Monsanto Co. (MON) has planned to restructure its Roundup business and thus expects its ongoing EPS for the fiscal year 2010 to shrink by 50-70 cents. The drop in the EPS will be attributable to the company’s initiative to decrease prices in order to enhance volumes and encourage early collections from distributors.
 
Thus, the management downgraded its EPS for fiscal year 2010 from the range of $3.10-$3.30 to $2.40 to $2.60 and for the third quarter, Monsanto expect EPS in the range of $0.75 to $0.80.
 
On a proportional basis, Roundup business is expected to generate reduced free cash flow in the range of $400 to $500 million.
 
Lower prices will bring Roundup, world’s leading crop protection product, closer to other generics, which will help farmers to meet demand and avoid restocking in China.
 
Recently, the company completed its $200 million expansion outside New Orleans to increase production of the Roundup herbicide. This expansion will help boost Roundup production capacity by 20%. This is a huge project for Monsanto in scope and terms of financial investment.
 
We believe that the robust pipeline of new products and the continuous growth in the seeds and genomics segment along with strict cost control will help the company grow in future. However, the intensely competitive environment and the decrease in product price force us to maintain our Neutral recommendation.
 
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