Monsanto slashes forecast on strong dollar, glyphosate pricing

Monsanto slashes its full-year profit outlook, due to weak foreign currencies, generic glyphosate pricing, compressed grower margins coming from lower commodity prices, as well as the delay in the EPA label for in crop use of dicamba.

Monsanto has also revised its full-year ongoing EPS guidance to $4.40 to $5.10. Full-year EPS guidance on as as-reported basis is expected to be $3.42 to $4.29.

For the FY2016 second quarter, this translates to ongoing EPS expectations of $2.35 to $2.45, with the expected decline versus the prior year primarily driven by glyphosate pricing declines and the Argentine peso devaluation. Second quarter EPS guidance on as as-reported basis is expected to be $2.15 to $2.35.

"Today, the macro-environment is proving to be even more challenging, yet we still see strong long-term growth opportunities for our business,"said Pierre Courduroux, senior vice president and chief financial officer.

Monsanto said that currency accounts for an estimated 25 to 30 cents of the reduction in the company’s revised 2016 ongoing EPS outlook, with another estimated 30 cents stemming from its Seeds and Genomics businesses as a result of several macro factors, including the delay in the EPA approval of dicamba for in-crop use in the Roundup Ready Xtend® system and greater-than-expected industry discounting. A reduction in the company’s spend outlook and financial discipline practically offsets some moderation in Agricultural Productivity due to generic pricing.

In FY2016, the company now expects gross profit growth from its core Seeds and Genomics segment to be relatively flat with the previous year and expects the Agricultural Productivity segment gross profit to migrate closer to the mid-point of the range of $900 million to $1.1 billion of gross profit in fiscal year 2016. To offset some of the increased headwinds, the company expects operating expenses for fiscal year 2016, exclusive of restructuring expense and legacy environmental and litigation settlements, to be down slightly versus fiscal year 2015. This expectation is inclusive of new platform spend to support the long-term growth prospects for these opportunities.

In 2016, the company continues to execute on key initiatives within its core business led by new global corn hybrid portfolio introductions and continued significant Intacta RR2 PRO™ soybean adoption, which is now tracking to 35 million acres in South America.

Moving beyond fiscal year 2016, Monsanto’s outlook is expected to improve anchored on the company’s expanding innovation growth drivers and R&D leadership advantage, financial discipline and balanced capital allocation. The company also expects significant benefits in fiscal year 2017 from improved comparisons from lower cost of goods and the absence of the significant Argentine peso devaluation. These variables underpin its confidence in its long-term growth outlook and opportunity for a baseline mid-teens compounded annual growth rate in its ongoing EPS from the mid-point of its fiscal year 2016 outlook through fiscal year 2019.

"It’s easy to focus on the current downturn in the agricultural cycle, but as the leader in the industry, we are in a unique position to take advantage of the inevitable rebound and accelerate the delivery of integrated solutions within the industry,” added Courduroux. “We have the leading trait and genetics platform, leading platform in data science and significant momentum from new product launches, all underpinned by actions to focus and reduce costs through financial discipline. We remain committed to the innovation-backed logic that fuels our strategic rationale for integrated solutions and expectation that we will remain the partner of choice in the industry."