Monsanto Co. Chief Executive Officer Hugh Grant said the seed and crop chemicals giant may have to push back its long-term target for earnings per share to early in the next decade amid pressures from weak agricultural markets.
Grant spoke Wednesday in a telephone interview after the St. Louis-based company cut its profit forecast for the full fiscal year. Monsanto’s long-term target has been to double earnings per share from 2014 through 2019. The stock slid 7.8 percent to $85.30 in New York, the biggest drop in more than five years.
Weaker currencies are hurting Monsanto’s revenues in foreign markets while the decline in agricultural commodities such as corn and soybeans has reduced profits for farmers, spurring them to cut spending. The company also cited "additional headwinds" from a delay in the U.S. Environmental Protection Agency’s approval of dicamba herbicide for use on crops as part of Monsanto’s Roundup Ready Xtend system.
A recovery in prices of Chinese glyphosate weedkiller hasn’t materialized, which has put pressure on Monsanto’s product, Roundup, Grant said. Meanwhile, the company has lowered prices for its seeds amid "aggressive" discounts for U.S. farmers by its main competitor, DuPont Co., said Chief Technology Officer Robert Fraley.
Monsanto Value Drops After Revising Outlook Down
The overall agriculture economy is set to turn around, Fraley added. Corn and soybean demand is increasing, and farmer incomes will be better than projected as they save on crop and fuel inputs this year and land rents ease. He said Monsanto is looking at buying smaller companies.
“Despite vagaries in the market, our growth story is still intact,” Grant said. There could be “a slingshot effect" in 2017 as new products enter the market, he said.
The company said earlier on Wednesday it now sees profit excluding one-time items of $4.40 to $5.10 a share in the fiscal year through November, compared with a January prediction of $5.10 to $5.60. It cited pressure on glyphosate prices, the devalued Argentine,
- For the fiscal second quarter, Monsanto now expects earnings per share of $2.35 to $2.45, excluding one-time items. The average of 19 analysts’ estimates compiled by Bloomberg was for $2.84.
- For the revised forecast, 25 cents to 30 cents a share is accounted for by currency, Monsanto said. Another 30 cents is from "macro factors" weighing on the seeds and genomics business, the company’s largest by revenue.
- The company cut its full-year free cash flow projection to $1.4 billion to $1.6 billion from $1.6 billion to $1.8 billion.
- It now sees "relatively flat" full-year gross profit growth from seeds and genomics. Its agricultural productivity business’s gross profit will now be closer to the mid-point of the range of $900 million to $1.1 billion.
- Full-year operating expenses, excluding costs related to restructuring and environmental and litigation settlements, are seen down slightly.