Monsanto: A Kinder, Gentler Monolith?

The Street, USA  Scott Eden   07.04.2010

ST. LOUIS (TheStreet) — Monsanto’s moment of self-reckoning has
arrived — at least when it comes to its financial growth forecasts.

In a conference call with analysts and investors Wednesday morning
following another disappointing quarterly earnings report, Monsanto
management effectively said that they’d got it all wrong. They were
turning over a new leaf — or a new cornstalk, as the case may be.

“This management has eaten a lot of crow,” said Charlie Rentschler,
an equities analyst at Morgan Joseph who participated in the call and
described it as “very sober.”

“They’re admitting their mistakes and they’re trying to modify their
ways. Assuming they can do this, it’s a step-change in how this
company has been operated. As far as I’m concerned they’ve been a
pretty arrogant bunch,” Rentschler said of the company, especially in
its relationships with distributors and end-users on the farm.

“They’ve had a lot of swagger — a do-it-my-way-or-hit-the-highway-
type attitude. They say now that’s going to stop.”

April: we’ll see if this is just another propaganda shot at working their shares back up. Farmers are bowing out of their technologies this year, too many people are now anti-GMO, and a host of other reasons are likely why this article has appeared. Can’t imagine Hugh Grant bowing to anything, but I do think we will see all versions of softer press releases from them. Not sure it will reflect the inner workings of the corporation though: you can say anything on paper: it’s harder to actually DO it. Remember: don’t let those shareholders down: must profit at all costs!

As reported, Monsanto admitted in its fiscal-second quarter earnings
release that its ambitious growth projections — which called for a
doubling in gross profit between 2007 and 2012 for implied earnings of
as much as $6 per share — were unrealistic.

The realization appears to have occurred after increasing numbers of
growers refused to pay premium prices for Monsanto’s latest
genetically engineered seed products, one for corn and the other for
soybeans, called SmartStax and RoundUpReady 2, respectively.

Much of Monsanto’s future growth is tied to the success of these two
seeds, whose bio-engineered genetic traits had been marketed as high-
yield crop producers even during times of hot and dry weather.

Monsanto had been trying to charge a premium for both products — $75
per bag of SmartStax seeds and roughly the equivalent of $10 per bag
of RoundUpReady seeds — but farmers have blanched at those prices,
especially given the sharp run-up generally in the cost of crop seeds
even amid the recession.

Further, growers have called into question the yield promises made by
Monsanto for those two seed types. RoundUpReady, first sold before
last year’s planting season, performed disappointingly in 2009, which
the company has acknowledged. As for this year, seed dealers and
analyst say that Monsanto hasn’t provided much third-party data
validating the high-yield claims of either RoundUpReady or SmartStax,
heightening skepticism among farmers.

“They didn’t really have any supportive data out there,” one dealer
in Illinois told The Street on Tuesday. “It was just kind of sold as it
was better.”

As a result, Monsanto has started reducing those prices in an effort
to gain “market penetration,” to use the company’s phrase, and
entice reluctant growers into buying the new seeds.

Don Carson, an analyst at UBS, wrote in a research note on Monday that
Monsanto had begun to “heavily discount” SmartStax seeds, according
to a survey of dealers he’d recently conducted.

Analysts and investors had been roundly discouraged by Monsanto’s
perceived stubbornness in holding to its earlier growth targets. That
has changed.

Rentschler called Monsanto’s conference call on Wednesday morning
“cathartic” and “necessary.” “When you boil it down, it’s quite
positive,” he said.

Trading in Monsanto shares was frantic Wednesday, with the stock
moving from red to green and back to red, as investors attempted to
come to grips with the revisions and what it means for the valuing of
Monsanto equity. Late in the session, the shares were trading at
$68.30, down $1.23, or 1.8%. Volume reached 30 million shares, almost
five times the daily average turnover in the name.

During the conference call, Hugh Grant, Monsanto’s energetic Scotsman
CEO, went on to make further growth projections — he said he now
believes that the company’s earnings per share could grow at a
compound rate of between 13% and 17% — despite having just been
forced to throw out the company’s earlier guidance.

Another reversal was inherent in Monsanto’s profit-growth revision:
Stiffer competition from other crop-seed providers appears, in part,
to have forced the company’s hand.

This despite the fact that Monsanto faces a civil antitrust lawsuit
from rival DuPont(DD), which makes Pioneer brand bio-engineered seeds,
and a widely reported investigation by the U.S. Justice Department
into anti-competitive behavior in the seed industry, which everyone
understands is an investigation into Monsanto specifically. Some
estimates say that Monsanto controls more than 80% of the
bio-engineered corn and soybean markets.

Sell-side stock analysts generally defend Monsanto against anti-
competitive charges. The DoJ and the Department of Agriculture are
hosting a series of meetings in the farm belt this year to discuss the
agriculture business and alleged monopolistic practices there. “While
we expect the remaining four … meetings to generate considerable
headlines,” said UBS’s Carson in his note this week, “they should
not materially affect [Monsanto’s] clear competitive lead in current
and prospective ag biotech traits and in molecular breeding.”

“There’s plenty of competition,” said Morgan Joseph’s Rentschler,
who also farms corn and soybean on a plot of land in southeastern
Indiana. “It’s a new reality.” Farmers have lots of alternatives.
They don’t have to have this stuff shoved down their throat.”

“You have to approach people in a certain manner,” Rentschler went
on. “Hopefully that’s a message that Mr. Grant has gotten.”

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