How Will Monsanto (MON) Stock React to Lowered Guidance?

Monsanto (MON) lowered its guidance for earnings on an as-reported basis due to higher restructuring costs.
By Amanda Gomez ,

NEW YORK (TheStreet) -- Monsanto Co. (MON) lowered its fiscal 2016 reported earnings guidance because of higher restructuring charges.

The agricultural company reduced its earnings guidance to $4 to $4.66 per share for the fiscal year that began in September, down from its previous guidance of $4.44 to $5.01 per share.

Restructuring charges are estimated to reach between 94 cents to $1.10 per share, up from the previous guidance of 59 cents to 66 cents per share.

The decline was due to additional charges related to cost saving initiatives, which are expected to generate up to $200 million in savings during fiscal 2016.

Monsanto estimates its restructuring will save the company $500 million by the end of fiscal 2018.

Earnings from ongoing business are still expected to be between $5.10 and $5.60 per share.

Monsanto stock closed at $94.27 on Monday afternoon.

Separately, TheStreet Ratings team rates MONSANTO CO as a Hold with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

We rate MONSANTO CO (MON) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, generally higher debt management risk and disappointing return on equity.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has increased to $3,138.00 million or 16.95% when compared to the same quarter last year. In addition, MONSANTO CO has also modestly surpassed the industry average cash flow growth rate of 11.91%.
  • The gross profit margin for MONSANTO CO is rather high; currently it is at 54.10%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -21.01% is in-line with the industry average.
  • Regardless of the drop in revenue, the company managed to outperform against the industry average of 19.4%. Since the same quarter one year prior, revenues fell by 10.4%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • The share price of MONSANTO CO has not done very well: it is down 17.45% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Chemicals industry. The net income has significantly decreased by 217.3% when compared to the same quarter one year ago, falling from -$156.00 million to -$495.00 million.
  • You can view the full analysis from the report here: MON

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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