Has Monsanto Hit Bottom?

Posted by: Ben Steverman on September 10, 2009

Monsanto (MON) warned today that it expects to earn just $3.10 to $3.30 per share in fiscal 2010, well below the $4.10 that Wall Street analysts were expecting.

The culprit is generic Chinese competition to its Monsanto’s herbicide business, which includes the Roundup Chemical brand.

Monsanto looked like it had the makings of a standout stock during a recession. But in the last six months, Monsanto shares have fallen far behind. While the S&P 500 is up 45% since early March, Monsanto is up just 2%. Monsanto shares tumbled 5% in response to today’s news.

One of Monsanto’s problems is that it is a high-quality company, well-respected by investors, in a market rally that has mostly favored low-quality stocks. At the same time, the high-quality parts of Monsanto’s business — its seeds and genomics business — are being dragged down by its lower-technology herbicide unit.

Monsanto execs must persuade investors to ignore short-term shortfalls caused by the Roundup business in favor of the long-term potential of its high-tech, research-driven gains in seeds.

Monsanto’s chief financial officer Carl Casale said Monsanto still expects its gross profit to double from 2007 to 2012, driven by seeds and traits, which should provide more than $5 billion in profit in 2010. By 2012, these businesses should be earning 85% of Monsanto’s profits.

He said:

In short, our growth as a company will not be driven by the 15 percent of the business that will be the agricultural productivity segment, but by the 85% that will be seeds and genomics.

(BusinessWeek’s Dec. 2007 cover story on Monsanto does a good job of explaining the firms’ recent success in genetic products.)

In response to the news, BB&T Capital Markets analyst Frank J. Mitsch lowered Monsanto from “buy” to “hold” and wrote:

We believe the overall earnings momentum appears stalled for the upcoming 12 to 24 months.

He added, however, that Monsanto still is “an attractive long-term story.”

Other analysts were more optimistic. Morgan Stanley (MS) analyst Vincent Andrews wrote:

The “good news” is that from here the earnings base has been reset (and we think at a beatable level) and the “Roundup overhang” and associated short thesis should be almost entirely behind us.

In other words, perhaps this is as bad as conditions get for Monsanto, before it returns to beating Wall Street expectations on a regular basis.

Reader Comments

Jeff B

September 11, 2009 9:12 AM

The great irony here is that Monsanto promotes itself as being all about "sustainable agriculture", while in fact their "more chemicals is better" approach is completely unsustainable, both economically and environmentally. There will always be countries who can produce commodity chemcials cheaper, and Monsanto doesn't want to talk about the rising backlash from farmers who've had awful experiences with bio-engineered seeds.
Demand for organic food products is growing by 20% per year, while demand for Monsanto's old-school approach to agri-business is waning. Do they really think farmers are that stupid?

Ann

September 11, 2009 11:45 AM

Didn't they just announce [yesterday, I think] that they were getting rid of 8% of their labor force?

Walt

September 11, 2009 3:33 PM

Not to mention the hidden health effects of consuming GM foods. Very little testing has been done and that which has been done on animals shows alarming organ and tissue effects of GM feed - covered up or downplayed, of course, by Monsanto. Saw an article yesterday about a chicken grower whose chickens instinctively avoided a batch of feed that had been unknowingly contaminated with GM feed. Who says chickens are stupid?

Rob J

September 11, 2009 6:06 PM

Roundup's patent expired years ago. I can buy and have bought generic Roundup from my local lawn and garden store. Just make sure it has glyphosate, the active ingredient.

Others who have posted here are correct. MON's business is unsustainable. There is only so far you can take a business by sending lawyers out to farmers' fields sniffing around for unauthorized use of genetically modified seeds. And that is a terrible practice in itself. If a neighboring farm has been polluted by GM seeds, then that affected farmer should be successfully suing MON, not the other way around.
http://www.youtube.com/watch?v=OLzELDt3d2I

Dennis S

September 13, 2009 3:00 PM

I can't believe all of the anti-science comments about GM foods on the day of Norman Borlaug's death. These are the same people who want creationism. Agriculture is not "natural" as man invented it 10,000 years ago.

Wingman

September 13, 2009 9:47 PM

Jeff B - I think you're quite the fool. "Organic Food" is the fad today, but it is trully NOT Sustainable or Green. Sure, locally grown & raised without herbicides, pesticides, and fertilizers (aka, "chemicals") is in & of itself inherently & intrinsically Green and Sustainable FOR AN ECCENTRIC FEW IDIOTS. Utilizing these ridiculous "organic methods" of farming for 6.7 BILLION Humans (Population figures from the CIA Factbook Jun 2008) will result in a planet that increasingly cannot grow enough fast enough to feed itself. And frankly, if you don't think World Hunger is a problem, wait until there are 6.7 Billion MORE humans on this planet. Your grandchildren won't survive the day an additional 6.7 Billion Humans have to ruin the planet simply because they have to find anything they can to eat and use any way to cook it. Don't beleive me? Research the demise of the Mayan Civilization. Sustainable agriculture will require both organic methods along with GM seeds and environmentally-safe herbicides, pesticides, and fertilizers.

Wingman

September 13, 2009 10:06 PM

Jeff B - I think you're quite the fool. "Organic Food" is the fad today, but it is trully NOT Sustainable or Green. Sure, locally grown & raised without herbicides, pesticides, and fertilizers (aka, "chemicals") is in & of itself inherently & intrinsically Green and Sustainable FOR AN ECCENTRIC FEW IDIOTS. Utilizing these ridiculous "organic methods" of farming for 6.7 BILLION Humans (Population figures from the CIA Factbook Jun 2008) will result in a planet that increasingly cannot grow enough fast enough to feed itself. And frankly, if you don't think World Hunger is a problem, wait until there are 6.7 Billion MORE humans on this planet. Your grandchildren won't survive the day an additional 6.7 Billion Humans have to ruin the planet simply because they have to find anything they can to eat and use any way to cook it. Don't beleive me? Research the demise of the Mayan Civilization. Sustainable agriculture will require both organic methods along with GM seeds and environmentally-safe herbicides, pesticides, and fertilizers.

Arthur Rubin

September 13, 2009 11:47 PM

Not to mention the allergies these unlabled foods must be causing. Class-Action!

Anonymous

September 14, 2009 7:30 AM

Walt,
Please post a reference for your "stupid chicken story" or don't post lies.

Eugene Nix

September 15, 2009 1:52 AM

Unlabled gmo food causes allergies just like natural/normal food. The only difference is your doctor cant help you.

Paul

September 15, 2009 9:56 PM

Maybe God is finally answering my prayers for judgment on this evil company.

Kel

September 19, 2009 7:13 PM

Someone asked for a reference of the statement about animals prefering organic foods. I did not post the statement, however this is one study that I have come across.

http://organic.insightd.net/reportfiles/Taste_SSR_October_final.pdf


We think of the taste of food as being something
that only we humans can appreciate. However,
several studies have used experimental animals
as the “tasters”, by giving hens, rats, or mice freechoice
access to organic foods and conventionally
grown foods and measuring how much of each type
of food they consume. Woese et al. concluded from
their review of food consumption behavior studies
that “animals distinguish between the foods on offer
from the various agricultural systems and almost
exclusively prefer organic produce” (Woese et al.,
1997).


The facts are out there. You might try looking instead of being an assuming jackass.

Yens

October 5, 2009 9:29 AM

Wingman: you must be the "wingman" for Monsanto. Anybody who's interested, read Wikipedia's "monanto" page. Reads like a list of mafia works. And yet they're still allowed to operate. Bribery, toxic dumping, suing small farmers... disgusting company. I hope their stock tanks, then tanks some more.

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About

Bloomberg Businessweek’s Ben Steverman focuses on the latest moves in financial markets and emerging trends in stocks, bonds, and funds, always with an eye toward giving readers a better understanding of the sometimes confusing and often chaotic world of money. Standard & Poor’s senior index analyst Howard Silverblatt will also provide his take on companies’ finances and the markets. Voted one of the “Top 100 Finance Blogs” in 2007.

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