Monsanto Earnings Disappoint Shareholders, Analyst Claims – Shares Declined 16 Percent Since July

Monsanto is an enormously successful company, but the most recent earnings call by the producer of herbicides and complimentary genetically modified seeds had some investors concerned, according to analysts. For the quarter ending in November, agriculture giant Monsanto says it expects earnings to be about half of what it posted last year, according to Seeking Alpha, which follows Monsanto’s stocks and financial reports. Monsanto CEO Hugh Grant had high hopes for next year and promised investors fantastic long term returns on investors’ funds, but those investors and potential investors aren’t sharing the same level of unwavering optimism, as indicated by the dialog from a teleconference – where Monsanto discussed fourth quarter earnings and the future of the company’s finances.

“Monsanto (NYSE:MON) didn’t ignite excitement among shareholders since the agricultural business reached a 52-week high in early July. Since then, shares of Monsanto have declined 16%. Its year-to-date return doesn’t look much better: Shares are down 7% since the beginning of the year, and its most recent earnings release probably won’t do much to woo investors,” Seeking Alpha reported, though Monsanto executives remained steadfast that they have a strong long-term plan.

“We expect nice growth from the U.S. and importantly, the first proof point in our Roundup Ready 2 Xtend opportunity as we expect to launch this Xtend platform in cotton in 2015,” Hugh Grant, Monsanto CEO, stated during the teleconference with investors. “There’s no doubt, it’s a challenging year for agriculture and our customers. However, because of the products and platforms we have we can grow in that environment. Just as importantly we’re focused on the year at hand but for us this is really about the runway of opportunity that begins in 2015.”

Pierre Courduroux, Monsanto’s CFO, was equally as promising to investors about the future. “We expect Q1 to come in at about roughly half of their total earnings from last year’s Q1, we expect Q2 to be roughly flat year-over-year, but expect to see significant uptick in Q3 earnings as a majority of our full year growth flows through that quarter and this will be punctuated by the Q4 that is likely to be breakeven to positive on an absolute basis.” Despite these assertions about positive forecasts in the years ahead, Monsanto’s major investment players presented hard questions for Monsanto executives at the teleconference.

Bob Koort with Goldman Sachs wanted hard facts on why Monsanto’s forecast was so bright.

“Hugh or Brett, you guys talk about this $4 billion of incremental Seeds-and-traits growth in the next 5 years. I guess it seems pretty dramatic in the context of the prior 5 years; I think that growth rate was more like $2 billion,” Koort stated, according to the transcripts from the teleconference.

When Monsanto’s CFO explained that a lack of acres was the reason for the “slightly down to flattish” corn volume the industry saw, he reiterated that he does not expect the same level of deterioration next year. Jeff Zekauskas with JPMorgan simply stated, “I hope you’re right.”

Bank of America Merrill Lynch’s Kevin McCarthy also questioned Monsanto’s enthusiastic projections of growth and explanations.

“I guess a couple questions on glyphosate, if I may,” McCarthy stated. Monsanto executives had previously stated the company expected a timing shift on when investors would see higher returns next year. “First, would you elaborate on what is causing the timing shift from 1Q into 2Q? And then related to that, I would normally think as you move and shift the mix from nonbranded to branded that that would help your profitability. But the overall year looks down 10% or so as per your guidance. So perhaps you could help us reconcile that.”

Monsanto executives repeatedly mentioned issues in Latin America. One issue in Latin America is a growing public resistance to genetically modified seeds. Last month, for example, in Costa Rica, the country’s approval process for GMO projects was declared unconstitutional. The ruling stated that the previous approval process violated the rights of Costa Ricans to access information that could affect their health and well being. Costa Rica’s Agriculture and Livestock Ministry is now required to release information to the public about the GMO approval process, according to The Tico Times.

This resistance is also being felt in the United States, where a massive “food fight” is underway for GMO labelling laws.

Analyst Barbara Billinger, who incidentally feels Monsanto is a large enough corporate power to recover handsomely from the less than expected growth, stated that public opinion of the genetically modified seeds and herbicides that Monsanto sells is at the root of the disappointing earnings. Billinger likened Monsanto’s current position to Big Tobacco’s past.

The public opinion Billinger referred to is being expressed around the globe.

“However, with greater and more mainstream media attention being given to the issue, and with the proponents of GMO labeling leading in Oregon polls, this may be a pivot point in how GMOs are perceived and to a greater extent, how Monsanto is perceived,” Billinger wrote. “And if Monsanto goes down the road of Big Tobacco before it as being regarded as a “dirty” company, divestiture movements may well be possible as more people apply a moral and ethical filter towards holding Monsanto in their portfolio. And with a current institutional holding level of 85.9%, it would certainly make a significant impact on Monsanto’s bottom line.”

[Photo credit: United Soybean Board]

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