Monsanto re-focuses core business on seeds-and-traits

 

 

Monsanto is repositioning its Roundup soy seeds business in the face of the uncertainty associated with the product; focusing on its glyphosate products for supporting the core seeds-and-traits business.

 

Glyphosate (N-(phosphonomethyl) glycine) is a broad-spectrum systemic herbicide used to kill weeds, especially perennials.

 

The company said it planned to drastically narrow its Roundup brand portfolio to offer farmers a simple, quality product that meets their needs at a price closer to generics.

 

Monsanto chairman and chief executive Hugh Grant indicated that the company has initiated a series of actions that are expected to cumulatively reduce the ongoing earnings per share (EPS) contribution of the Roundup business in fiscal year 2010 by US$0.50 to US$0.70.

 

These near-term actions include lowering prices on volume for the 2011 season and accelerating payment on certain distributor and retailer incentives to close out multi-tier brand support and speed the transition to the new brand strategy.

 

The company also stated negotiations to resolve breaches of contractual obligations by two major supply customers have been unsuccessful to date.

 

The company now expects fiscal year 2010 earnings per share to be in the range of US$2.40-2.60 on an ongoing basis and US$2.15-2.41 on an as-reported basis. Monsanto now expects ongoing EPS for its upcoming third-quarter to be in the range of US$0.75-0.80, and US$0.65-0.72 on an as-reported basis.

 

The company's free cash flow guidance reflects the proportional decrease in contribution from the Roundup business and is now expected in the range of US$400-500 million.

 

Grant said the company acted once it had confirming data from the early US Roundup application season that the industry had undergone fundamental structural changes. Among which are systemic margin compression in the distribution channel attributed to sustained oversupply of glyphosate and the reality that Chinese glyphosate capacity is profoundly overbuilt.

 

To address these issues, Monsanto is revamping its glyphosate business, pricing Roundup nearer to the level of generics and simplifying its product offerings. In key segments within large markets like the US, the company will move to a single-brand strategy, using resources to promote a single brand rather than splitting them among multiple tiers.

 

The company also is creating a new offering of solutions to address the need for a simple weed resistance package. It will work with key US distributors to combine a simplified Roundup brand with a package of complementary chemicals to create an affordable and easy-to-use weed control regimen.

 

With these structural changes, Monsanto expects the ongoing gross profit contribution of Roundup will be in the range of US$250-300 million per year. This brings total agricultural productivity gross profit to US$550-600 million.