Fewer acres of corn being planted, one of Monsanto's most important crops, led the biotech to report steep losses in its fiscal fourth quarter. Photo: Monsanto.
If Monsanto's (MON) fiscal 2015 fourth-quarter earnings are any indication, the global backlash against genetically modified organisms is finally catching up with what is arguably the face of the industry. The biotech reported revenues of $2.36 billion, 10% lower than the $2.63 billion it recorded last year and well below analyst expectations of almost $2.9 billion.
The $0.19-per-share loss it reported was also much worse than the penny-per-share loss Wall Street anticipated, as corn seed sales dipped by $32 million to $598 million.
Although Monsanto's other lines of business aren't anywhere near as large as corn, the results were worse. Soybeans, for example, were down almost 20%, and cottonseed, though very small, lost nearly half its sales. Its new Bollgard II XtendFlex cottonseed, which is resistant to glyphosate, dicamba, and glufosinate herbicides, has sold out, though it was only in limited production.
Even its vegetable-seed business fell, albeit by a modest 2% year over year.
A global restructuring
This led the biotech to announce it was going to be restructuring its global operations, most notably firing almost 12% of its workforce, or 2,600 jobs, over the next two years, and exiting the sugarcane business.
CEO Hugh Grant put up a brave front by declaring, "The fundamentals of our business are strong and Monsanto remains the best positioned company in the industry," but it's clear worldwide opposition to GMOs is taking a toll.
Despite the European Union's approving the sale of genetically modified crops, two-thirds of the 28 member states have alerted the central ruling authority they want to opt out of growing Monsanto's GMO maize MON 810. Nineteen countries had voted against approving the crop last year, but the EU's weighted voting system meant it still passed. That 19 countries are now opting out suggests the opposition remains entrenched.
Cotton hasn't been a particularly important crop for Monsanto, but after sales this quarter fell by more than half, it's going to be even less so. Photo: Monsanto.
A weedy problem
But Monsanto's woes extend beyond just corn and resistance to its lab-altered seed. Its glyphosate-based herbicide Roundup -- which permeates all aspects of its business, as its seeds are modified to permit plants to grow despite being sprayed with the chemical -- also saw sales dip.
Earlier this year the United Nations' International Agency for Research on Cancer declared glyphosate to be a probable cancer-causing product. Because Roundup accounted for almost half of all Monsanto's revenues, or $5.1 billion, in 2014, it was believed the declaration might have far-reaching implications.
Those worries seem to have had a basis in fact, as Monsanto said sales in its agricultural productivity segment, which consists of the crop-protection products and lawn-and-garden herbicide products, most notably Roundup, fell 12% in the quarter. The biotech blamed the decline mostly on lower-priced glyphosate, but industry sources say the depressed prices are a result of oversupply, though they also say the decline has probably bottomed out.
The biotech is also counting on its new glyphosate-dicamba herbicide to help boost growth once more. Heavy overuse of herbicides by farmers has led to the creation of so-called superweeds, vegetation that has grown resistant to Roundup applications. Like an escalating arms race, the biotech is coming out with new chemical combinations to combat the problem.
The high cost of savings
Monsanto says its restructuring ought to generate annual savings of $275 million to $300 million from the restructuring by the end of its fiscal 2017 year, at a total cost of $850 million to $900 million. With plans in the works to cut operating spending by an additional $100 million, it would bring Monsanto's total annual savings to as much as $400 million.
One area that's finally sprouting is its $1 billion acquisition of Climate Corp., which analyzes daily hyper-local weather measurements taken from the National Weather Service and generates 10 trillion "weather simulation data points" that are then used to price its crop insurance and inform its risk analysis services.
Monsanto reported that it's enrolled more than 75 million acres in the platform, well over the 45 million or so acres it had previously been looking for, and has more than 5 million acres in its Climate Pro service, some two and a half times more than it was targeting.
The basic service is free and lets farmers see field-level weather conditions across their entire operation, as well as forecasts several hours into the future. The Pro technology, which farmers have to pay for, adds in an advisory on nitrogen in the field and evaluations on crop health.
It's not surprising Monsanto's seen growth here, as it slashed pricing on the service earlier this year because it was proving to be too hard of a sell.
Monsanto is not about to go bankrupt, but its fiscal fourth-quarter earnings report doesn't have many green shoots to encourage investors for the immediate future.
