September 2, 2010

Monsanto's shares tumble 6% on earnings caution

Shares in Monsanto tumbled 6% after the seeds giant revealed that its earnings would fall short of Wall Street hopes, and once again extended the scope of its shake-up in the face of a slump in Roundup sales.

Monsanto said that its earnings for its 2010 financial year would, on a per share basis, come in at US$2.40-2.45, at the lower end of the range it had previously guided too. Analysts had been hoping for a US$2.50-a-share result for the year, which ends today.

Besides cutting jobs, facility closures are also envisaged, according to a regulatory filing on Tuesday (Aug 31). The cost cuts would enable the group to extend its cost management efforts to streamline the Roundup business.

The costs of the fresh measures, which come in the face of a surge in generic competition to Roundup, will dent profits by US$180 million, on a pre-tax basis, of which most will be taken this year.

Monsanto shares, which recovered strong last month on hopes that a surge in grain prices would improve its profits hopes, closed down 5.8% to US$52.65 in New York.

The company added that the latest cost cuts would help stabilise at US$250-300 million a year profits from Roundup and other glyphosate weedkillers, which Chinese groups are making en masse following the lapse of patents.

It also stuck by a longer-term forecasts of "mid-teens" growth in earnings, after bringing its Roundup business under control.

In seeds, the group reported growth in South American sales of its latest genetically-modified products, whose lukewarm take-up in the US this year has also worried investors.