Syngenta SYT Earnings Fall Short

Swiss-based agricultural chemicals maker Syngenta AG (SYT) reported first quarter 2010 revenues of $3.5 billion, just slightly lower than estimates of $3.574 billion. That’s -3% at today’s exchange rate, but -8% at a constant exchange rate to the first quarter of 2009.

Syngenta makes herbicides and pesticides for use against a variety of pests that attack a variety of farm products. Both European and North American sales lagged due to cooler weather delaying the start of planting. High inventories and competitive markets in North America were also cited as contributing factors.

Like Monsanto Corp. (MON), which reported earnings last week, sales of glyphospate herbicides like Monsanto’s Roundup were lower than a year ago. In Sygenta’s case by almost $100 million dollars, a drop of 34% at constant exchange rates.

Bug and weed killers aren’t the only soft spot in the ag business. Fertilizer maker Mosaic (MOS) reported a miss on its third quarter EPS of $0.50, compared with estimates of $0.61. Competitors Agrium (AGU) and Potash Corp. (POT) are yet to report last quarter’s earnings, but both are expected to beat last year’s results handily. Of course 2009 yielded very modest earnings to the fertilizer industry because demand for potash appears to be growing again. Phosphate prices are also rising as inventories drop.

What props up the ag products suppliers more than anything is the growing global demand for food as the human population grows. Add to that the corollaries of shrinking availability of arable land, water shortages, and even climate change, and the longer-term outlook for ag-chemicals companies is positive.

The only question is how long does an investor want to or have to wait to realize returns. Monsanto is trying to cut its dependence on Roundup and put more attention on selling seeds. That’s a gamble, and could keep the stock price down. Syngenta seems to be taking the ‘wait-and-see’ approach, banking on higher revenues as the planting season in the northern hemisphere gets into high gear.

The fertilizer business is riskier. Goldman Sachs removed Potash Corp. from its ‘conviction buy’ list this week and downgraded Mosaic to ‘neutral’ because the analysts don’t think potash prices will not recover fast or far enough, even though potash inventories are more than 20% below the five-year average.

Share prices for all five companies discussed here are up today, led by Sygenta which is up more than 2%. Traders appear to be betting that people will have to eat in the short term too.

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