Monsanto To Cut Jobs Following Roundup Profit Losses
10 September 2009 Monsanto Co., the world’s largest seed producer, said earnings will fall in fiscal 2010, reports Bloomberg. Following
eight consecutive years of gains, the company’s estimated 2010 earnings are expected to drop due to competitors’ generic herbicides cutting Roundup prices by half. Earnings per share from continuing operations in fiscal 2009 were at the low end of a forecast of US$4.40 to $4.50, Chief Financial Officer Carl Casale said. Monsanto increased its restructuring reserve to $550 million to $600 million, including about $400 million the company said in June it would spend in the fiscal fourth quarter of 2009. Monsanto plans to lower costs by as much as $250 million annually, with the full benefit realized in fiscal 2011. Casale reiterated plans to more than double gross profit to as much as $8.8 billion in fiscal 2012 from $4.2 billion in 2007.
Chief Executive Officer Hugh Grant is cutting about 8% of the global workforce, mostly in the unit that makes Roundup, as farmers reduce spending and competitors in China introduce cheaper versions of the glyphosate-based herbicide. Herbicides, which generated 32% of 2008 gross profit, will account for 11% of profit in 2010, Casale said.
Gross profit in the herbicide unit will drop to a range of $650 million to $750 million in 2010, Casale said. That’s as much as a 68% decline from 2009 gross profit of $2 billion that the company forecast in June. The business generated $1.51 billion of gross profit through the first nine months of fiscal 2009.
“There is some near-term supply/demand imbalance in the chemical side of agriculture,” Casale said in a statement. “We are now managing our way through a competitive spike in the supply of generic glyphosate.” The company expects to sell about 250 million gallons of glyphosate in 2010 with branded Roundup selling for $10 to $12 a gallon, he said. Sales volumes in 2009 were forecast to be about 200 million gallons with Roundup selling for more than
$20 a gallon, the company said in May.
“We expect a cut of 50% plus in branded Roundup pricing in order to recapture market share lost in the 2009 crop from the flood of imported glyphosate from China,” Kevin McCarthy, a New York-based analyst at Bank of America, said in a report.
Herbicide gross profit will remain below $1 billion in 2011 before stabilizing at about $1 billion, Monsanto said. Grant in June said he may divest the Roundup business after carving it out as a separate unit and completing the restructuring.
Gross profit in the seeds and traits business will rise to $5.1 billion to $5.2 billion in 2010, Monsanto said — an increase of as much as 16% from 2009 gross profit of $4.5 billion that Monsanto forecast in May. Gross profit through the first nine months was $4.08 billion.
Farmers are spending less because of lower corn prices, Mark Connelly, a New York-based analyst at Sterne Agee & Leach Inc., said in a report. Corn futures have dropped about 23%this year; September prices were the lowest since October 2006. “With corn down and expected yields up, farmers have been slow to buy fertilizer or chemicals,” Connelly said. “We are likely to see US corn acres down, which would keep pressure on both seed volume and, potentially, seed prices.”
Gross profit will decline to $6.1 billion to $6.3 billion in the year ending Aug. 31, from $6.7 billion in fiscal 2009 as herbicide revenue falls, Casale said.
Get The Newsletter Today!
