Monsanto, flagging “industry headwinds”, revealed it was working on plans to cut costs by $300m-500m, as the seeds giant forecast a slowdown after a quarter in which its performance beat expectations.
The US-based seeds giant, which is attempting to takeover agrichemicals group Syngenta, said that sector hardships stemming from factors such as a dent to farm spending from low crop prices would last beyond its current financial year, which ends in August.
“Looking beyond the current year, the company anticipates the continuation of several of the industry headwinds, ranging from weakening foreign currencies to low commodity prices driving reduced acres,” Monsanto said.
The group added that “in light of these industry challenges”, it was “developing plans to reduce its operating spending potentially in the range of $300m-500m by the end of fiscal year 2017”.
Monsanto, whose operating costs are running at roughly $1bn per quarter, is already expecting a drop of 3-5% in spending in the current financial year.
The comments came even as the group unveiled earnings up 33% at $1.61bn for the March-to-May quarter, on revenues up 7.7% at $4.58bn.
The earnings, equivalent to $2.39 per share, were ahead of the company’s guidance of a figure of roughly 2.00 a share, and market expectations of a $2.07-per-share result.
The performance reflected “the change in the US Channel seed brand business model increasing gross profit… as well as strong [agrichemical] segment performance due to the recent agreement with Scotts Miracle Gro”, Monsanto said.
The group last month revealed it would receive a one-off $300m upfront payment from Scotts Miracle Gro to extend a licencing partnership dating back to 1999 for Monsanto’s Roundup weedkiller.
However, Monsanto said that it was now expecting a “breakeven” result for its current, June-to-August quarter, rather than the previous guidance implying earnings of roughly $0.25-35 per share.
Indeed, the group stuck by its forecast for the full year of earnings coming in “at the low end of the range” of $5.80-6.05 per share.
The revised guidance also included an expectation of differing contributions from its two divisions, seeds and agrichemicals, with the former now expected to see “flat” profits over the full year, instead of the “low-to-mid-single digits” percentage growth previously expected.
By contrast, agrichemical profits were, thanks to the Scotts Miracle Gro deal, now expected to fall only “slightly” over the year, rather than the 10% drop previously expected.
The Scotts Miracle Gro contribution represents “an offset to the anticipated 15-17% decline in gross profit [in agrichemicals] from continued softening of generic glyphosate pricing and currency headwinds”, Monsanto said.
‘Exciting, logical step’
The group also restated its appetite for acquiring Swiss-based Syngenta, which has rejected a $45bn bid from Monsanto.
“Our proposal to combine with Syngenta is an exciting, logical next step for our business,” said Hugh Grant, the Monsanto chairman and chief executive.
“The growing population, along with our volatile and changing climate, place ever-increasing burdens on sustainable global food production,” he added.
“Equipping farmers with the right set of innovations that will help solve tomorrow’s food challenges today requires more than a new company – it requires a new vision and approach.
Monsanto shares stood 1.3% lower at $11.26 in early deals in New York.
(Source – http://www.blackseagrain.net/novosti/monsanto-to-cut-up-to-500m-in-costs-amid-ag-headwinds)