Post Earnings Coverage as Monsanto Earnings and Revenue Slide

For the three month ended on May 31, 2016, Monsanto’s overall profit tumbled 37% to $717 million, or $1.63 per share, as compared to profit of $1.14 billion, or $2.39 per share, in the year ago period. Adjusted earnings of $2.17 per share were lower than analysts’ consensus estimates of $2.40 per share. For Q3 FY16, revenue declined 8.5% to $4.19 billion as compared to revenue of $4.58 billion in Q3 FY15, also missing analysts’ estimates of $4.49 billion.

In Q3 FY16, revenue from the agricultural productivity segment plunged by almost 30% as compared to Q3 FY15. This was primary attributed to the discontinuation of its licensing deal with Scotts, which generated $274 million in revenue in Q3 FY15. Elsewhere, the key seeds and genomics segment held up better. The overall segment revenue rose slightly, with weak sales of soybeans and cotton offset by corn and Monsanto’s other-crops category.

The seeds and pesticides maker is grappling with a multiyear slide in major crop prices that has reduced farmers’ income and has forced farm supply companies to tighten their own belts. The company’s profit has also come under pressure from strong U.S. dollar and price cuts triggered by competitors. Monsanto is also facing additional challenges such as declining price of the herbicide, glyphosate, restrictions by the Indian government on cottonseed pricing, and a continuing wait for approval of a new soybean variety from the European Union which Monsanto hopes to be a blockbuster.

The disappointing quarterly results will be seen as a setback to Monsanto’s efforts to negotiate a higher bid from German conglomerate Bayer, which in May 2016 offered $122 per share, worth $62 billion including $8.3 billion of net debt. Monsanto deemed the offer as too low, but signalled that it was open to negotiating further. Monsanto said it has been in talks with Bayer over the last few weeks, but gave no official update. The company has also held talks with others as an alternative to the Bayer’s offer.

Negotiations with Bayer could be complicated by headwinds the industry is facing, Bayer’s share price has declined recently, while the Euro has plunged against the dollar following Brexit. Bayer had planned to finance 25% of the deal by selling shares, while the bulk of the cash will be raised using U.S. dollar-denominated bonds.

Monsanto expects its FY 2016 earnings to come in at the low end of its guidance range of between $4.40 and $5.10 per share. The company said it remains on track to deliver $165 million to $210 million in savings from its restructuring actions in FY 2016, primarily benefiting operating expenses. Beyond FY 2016, the company said it continues to target a mid-teens compounded annual growth rate in earnings per share from FY 2017, now advancing to FY 2021.

Monsanto’s shares gained 2.40% to finish the trading session at $103.52 on Wednesday, post its earnings release. Since the beginning of the year the company’s shares have gained 6.32%.

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