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Monsanto Earnings: Seeds Of Doubt Or Opportunity?
Monsanto's (NYSE: MON) third quarter earnings dwindled largely due to fierce generic competition to its Roundup weed killer. Demand was flat for the seed and herbicide company's expensive genetically altered seeds. The stock has been punished and traded at its lowest price since November 2006.
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Wilted Profits
The Roundup troubles zapped Monsanto's profits, which resemble a wilted weed after taking a hit from the weed killer. Earnings per share (EPS) for the quarter were 70 cents with net income at $384 million, down from $1.25 EPS and $694 million net income in the same quarter a year ago. Revenue was $2.96 billion compared to $3.16 billion in the Q3 last year. The agricultural productivity unit sales, the division that includes Roundup, fell to $600 million from approximately $910 million. Generic knock-offs from China continue to hurt Roundup sales.
Monsanto's Move
Seeds and genomics represented $2.36 billion in sales for Monsanto, most of its business. The company continues its long-term transition from a seed and herbicide company to one in which the business is largely genetically altered seeds. There is resistance to such seeds, which are genetically modified organisms (GMOs). There's both price resistance from farmers as well as the political-cultural resistance to the seeds. Monsanto is trying to develop more inexpensive GMOs, as farmers balk at prices for its premium seeds such as SmartStax corn.
Monsanto Stock Slammed
Monsanto's stock, which had a steady upward bull march to $139.95 a share by 2008, trades at $46.05 as of this writing. Its competitors' stocks, those of Dow Chemical (NYSE: DOW), Swiss giant Syngenta (NYSE: SYT) and DuPont (NYSE: DD), haven't been thrashed as Monsanto's has. Some observers think that Monsanto stock has been unfairly beaten down, and that the company especially has powerful long-term business prospects and compelling stock value. Others see continued difficulty with generics versus Roundup and troublesome margins in its seed business.
Also, the issue of Monsanto's ability to adjust its business according to the supply and demand elasticity inherent in agriculture was raised. This is similar to the overall fertilizer sector of the agriculture business, which includes companies such as Agrium (NYSE: AGU) and the other producers.
A Confluence Of Issues
Monsanto's situation is more complex, though, than that of the fertilizer producers. No one is particularly impassioned against using potash. The impassioned opposition, or at least ongoing resistance, to GMOs will not vanish overnight. On the other hand, the world agriculture situation in the next five to 10 years will be one of growing demand, with world demographics and economics driving this. Developed countries, as well as underdeveloped, will be clamoring for seeds as well as solutions to difficult food-growing problems.
Monsanto Stock
Yet that doesn't automatically make Monsanto stock a good buy right now. The U.S. and global economy, with its fragile fits and starts, gestures of recovery more than recovery itself, as well as the stock market volatility simply underscore Monsanto's individualized issues. Again, how these issues play as far as the fundamentals, how they affect Monsanto's business and how they affect the company's earnings are the key.
The company has already lowered guidance. Other seed companies, such as the Swiss-based giant Syngenta, don't have all Monsanto's issues or aren't weighed down by them. Syngenta also has a more attractive international mix in its business percentage than Monsanto. When Monsanto straightens out its business, it should become more attractive. Right now, Syngenta would be a better stock to buy. (When the dust from a recession settles, there are often many opportunities for portfolio growth - both locally and internationally. To learn more, read Profiting In A Post-Recession Economy.)
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IN PICTURES: 8 Financial Tips For Young Adults
Wilted Profits
The Roundup troubles zapped Monsanto's profits, which resemble a wilted weed after taking a hit from the weed killer. Earnings per share (EPS) for the quarter were 70 cents with net income at $384 million, down from $1.25 EPS and $694 million net income in the same quarter a year ago. Revenue was $2.96 billion compared to $3.16 billion in the Q3 last year. The agricultural productivity unit sales, the division that includes Roundup, fell to $600 million from approximately $910 million. Generic knock-offs from China continue to hurt Roundup sales.
Monsanto's Move
Seeds and genomics represented $2.36 billion in sales for Monsanto, most of its business. The company continues its long-term transition from a seed and herbicide company to one in which the business is largely genetically altered seeds. There is resistance to such seeds, which are genetically modified organisms (GMOs). There's both price resistance from farmers as well as the political-cultural resistance to the seeds. Monsanto is trying to develop more inexpensive GMOs, as farmers balk at prices for its premium seeds such as SmartStax corn.
Monsanto Stock Slammed
Monsanto's stock, which had a steady upward bull march to $139.95 a share by 2008, trades at $46.05 as of this writing. Its competitors' stocks, those of Dow Chemical (NYSE: DOW), Swiss giant Syngenta (NYSE: SYT) and DuPont (NYSE: DD), haven't been thrashed as Monsanto's has. Some observers think that Monsanto stock has been unfairly beaten down, and that the company especially has powerful long-term business prospects and compelling stock value. Others see continued difficulty with generics versus Roundup and troublesome margins in its seed business.
A Confluence Of Issues
Monsanto's situation is more complex, though, than that of the fertilizer producers. No one is particularly impassioned against using potash. The impassioned opposition, or at least ongoing resistance, to GMOs will not vanish overnight. On the other hand, the world agriculture situation in the next five to 10 years will be one of growing demand, with world demographics and economics driving this. Developed countries, as well as underdeveloped, will be clamoring for seeds as well as solutions to difficult food-growing problems.
Monsanto Stock
Yet that doesn't automatically make Monsanto stock a good buy right now. The U.S. and global economy, with its fragile fits and starts, gestures of recovery more than recovery itself, as well as the stock market volatility simply underscore Monsanto's individualized issues. Again, how these issues play as far as the fundamentals, how they affect Monsanto's business and how they affect the company's earnings are the key.
The company has already lowered guidance. Other seed companies, such as the Swiss-based giant Syngenta, don't have all Monsanto's issues or aren't weighed down by them. Syngenta also has a more attractive international mix in its business percentage than Monsanto. When Monsanto straightens out its business, it should become more attractive. Right now, Syngenta would be a better stock to buy. (When the dust from a recession settles, there are often many opportunities for portfolio growth - both locally and internationally. To learn more, read Profiting In A Post-Recession Economy.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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