When a company’s flagship product hits the skids, almost nothing good can come of it. Monsanto Corp. (MON) reported second quarter 2010 earnings this morning, and its glyphosate-based products, including best-selling Roundup weed killer, showed a negative gross profit of -$1 million. That’s a change of -$438 million in one quarter in just one segment of the company’s business. Competitor Mosaic Co. (MOS) missed estimates last week and shares fell 4%. Potash Corp. (POT) and Syngenta (SYT) share prices have remained essentially flat for the past 3 months.
Fortunately for Monsanto, its seed business improved enough to help the company to a profitable quarter. Monsanto reported EPS of $1.60 on revenues of $3.89 billion. Analysts were expecting EPS of $1.73 on revenues of $3.93 billion. Share prices are off about 3% in pre-open trading.
(Monsanto was one of the worst performers of 2009)
The really awful news comes in projections for the rest of 2010 and beyond. Full-year 2010 EPS is expected to settle at the low end of Monsanto’s previous guidance of $3.10-$3.30 EPS. Analysts were estimating full-year EPS at $3.28, near the top of the company’s guidance.
Monsanto also said it expects free cash flow of about $900 million to $1 billion, including a $250 million restructuring charge. This is in line with previous guidance. But operating cash flow in the first half of the fiscal year totaled just $256 million, compared with $1.5 billion in the same period a year ago. Free cash flow for the quarter was negative, -$89 million, compared with a positive free cash flow of $1.1 billion a year ago.
The company’s press release also noted that “its goal of doubling 2007 profit by 2012 is unlikely.” No kidding. Gross profit for 2007 was $4.29 billion. Doubling that to $8.58 billion in two more years doesn’t look possible, especially given that the company’s six months gross profit in 2010 is just $2.84 billion. Annualized, that’s barely more than gross profit in 2007.
As menioned before, Mosaic Co. (MOS) missed estimates last week and shares fell 4%. Potash Corp. (POT) and Syngenta (SYT) share prices have remained essentially flat for the past 3 months.
The Market Vectors Agribusiness ETF (MOO), which includes these three, Monsanto, and Singapore’s Wilmar International, is also flat, but not down as much since January as the individual stocks. That’s probably due to the conclusion of the battle among CF Industries (CF) and Terra Industries (TRA) and Agrium Inc. (AGU) which resulted in CF finally acquiring Terra.
Monsanto needs a strategy that is not just more of the same. The company’s chairman, CEO, and president said in the earnings release that he’s “confident that we’re a growing company going forward.” Of course that’s true because Monsanto sells seeds. Otherwise, it’s a hope and not a strategy.
