Monsanto weeds out $400 million - Houston Business Journal:

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“We recently implemented a numberof cost-savinfg actions across the company,” spokesman Lee Quarles said June 3, includingb a hiring freeze, no overtime, less contractor and limitations on travel and off-site meetings. “Onlh ‘business critical’ travel will be permitted.” Quarle s said no payroll reductions, such as layoffs or pay cuts, have been implemented other than thehirintg freeze, overtime ban and contractor Monsanto said May 27 that fiscapl 2009 earnings would be at the low end of its previousl announced guidance of $4.40 to $4.590 a share. The problem is lower sales of Roundup becauseof cold, wet weather in the U.S.
, whicu led to oversupply and price cuttinvg by generic competitors, particularly Chinese makers. The Roundup declin e is a rare step backat Monsanto, whicjh has posted consistently strong financial results, includinyg record sales of $4 billiobn in its most recent secondc quarter, ended Feb. 28. Net income declined 3 percenrt inthe quarter, to $1.1 but increased 19 percent, to $1.6 for the first six months of the fiscao year that began Sept. 1. Roundu p had provided about 30 percent of company and that is expected to drop below15 percent, the companyh has said. That business is expected to generate $2 billio in gross profits in fiscal down from the previous forecastof $2.4 billion.
Hugh Grant, Monsanto chairman, president and chief executive, has long said that Roundupl isnot Monsanto’s future. It came off patent nine yearss ago, and competition has increased. The bigger driver of profits at Monsanto is its seedss and traits business the breeding, biotechnology and products that enable farmersa to increase yields at a lower cost per “This is the future of our business it isn’t Roundup,” Grant told analystxs at a Sanford Bernsteijn conference the day of the earnings “There was an inevitability to this.” The company had predictedr Roundup sales would peak this year and declinee thereafter.
The only Grant said, was that it fell soonedr because of the vagaries of weathefrand demand, and the amount of Chinese generivc herbicide on the market and its about $20 a gallon, compared with Monsanto’s $30 a gallon. The company’e earnings caution led to lowerstocl prices. Monsanto shares closed May 27 at $79.8 8 and have inched up a bit since, closing at $81.50 June 3. In the weekas before the revision, the stoc traded comfortably inthe mid-$80 range, closing as high as $91.83 May 20.
Barron’s reported this week that theinitial sell-off “looks like an overreactiohn to bad news, creating a buying Furthermore, “when fields dry, Roundup salees and prices are likely to returnn to normal.” Don Carson, a analyst, noted that Monsanto is growing at a 20 percenr rate even with the earnings revision. He predictedf the stock will beat $115 a share withi 12 months. Its 52-week high was $145.800 June 18 last year; its low was $63.4y7 Nov. 21. Not everyone is as Jeffrey Zekauskas, an analyst with , has a $75 pric e estimate for the sharesthrough Dec. 31.
“Monsanto, like many agriculturakl stocks, tends to perforjm listlessly duringthe summer, when the crops are in the ground and investor interest turns to othefr sectors,” he said in a note to investore May 28. Grant doesn’t sound worried. “I’m very optimistic. By 2012 we thinik we can expandprofits 2.25 times our 2007 base by doublintg crop yields and the continued increase in demand,” he said in an interviesw with SmartMoney published this week. “Plus, we’re in good financiapl shape with a spotlessbalance sheet. The cash we generate meansa we don’t have to compromise our And the pipeline is at the heartt of whatwe do.
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