MON 2009 Q3 Earnings - by BetterTrades

Prior to the opening bell on June 24, the world’s largest seed producer, Monsanto Co. (MON) made it known that the company’s profits during the 3Q declined and plans for restructuring have begun. Company representatives confirmed that Monsanto posted a smaller-than-expected drop in quarterly earnings.

For the recent quarter, Monsanto recorded net income of $694M, or $1.25 per share, in sharp contrast to the previous year’s 3Q earnings of $811M, or $1.45 per share, a decrease in profits of more than 14%. In addition, earnings from ongoing operations came in at $1.25 per share, versus last year’s tally of $1.46 per share.

Quarterly sales for the company came in at $3.16B, down from last year’s total of $3.54B, a drop in revenues of nearly 11%. The decrease in sales came from lower demand in agricultural herbicides, such as Roundup. However, those declines were partially offset by an increase in sales from the company’s seed and trait products.

Analysts, on average, were looking for the seed producer to post quarterly earnings of $1.17 per share on overall revenues of $3.45B.

Within the company’s performance data, agricultural sales, including herbicides, plunged nearly 39% to $913M, together with gross profit plummeting 54% as increased competition within the unit weighed heavily on results. Nevertheless, sales from seeds and genomics advanced almost 10% during the quarter.

Monsanto also confirmed that the company is creating a new division for their Roundup and other herbicide products that will establish better management within the unit in order to support spending and working capital requirements. Besides a new operating unit, Monsanto also plans to reduce their workforce by nearly 900 jobs throughout the world.

Despite the creation of a new unit for Roundup, company officials proclaimed that profits from the division should decline by half that of 2009 totals, representing earnings of $1B annually, instead of the $2B currently generated as competition stiffens.

Executive Vice President Carl Casale believes, “the pace and magnitude of the competition in the sector had surprised the company as the price gap between its glyphosate herbicide offering and competitors grew from about $0.50 per acre last fall to more than $2 currently. What we are facing is a changing supply environment. Our goal now is to manage the volatility."

The aforementioned actions are in line to cost the company between $350M and $400M, or $0.41 to $0.47 per share in the upcoming 4Q. However, Monsanto is not expecting these changes to be completed until the 1Q of fiscal 2010.

"Over the last six years, Monsanto's business has undergone a dramatic transition from a company historically built on chemical innovations to one focused on delivering enhanced seed offerings," commented Hugh Grant, Monsanto’s Chairman.

For the remainder of fiscal 2009, Monsanto continues to project annual earnings between $4.40 and $4.50 per share, albeit towards the lower end of the range. Analysts, within the industry, are anticipating earnings from Monsanto of $4.40 per share.

Furthermore, the company is also predicting a free cash flow figure of $1.4B, with net cash from operations to be near $2.3B, while cash available for investing should total nearly $950M for 2009.

Heading into the close of trading on June 24, shares of Monsanto declined, falling $3.14, or 4%, to close out the day at $76.16 per share. During the past year, shares of MON have traded within a broad range, as high as $141.82 and as low as $63.47 per share.

By BetterTrades