Monsanto: Investors Are Getting Restless

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NEW YORK ( TheStreet) -- Monsanto's ( MON) top executives will have some explaining to do when they convene for the company's quarterly earnings conference call on Wednesday morning.

Analysts and portfolio managers will likely grill executives -- especially Monsanto's Scotsman CEO Hugh Grant -- about the performance of the company's new corn seed, planted commercially for the first time this year, called SmartStax. Billed as an upgrade, a kind of corn 2.0, SmartStax replaced an earlier version, called TripleGuard, and represented Monsanto's greatest hope for fueling future profit growth.

Much to Monsanto's chagrin, however, early results from this harvest season indicate that the bioengineered plants that have bloomed from those seeds haven't been as prodigious with maize as other brands, or even the older Monsanto seeds. Investors have lambasted Monsanto shares, taking them lower by 10% in September alone. The stock has lost about 41% of its value during 2010.

"This will be the first time management has had an opportunity to address the public on the issue," noted Colin Isaac, an analyst at Atlantic Equities, a research house that advises institutional investors. "Maybe they'll have something to say to contradict the negative sentiment."

The St. Louis company already pre-announced fourth-quarter earnings in late August -- forecasting a range between $2.40 and $2.45 a share for the fiscal year 2010, which ended Aug. 31 -- so there's little contention surrounding the financial results it will report before the bell Wednesday, especially since the quarter is a seasonally slow one to begin with.

All eyes will be focused, therefore, on what Monsanto has to say about 2011. The yields produced by SmartStax during the harvest this fall will impact next year's business, after all, serving either to bolster the company's corn-seed marketing or torpedo it. Most analysts have trimmed their estimates for 2011 SmartStax sales volumes, which are measured in the number of acres planted with a crop seed.

Monsanto itself was a little vague on the issue, telling Wall Street before the harvest troubles began to expect 15 million acres -- which included not only SmartStax but several much-less-important products. In the wake of the burgeoning yield problems with the upgraded corn seed, Isaac cut his estimate to 10 million acres of SmartStax from 12 million.

In the event, analysts and other observers expect Monsanto to offer clearer guidance on 2011 earnings during its Wednesday conference call. The company had been calling for EPS growth in the mid-teens for next year. The consensus estimate among analysts covering Monsanto is a profit of $2.84 a share for 2011.

Investors have grown ever more frustrated with Monsanto's topside management after what has become one of the agricultural giant's most challenging years in recent memory: A federal antitrust investigation. The rise of Chinese generic competitors that have nearly ruined Monsanto's herbicide business -- marketed under the brand name Roundup -- which the company profited massively from for decades. (The origin of its genetically modified seeds, after all, was to devise a way to create a plant that wouldn't itself die from the herbicide.) The rise of superweeds resistance to Roundup.

At Monsanto's annual analyst and investor confab in early August, during which the company brings heavy hitters on a tour of some spot in the U.S. bread basket -- this year it was Nebraska, last year it was Iowa -- many attendees felt that the company had put the worst behind them. Sentiment grew positive. A press release describing the event said, "Monsanto Company executives will highlight promising early indicators for its Genuity SmartStax corn and Genuity Roundup Ready 2 Yield soybeans." The stock rallied a bit, along with agricultural names in general.

But then the SmartStax yield results began emerging, and that bullish sentiment evaporated. Some investors have even started grumbling, sotto voce, about maybe the need for some kind of management shake-up; others have capitulated and removed themselves from the stock completely.

Up until 2010, the company's problems had been mostly political, environmental, and philosophical -- not financial. Much of the controversy and criticism surrounding the company, in fact, had to do with its cash-cow nature: a profit machine in the business of building a monopoly in sci-fi food.

But that changed this spring when growing numbers of farmers, frustrated by the company's strong-arm sales tactics and stiff premiums for its seeds, revolted. Monsanto was in the process of releasing its most important new product in years: a genetically modified corn seed branded as SmartStax. According to some farmers, the company didn't provide much in the way of data to support the yield claims it was making for SmartStax. When planters blanched at the high cost of the seeds, Monsanto relented, cutting prices in an effort to get more of its seeds in the ground. In so doing, management was forced to reel in the ambitious profit targets it had set for as far out as 2012.

Now, as the harvest rolls through the corn belt, the early yield results appear to have sparked something close to panic among Monsanto investors. With a fraction of the harvest in, SmartStax has underperformed both its predecessor Monsanto corn-seed product as well as that of the company's fiercest competitor in the seed field: Du Pont's ( DD) Pioneer.

Stock analysts and other cooler heads have tried to bring some perspective to the conversation. "There's been some hysteria around the early results, but it's still too early to draw broad conclusions," Colin Isaac, of Atlantic Securities, has. Charles Rentschler, who was one of the first to sound the alarms about SmartStax this season, has noted that the purpose of the modified genes in the corn aren't to produce higher yields, per se, but to protect the plants against pests and dry conditions.

Monsanto, in other words, has its defenders -- and its believers.

Because sentiment on the company has swung so far to the negative side, some players could be looking for anything at all from the company to give the shares a bounce. "The bad news on this issue is arguably in the price now," Isaac said.

-- Written by Scott Eden in New York

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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