Together with the third quarter earnings release, Monsanto Company (MON) has introduced a new product called Warrant Herbicide. It is an encapsulated formulation of acetochlor designed for cotton and soybean. The new product was tested by farmers as MON 63410 Herbicide and has proved successful. Warrant Herbicide helps prevent pigweed on cotton and is effective for more than a month.
During the third quarter of fiscal 2010, Monsanto also planned to increase the production of Roundup herbicide by expanding outside New Orleans. However, the company has taken the initiative to decrease the price of Roundup herbicide in order to enhance volumes and encourage early collections from distributors.
Lower prices will bring Roundup, the world’s leading crop protection product, closer to other generics, which will help farmers meet demand and avoid restocking in China. Thus, revenue from Roundup and other glyphosate-based herbicides almost halved to $269 million in the third quarter of fiscal 2010 from $614 million during the same period of fiscal 2009. However, we believe that the robust pipeline of new products will help Monsanto grow in future.
Nevertheless, the intensely competitive environment and the decrease in product price are discouraging.
For the fourth quarter and fiscal 2010, management expects earnings per share (EPS) in the range of $(0.09)–$0.11 and $2.40–$2.60, respectively. The mid-point of the fiscal EPS range represents a decrease of approximately 34% from fiscal 2009. For fiscal 2010, management expects free cash flow in the range of $400–$500 million. Thus, we maintain our Neutral recommendation.
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