Quite a negative surprise out of Monsanto (MON), unless you believe in the theory the market is not efficient and certain people have access to a lot more information than others which is best represented by chart watching. Despite the general market rally Monsanto has been a major laggard and remained stuck below its 200 day moving average.

id=BLOGGER_PHOTO_ID_5379888717312870706

I don't have the figures right in front of me but the vast majority of stocks are now trading over their 200 day moving average after this 6 month rally. A few weeks ago the stat was something like 93% of stocks were over the 50 day moving average (shorter term in nature than the 200 day of course) and Monsanto has been one of those not sharing in that pleasure a few times in the past month. So someone knew something... which is the value of looking at charts in my book.

It's been a rough patch for Monsanto. mostly due to herbicide... some disappointing earnings of late as they transition out of Roundup to focus even more so on the seed business. And now a guide down on 2010 earnings guidance (and more job cuts of course); however the company is sticking to its long term profit goals in the out years, and remains a unique franchise with a huge moat around it. For someone with a 5 year time horizon, I can't think of too many stocks with similar growth opportunities. However, in this new era of the investment business - 5 years might as well be 500 years... almost no one invests in that time frame. As I just typed that last sentence some tens of thousands of trades went off in just 1 quant firm.

On the plus side today's news should set the company up for the only thing that matters on Wall Street nowadays; beating the numbers for the quarters to come. Expectations are now dialed down big time.

  • Monsanto Co (MON), the world's largest seed company, forecast fiscal 2010 earnings below Wall Street estimates, due in part to a glut of herbicide supply, sending its shares down more than 5 percent. Profit from the popular herbicide Roundup likely will be lower than expected, and only partially offset by higher earnings from the popular seed and genomics units, Monsanto said.
  • Monsanto also plans to cut 8 percent of its workforce, or roughly 1,800 jobs. About 600 of those cuts will be in the United States. Most employees have already been notified, a spokesperson said.
  • .... it expects the restructuring to reduce future costs by $220 million to $250 million annually. (so we can expect to see these costs hit the P&L in the future but of course they will be excluded from analysts estimates since they don't count on Wall Street) :)
  • The St. Louis-based company said on Thursday it expects ongoing earnings per share of $3.10 to $3.30 for the current fiscal year, which began Sept. 1. Analysts' average forecast is $4.10 per share, excluding one-time items, according to Reuters Estimates.
  • We can no longer ignore the difficulties in Roundup, said Frank Mitsch, an analyst with BB&T Capital, which downgraded the company's stock to hold from buy. This order of magnitude shortfall is a surprise...Export tax subsidies by the Chinese government has served to further reduce the price of Chinese generics, forcing Monsanto to drop its price to levels, $10 to $12 a gallon, unseen in years! (it's always the Chinese...)

I'll admit, this blurb below was a curve ball to me; I didn't realize how important to profits the phosphate rock business is. This ties in to the fertilizer business which has likewise been below expectation of late.

  • Greenwich Consultants analyst Mike Judd told Reuters the forecast was not surprising due in part to a drop in profits from a phosphate rock mine. Monsanto owns a phosphate rock mine from which it reaped about $2 billion in gross profit in 2008 and $1.8 billion in 2009, he said.
  • Demand for the mineral, which is used to make the fertilizer diammonium phosphate, has dropped sharply in the past year. The drop has been so sharp that Monsanto now expects 2010 profit from the mine of about $700 million, said Judd, who has a sell rating on the stock.

Still sticking to their out year numbers...

  • While we can see a path to the $1 billion target in 2012, there are multiple headwinds causing us to forecast below that mark in the next two years.

And you can see how the seed business is becoming the dominant part of the franchise.

  • Total company gross profit in fiscal 2010 is expected to reach $6.1 billion to $6.3 billion, with gross profit from seeds and traits crossing the $5 billion mark for the first time, the company said.
  • Gross profit from Roundup and other glyphosate-based products is expected in the range of $650 million to $750 million.
  • By 2012, Monsanto's seeds and genomics business is expected to make up 85% of the company's total gross-profit mix.
  • In short, our growth as a company will not be driven by the 15% of the business that will be the agricultural-productivity segment, but by the 85% that will be seeds and genomics, Casale said.

[Jul 21, 2009: Monsanto Gaps Up on New Seed Approval]

[Jun 1, 2009: SmartMoney: Monsanto's CEO on Growing in a Recession]

[May 27, 2009: Monsanto Pulls Full Year Earnings Guidance Down to Lower End on Roundup Weakness]

[Apr 2, 2009: Monsanto - Solid Earnings]

[Jan 7, 2009: Monsanto Earnings - Quite Awesome]

[Sep 16, 2008: Monsanto Raises Guidance Again]

[Jun 25, 2008: Monsanto - Good Results, Expectations Very High]

[Jun 5, 2008: Monsanto Plans to Double Grain Yields by 2030; Some Have Doubts]

[Apr 2, 2008: Monsanto Hilarious Reaction to Guidance]

[Feb 12, 2008: Monsanto Raises Guidance Yet Again]

[Jan 3, 2008: Monsanto - Very Good Earnings and Raised Guidance]

[Oct 9, 2007: Looking Ahead to Monsanto]

No position