(Monsanto earnings story updated for analyst commentary)
ST. LOUIS, MO. (
) -- Monsanto fell short of Wall Street's already low expectations in its fiscal third quarter earnings announced during Wednesday's pre-market. Monsanto earned 70 cents per share in the quarter -- excluding tax and interest adjustments -- below the Street consensus of 80 cents. On a tax-adjusted basis, Monsanto earning of 81 cents in the fiscal third quarter were in line with consensus. The lowest estimate from the Street was 75 cents earnings per share for Monsanto.
The biggest drop from Monsanto was in net income, down 45%, from $694 million to $384 million in its third quarter.
The controversial bioengineered-seed-crop and weed killer company fell short of revenue expectations of $3.2 billion, generated just under $3 billion in its fiscal third quarter.
Shares of Monsanto were down by as much as 4% on Wednesday morning, but by midday the loss in Monsanto shares was less than 2%. Monsanto shares had fallen to a new 52-week low on Tuesday, and have shed more than 40% of their market value year-to-date.
The biggest issue for Monsanto -- the massive deterioration of profit from its Roundup herbicide franchise -- continued to rear its ugly head in the latest batch of Monsanto results.
Price decreases for Roundup and other glyphosate-based herbicides led to a net sale decrease of $199 million, or 6%. Gross profit declined 24% to $1.4 billion, another byproduct of the price decreases for Roundup and other glyphosate-based herbicides.
The agricultural giant reaffirmed its full-year guidance. Monsanto expects adjusted earnings in the range of $2.40 to $2.60, in line with Street consensus. Monsanto's adjusted earnings exclude after-tax charges. For the full year, Monsanto's non-adjusted earnings would fall short of the Street consensus of $2.50, at a range of $2.10 to $2.14.
Just 3 months ago the Street earnings expectation for the Monsanto third quarter was $1.56 per share.
Monsanto has been fighting a losing battle on two fronts: to convince the Street that it has a strategy offset the commoditization of the glyphosate lineup, and to show immediate improvements in its new portfolio of bioengineered crops from its seeds and genomics business.
Analysts were looking for less "rah rah" from Monsanto and more concrete evidence of its turnaround strategy, though the printed comments from Monsanto CEO Hugh Grant in the earnings release didn't offer much more than the typical vague management confidence.
"We've made some real changes to our portfolio and business approach, and the positive feedback I'm hearing from our customers tells me we are on the right track," Grant stated in the Monsanto earnings release. "This year has brought its challenges, yet we are quickly evolving into a newer, leaner, stronger Monsanto, well-positioned to meet our objective for mid-teens earnings growth driven by our seeds and traits business," Grant added.
Monsanto's key seeds and genomic business saw sales increase 5% in the fiscal third quarter.
Monsanto CEO Grant said in the earnings release, "We've repositioned our Roundup business to recognize its appropriate role in supporting our Seeds and Genomics segment."
The ag company's new bioengineered corn SmartStax lineup increased in acreage planted from 31 million in 2009 to 33 million acres through the fiscal third quarter, which Monsanto described as a "step change improvement" over last year.
Monsanto also described as progress the fact that more than 40% of its branded customers are "trying" and "continue to evaluate" more varieties of Genuity Roundup Ready 2 Yield soybean.
On the earnings conference call, the Monsanto CEO tried to send the message that the worst is behind Monsanto after its more than 40% market value drop this year. "This is a pretty straightforward quarter with everything we came through, so that's a good thing. There is not a lot of news or new data points, and the important thing is the Roundup repositioning. We feel good about pricing, operational focus and opportunities for earnings growth consistent in the mid-teens."
At least one analyst seemed concerned about the longer-term outlook for Monsanto pricing, and whether the recent pricing concessions will be followed by an ability for Monsanto to gain back lost premium. Deutsch Bank analyst David Beigleter asked if Monsanto will be able to capture more of its premium pricing in 2012, but Monsanto's CEO Grant was non-committal. "It's too early to talk about prices for 2012," Grant said, working through a chuckle. "We just want to gain momentum on what we've lost in the past few years," the Monsanto CEO said.
Credit Suisse analyst Elaine Yip wrote in a Monsanto earnings note that based on Monsanto's projected growth rate in the mid-teens (13% to 17%) Street estimates look overly optimistic. The consensus call on Monsanto earnings per share growth in 2011 is for 22.5%.
Even with Monsanto trading at a 52-week low, and all of the bad news out in the open, Credit Suisse wasn't ready to recommend the beaten-down Monsanto shares.
"We remain concerned over the company's ability to execute on its new pricing strategy and the performance of its new products. The next important data points for MON are the fall harvest results and the next selling season which takes place Nov-Feb, and until then, we believe that it is safer to sit on the sidelines until we can get greater conviction in MON's mid-teens earnings target," the Credit Suisse analyst wrote.
Responding to an earnings conference call question about pest and disease occurrence in the current farm season, Monsanto's Scottish CEO Grant struck a similar note to the Credit Suisse analyst's broader view of Monsanto shares. "With the caveat of Scottish optimism ... it's really early in the season. At this stage, we know we are not losing, but it's a little early to declare victory."
-- Written by Eric Rosenbaum from New York.
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