earnings report was all that great. As I run the numbers, what you’ll find are the two big thorns in the company’s side – low commodity prices and unfavorable currency exchange rates.

The former is what really determines Monsanto’s ongoing earnings volatility. The company produces commodities in the form of soybeans, corn, cotton and so on. Obviously, it wants to see these items selling for high prices in the market, so they can make the most per pound or bushel that it can. When prices are low, the company doesn’t generate as much revenue.

The currency problem is one that every multinational corporation is facing right now. As a result, it becomes difficult to look at the Monsanto earnings report and value it in a traditional way, but we’ll try.

First, let’s look at quarterly earnings. EPS came in at $2.39 a share, which beat the $2.07 estimate, on a 7.6% increase in revenues. We can break down Monsanto’s success by literally looking at how each commodity performed in the quarter.

Soybean revenue was up 2.6%, and about 11.9% in the first nine months of the fiscal year. That led to a 6% climb in gross profit to $528 million.

Corn is the company’s big kahuna. The segment saw a 15% revenue increase, but it was still dealing with a 6.9% decline in the first nine months of the fiscal year.

Agricultural Productivity is the other large segment of Monsanto’s business. It also did well, with a 15% quarterly growth rate, although it was down 8.9% in the first nine months of the fiscal year. The company pulls in stronger margins in this segment, which accounts for the 43% increase in gross profit to $679 million.

What we care about most is the net income bottom line. It scored a very nice gain, rising to $1.14 billion from $860 million last year. In the first nine months of the fiscal year, however, it still lags by about $100 million from last year’s $2.92 billion mark.

Because of the aforementioned commodity and currency issues, I just find it difficult to value Monsanto stock in the rough way I like – using price-earnings ratios divided by growth rates to find a PEG ratio. So it doesn’t tell us much when we find that EPS is growing at 10%, the stock is trading at 17 times earnings, but the earnings themselves are subject to those other variables.

In these cases, I have to turn to cash flow. Monsanto does extremely well here. In fact, quarterly cash flow hit $1.6 billion, up 33%.

So now I look to the enterprise-value-to-EBITDA ratio and compare it to a peer. In this case, Monsanto is at 13.8, with Sygenta AG (NYSE: SYT) at 14.5. So Monsanto’s valuation isn’t out of line.

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Published by Wyatt Investment Research at