Update Monsanto (MON)

09/10/2009 1:43 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

It’s hard to keep earnings growing when competitors cut the price you can charge for your signature product in half.

That’s the reality that’s finally put an end to Monsanto’s (MON) run of eight consecutive years of earnings growth.

On September 10, the company, a member of the Jubak Picks 50 portfolio, told Wall Street that earnings for the fiscal year that ends in August 2010 would be just $3.10 to $3.30 a share.

Wall Street analysts had projected earnings of $4.26 a share, according to Zacks Investment Research. For the fiscal year that ended in August 2009, analysts had projected earnings of $4.41 a share, a 21% increase from the $3.64 reported for fiscal 2008.

The problem is the company’s herbicide Roundup.

With the market facing a glut of glyphosate-based generic competitors to Monsanto’s branded Roundup, prices have nose-dived for both the generic and branded herbicides. Competition from generics has cut Roundup prices roughly in half.

In 2010 Monsanto expects to sell 250 million gallons of Roundup at $10 to $12 a gallon. In May Monsanto projected 2009 sales of 200 million gallons of Roundup at $20 a gallon.

Gross profits from the seed business will climb to $5.2 billion in fiscal 2010 from the $4.5 billion that Monsanto projected in May for fiscal 2009. But that’s not enough to offset the plunge in revenue from Roundup.

The bad news on Roundup is likely to give impetus to plans to carve the Roundup business into a separate company and put it up for sale sometime in 2011. (I’m projecting here from reading between the lines in CEO Hugh Grant’s June comments about a sale of the Roundup business after the company finishes its current cost cutting.)

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