Wednesday, May 27, 2009

Monsanto (MON) Pulls Full year Earnings Guidance Down to Lower End on Roundup Weakness

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We don't currently own Monsanto (MON) as we exited in early April [Apr 7, 2009: Bookkeeping - Closing Monsanto] just under $80. While the agriculture sector has been exceedingly hot of late, most of the action has been in the "go to" momentum names in fertilizers. This morning Monsanto announced a "sort of" earnings shortfall (guiding to the lower end of a previous range) based on a dramatic drop in Roundup - must be all those consumers flooding into Home Depot (HD) and Lowes (LOW) unaware of the green shoots sprouting around them. Or farmers also unaware of the resurgent US economy. The stock is only down 4% so no big deal, and Monsanto go forward is (in my mind) more a play on the seed side of the business. While they are keeping full year guidance the 3rd quarter is a quite serious shortfall - they must be assuming their fourth quarter will be gangbusters.

As I've been saying for 2 years agriculture is my favorite "super long term" theme, but some of the moves of late seem to be akin to oil... thesis buying ahead of some fantastical recovery.

Via Reuters
  • Monsanto Co (MON) said on Wednesday that stronger-than-expected competition in the herbicide business would push fiscal-year results to the low end of its earnings forecast, sending shares of the world's largest seed company down more than 4 percent. Monsanto now expects ongoing earnings of about $4.40 per share, the low point in its previously announced range of $4.40 to $4.50, for the year ending on Aug. 31.
  • The company said third-quarter earnings were forecast at $1.15 per share. Analysts were looking for $1.58, according to Reuters Estimates.
  • Monsanto had warned earlier this year of stiff competition in the glyphosate-based herbicide arena, where the company's Roundup herbicide has long been a favorite of farmers. Company officials had said they saw 2009 as the peak for the herbicide business, with future revenue growth driven mainly by innovations in seeds.
  • Still, retail prices for glyphosate-based herbicide have eroded faster than expected, mostly due to Chinese generics and pricing actions by Monsanto competitors Dow (DOW) and Syngenta (SYN), according to Jefferies & Company analyst Laurence Alexander. Alexander reported in a note to investors that U.S. spot herbicide prices had fallen to $19-$21 a gallon from about $21-$25 a gallon earlier this year. (so when demand falls, and supply is fixed, price falls? Glad to know Economics 101 still works in some parts of the economy - the government the past 12 months has made me thought everything I learned has become useless)
  • Monsanto said Wednesday its Roundup and glyphosate business will likely generate about $2 billion in gross profit, down from its previous forecast of $2.4 billion.
  • Monsanto said usage is at the end of May was half of prior-year levels. (Since Roundup kills all green shoots regardless if they are a weed or not I guess we can spin this as a good thing)
  • Partly offsetting the bad news on the herbicide business segment, Monsanto said Wednesday its expects its seeds and traits businesses to deliver gross profit toward the upper end of its prior guidance of $4.4 billion to $4.5 billion in fiscal year 2009. Within that segment, Monsanto projects that its corn and soybean businesses combined could generate $3.5 billion in gross profit for fiscal 2009, up about 20 percent over the previous year.
[Apr 2, 2009: Monsanto - Solid Earnings]
[Jan 7, 2009: Monsanto Earnings - Quite Awesome]
[Sep 16, 2008: Monsanto Raises Guidance Again]
[Jun 25, 2008: Monsanto - Good Results, Expectations Very High]
[Jun 5, 2008: Monsanto Plans to Double Grain Yields by 2030; Some Have Doubts]
[Apr 2, 2008: Monsanto Hilarious Reaction to Guidance]
[Feb 12, 2008: Monsanto Raises Guidance Yet Again]
[Jan 3, 2008: Monsanto - Very Good Earnings and Raised Guidance]
[Oct 9, 2007: Looking Ahead to Monsanto]

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