Monsanto (NYSE: MON) reported third-quarter earnings this week and hosted an investor call. Here's a Foolish digest for current or prospective Monsanto investors.

Quick numbers check

Metric

Q3 FY 2009

Q3 FY 2010

Diluted earnings per share

$1.25

$0.70

Net income

$694 million

$384 million

Sales

$3.16 billion

$2.96 billion

Sentiment change?

Metric

July 2, 2009

July 1, 2010

Stock price

$71.96

$46.05

CAPS rating

****

****

Data from Motley Fool CAPS. Rating out of a possible five stars.

Further Monsanto news and analysis:

What follows is a lightly edited transcript of the conference call.

Bryan Hurley, Investor Relations
Good morning to everybody on the line today for our third-quarter earnings conference call. Joining me today on the call are Hugh Grant, our Chairman and CEO, and Carl Casale, our CFO. Also joining me are Will McAndrew, Manny Cruse, and Rueben Meia, our IR team. Before we begin, I'd like to remind you that we are webcasting this call. You can access the webcast and the supporting slides at Monsanto.com. The replay will also be available at that address.

We're providing you today with EPS measures on both the GAAP basis and on an ongoing business basis. In those cases where we refer to non-GAAP financial measures, we've provided you with a reconciliation to the GAAP measures in the slides and in the press release, which are both posted on our website. I need to remind you that this call will include statements concerning future events and financial results. Because these statements are based on assumptions and factors that involve risk and uncertainty, the company's actual performance and results may vary in a material way from those expressed or implied in any forward-looking statement. A description of the factors that may cause such a variance is included in the safe harbor language contained in our most recent 10K and today's press release.

Since we've just provided updated quarterly and full-year guidance, I'll walk through an abbreviated summary of the quarterly results to save the bulk of the time for Carl to take you through our full-year outlook and our 2011 metrics, and for Hugh to talk about progress on our near-term strategic priorities.

Let's start with an overview of our financial results on Slide 4. Fundamentally, the results were in line with the revised guidance we issued last month for the full year and for the third quarter. For the quarter, ongoing earnings per share were $0.81, slightly ahead of our prior guidance. As expected, the quarter reflects the reset of the Roundup business. On a year-over-year basis, net sales were down 6% and gross profit declined 24% to $1.4 billion for the quarter, as has been the case in the recent quarters. This was largely driven by Roundup and other glyphosate-based herbicides, which came in at a loss of $189 million on the gross profit line, reflecting the negative gross profit effect associated with the near-term adjustments from our Roundup repositioning. Carl will cover these effects in slightly greater detail in his outlook for the full year. From a Seeds and Traits perspective, sales in the quarter were up slightly over last year while gross profit was down slightly. Likewise for the year-to-date, sales in the segment increased 4%, which reflects increased sales in our U.S. corn business, our global soybean business, and contributions from both cotton Seeds and Traits and the vegetable business. Year-to-date gross profit for the segment is down 2% as the increase in sales were offset by the higher launch-year costs and restructuring moves we've discussed previously.

On the cost side of the ledger, we continue to realize a lower run rate for SG&A, supporting the expected $2 to $2.1 billion guidance for this full year. That run rate reflects the benefit that we've realized because of our restructuring program. To date, our restructuring spend for the fiscal year is $184 million, taking our cumulative total to $590 million of the projected $550 to $600 million in total spend. The effective tax rate for the quarter was 26%, which is lower than the 30% recognized in the prior year. As was the case in prior periods, benefits from several tax items were recognized in the quarter. With our revision to earnings guidance in the last month, our tax run rate puts us in line for a full-year tax rate that may be better than our projected 29% to 30% range. As is typical for this quarter, free cash flow was a use of cash. In particular for the year-to-date period, cash flow was a use of cash of $1.15 billion compared with the use of $145 million for the same period in 2009. That use of cash largely reflects the repositioning of the Roundup business, affecting net income as well as working capital in the cash portion of the restructuring charge. That's partially offset by lower inventories from a reduction in seed production and a normalization of deferred revenue compared with the prior year. In terms of cash deployment, we spent approximately $374 million in the quarter on share repurchases. That will allow us to close out our current 3-year $800 million program a year earlier than originally planned.

Let me turn the call over to Carl so he can expand on our outlook for the remainder of the fiscal year.

Carl Casale, CFO
Thanks, Bryan, and good morning to everyone. A little more than four weeks ago, we provided our revised guidance for the fiscal year following the strategic repositioning of the Roundup business. As we expected, the third-quarter results were in line with that revised guidance. We're on track to meet our full-year ongoing EPS guidance range of $2.40 to $2.60, and our free cash flow target of $400 to $500 million. Through the third quarter, our ongoing EPS is $2.49, which is squarely within our full-year range. With that as a backdrop, it's useful to walk through how we see the year closing out and then shift into the first look at the metrics and drivers we see shaping our mid-teens trajectory in 2011. As Bryan noted, Roundup gross profit came in at a loss for the quarter. This is a direct result of our repositioning actions, as the quarter reflects approximately $200 million negative gross profit impact as we implemented the first of the near-term adjustments. Practically, that gross profit impact is driven by the lower price in volume assessed in the burn-down season and/or accrual for the accelerated payments to close out most retailer and distributor center programs. That means that we've worked through a good portion of the anticipated actions that will make up the cumulative $0.50 to $0.70 EPS effect we project as a result of the repositioning. To the broader Ag Productivity segment, we continue to realize strong results this year driven by a record year in the lawn and garden business. So for the fiscal year we continue to expect the total Ag Productivity segment to deliver approximately $450 to $600 million in gross profit, which includes the expected contribution of between $50 and $200 million from Roundup and other glyphosate-based herbicides after the repositioning actions. If we shift to Seeds and Traits, even in a challenging year, our results are coming in consistent with our previous expectations. As Bryan also mentioned, gross profit at this point in the year is down slightly from this point last year. There are a couple of key variables that influence where we stand and the ultimate landing point for the full year. First, pending the final (inaudible) of planted acres and returns, we continue to see our Dekalb-branded corn seed shares steady but basically flat this year. Consistent with that, our overall U.S.-branded corn volumes are flat year-to-date, while worldwide volumes are down slightly. For the full fiscal year, once we have expected sales in Latin America in the fourth quarter, our global Seeds and Traits volume will be flat for the year. Second, the biggest upside came from mix, where we've seen an increase in the trait intensity mix in the U.S. In corn, farmers continue to drive towards technology adoption with more than 75% of our branded U.S. corn portfolio in either triple-stack or smart-stacks, a positive step change from the 70% penetration rate in 2009. That's mirrored in Latin America, where the increase in trade acres in Brazil and Argentina have had a positive overall mix effect on the business. Practically, that positive mix effect hasn't fully dropped down to the gross profit line for the segment as the launch year effects on cost of goods that we've discussed previously offsets the free acre gross profit expansion. Specifically, we have already discussed the restructuring charge to cost of goods that we took in the second quarter to position our U.S. corn product strategy for 2011. Some additional restructuring charges have been booked in the third quarter as we reach out globally and get our complete portfolio position, offer the newest hybrids in the latest trait package in each area. For the full year, our total restructuring charges for Seeds and Traits represented a $93 million decrease to gross profit. Additionally, both corn and soybeans in the U.S. reflect the continued short-term cost of goods headwinds we discussed last quarter associated with the launch of SmartStax and Roundup Ready 2 Yield and the higher production costs from our hedge positions. These restructuring moves were conscious choices that are now behind us, but made because they enable our product strategy going forward. When coupled with the one-time adjustment to our hedged U.S. production positions we discussed in the second quarter, these items represent a year-to-date charge to cost of goods in excess of $120 million that will not be repeated. If not for those actions, our Seeds and Traits gross margins would be slightly lower than last year and reflective of incremental launch costs. Segment gross profit would have been in line with the expected contribution for our EPS guidance before last month's reset. Including the negative effect of approximately $120 million in 2010 decisions, we expect seasons (inaudible) gross profits to come in at $4.6 to $4.7 billion for the full year. That anticipates a modest incremental increase to fourth-quarter gross profit over last year, primarily reflecting Latin American corn, but more broadly, we've given ourselves a foundation for the Seeds and Traits growth in 2011 and beyond. Mathematically, to hit our $2.40 to $2.60 ongoing earnings guidance, we expect a range from negative $0.09 to plus $0.11 at the ongoing EPS level for the fourth quarter.

On Slide 5, you'll see there are only a couple of moving parts to the fourth quarter as we close out the year, the biggest of which is the remaining Roundup repositioning actions. Within Roundup, we'll have the pricing effect when we have volume at the lower price points, as well as some carryovers as we close out our distribution incentives and see the full gross profit impact when the supply contract breaches. On the Seeds and Traits side, fourth-quarter reflects a significant contribution from our Latin American corn seed business. That includes both a repeat of gross profit related to our Mexican corn distribution change and the contributions from Argentina and Brazil. On the cost side, our full year SG&A spent is training very well, and we continue to expect SG&A will come in at the $2.0 to $2.1 billion range for the full year. The fourth quarter will reflect a consistent SG&A level as we complete the fiscal year. No doubt there's still some work to do to close out 2010, but we are becoming increasingly focused on 2011. As promised on the second-quarter call, we're back today with the guide post that we used to calibrate and track our mid-teens growth going forward.

As CFO, let me share with you how I view those key metrics, which we've included on Slide 6. Quite simply, these are the metrics that matter to us, the dashboard indicators we look to when we're tracking the operational progress and the health of the business. On the left side, you'll see the categories that translate progress in practical financial guidance. At this point, we can give you an early look at the directional trends in these categories, and we'll expand and update them on our fourth-quarter call once we have the 2010 pinpoints. On the right side, you'll see the factors that set the financial outlook. We've moved away from the specific line-item detail on the business drivers, but we'll be able to provide meaningful direction on large contributors across each segment. This is a walk down the P&L culminating in our expectations of mid-teens earnings growth on an annual basis. If you start there, here's (inaudible). Most importantly, we can't achieve our mid-teens earnings growth in 2011 without double-digit gross profit growth from Seeds and Traits. Top line growth will come from an increase in seed unit volume as well as mix improvement. Hugh will cover this in some more detail, but if you look at the leverage, there's three points that matter. Roundup Ready 2 Yield in the U.S., the U.S. corn product strategy, and the trade expansion in Brazil and Argentina. All in, I expect global Seeds and Traits volume growth in the low-to-mid single digits in 2011. And the reason unit volume growth matters a little more than pure share metric is we can control what we sell, but we don't control the denominator of acres planted, although we do expect volume to be reflected in share growth at a global level. The benefit of that unit volume growth is that your portfolio remains pressured, you have less total loss lessons, so this is clearly a priority for us. On the Ag Productivity segment, we expect to deliver steady state gross profit in the range of $550 to $600 million beginning in 2011. This is largely in line with what we expect to earn in 2010, so there will be minimal contribution to gross profit growth in the coming year. But it is a significant step toward the predictability we see at steady state. We will aggressively look at the infrastructure supporting Roundup to make sure those support systems are in line with our steady state guidance. That process is underway, so we'll be able to give you an update on those actions on the fourth-quarter earnings call.

As we then move into the below-the-line items, the cost savings we've realized as a result of our restructuring actions have allowed us to institutionalize a reduced run rate in our SG&A for 2010. We continue to see those savings carrying forward such that we expect SG&A for next year will grow only at inflationary rates from this year's levels. On the R&D line, there's no debate that our R&D pipeline is our competitive differentiator and fuels the upside opportunity is our business longer term. We don't look at this line as a means to reach our earnings goal, and we'll continue to resource our R&D for success. To reinforce that commitment, we'll move to giving you a specific range for R&D spent rather than a metric that floats with sales. We'll lock this down in the fourth quarter for practically speaking, that range should represent an increase over our 2010 in point but at a growth rate somewhat lower than we've seen over the past few years. The last items in our guidance tasks more relate to cash flow. The most important task is to officially translate earnings into cash. I said we'd remain on track to deliver $400 to $500 million in free cash flow this year. This is still on track, as the fourth quarter is the primary collection period in the U.S. and drives our full-year cash generation. We'll discuss specific guidance for 2011 at our fourth-quarter earnings call, but I see cash generation rebounding to a significantly higher level as we see business growth and we drop off cash uses associated with our restructuring and with working cap requirements in the Roundup business.

Depreciation and amortization will be higher than what we expect this year in the $650 million range, reflecting investments made to expand our production capabilities in seeds and Roundup over the last few years. The remaining driver for free cash flow will be capital expenditures, which I expect will be in the $600 to $700 million range. This moves more in line with depreciation as we now have a fresh asset base. We expect mid-teens growth is going to put us on track to generate significant cash levels in the next few years. Our strong balance sheets puts us in a position to access capital if a significant acquisition will present itself, so we'll look to ways to more aggressively deploy the cash we generate directly to our owners with a priority on generating sustainable value over the longer term. Practically, we continue to see dividends as a priority mechanism to distribute capital for our share owners as we grow the business. We complement that with the share repurchase program focused on managing dilution now and in the future.

As you can see on Slide 7, we expect to complete our current $800 million authorization a year earlier than we expected, and as we announced last month, our Board of Directors approved a new three-year $1 billion plan to expect to begin in the fourth quarter. If you take that all in, what matters is how it forms our opportunity. As I wrap up, I tell you that from my vantage point as CFO, what matters going forward is that with the decision last month to fundamentally change the Roundup strategy to support our Traits business, Monsanto now effectively becomes a pure place Seeds and Traits company.

If you'll look at Slide 8, you'll see two things. The gross profit contribution this year for the entire Ag productivity segment would only be about 10% of our total. And as we go forward the natural growth in our Seeds and Traits business will make that comparative contribution even less material. That means that Seeds and Traits growth that matters. You'll see the historical perspective on our growth. If you focus that snapshot on the last couple of years, the Seeds and Traits business has been in line with our mid-teens growth trajectory. Taken in combination with our operational plans, that tells me that the opportunity is realistic and attainable. That means in the near term we shift our focus very intently to execution and on implementing our plan.

With that, let me turn the call over to Hugh, who will walk through the key business developments we're currently working on.

Hugh Grant, Chairman and CEO
Thanks, Carl, and good morning to everybody on the line. As Carl just noted, this is a period for our company where our execution matters. We've come through a number of business challenges in 2010, and we've made the difficult decisions that affected three of the decks for our path going forward. Practically, over the next year, we'll be a company that's clear in our priorities, does what we say we will, and lends credibility to our results. To that end, in the short time since we were last with you, there's been a lot of activity on a couple of critical areas that shape our plans and our near-term implementation.

On our second-quarter call, I told you that one of the things that informed our strategic decision-making was the direct feedback that we got from our farmer customers. As you'd expect, our dialogue with farmers is continual, and the feedback that we've been getting from the most recent conversations is encouraging. Fundamentally, the feedback that we get loud and clear is that new technology does create value, but they need more products at more price points to allow them to manage the risks that they take every day on their farm when they try out so many new products that come so quickly. The beauty of that aspect is that it's all within our control; we don't have to go out and invent something. We just have to take what we have and work with our customers. I think that's happening. And while I recognize that these are early qualitative indicators, I believe farmers are telling us that we're addressing the issues that matter and we're making progress. So if we take that as a step in the right direction, let me go from there to a couple of the other areas where we feel we're making some progress that moves us towards operationalizing some of the key factors for the 2011 season.

Let me begin with Roundup. On Slide 9, if you look at our quarterly financial statement, you can't miss the fact that we've begun to move on the actions that we outlined for you a little more than four weeks ago. Carl covered the financial relevance, so I won't belabor the details. I want to touch on how we see the strategy coming together. First, in the last week, the Chinese government has taken action to remove the value-added tax or VAT rebate on glyphosate. That's a good step forward, covering one of the two big areas of effective Chinese subsidies. This move is another signal pointing to the structural changes that we suggested would occur in an increasingly generic glyphosate industry. So in the near term I really don't see that changing our forecast or the strategy for Roundup. More importantly, a lot has been written lately about the pending demise of Roundup as an effective herbicide, and what that in turn means for our biotech franchise. I can tell you that's misplaced, and if anything, there's a new practical opportunity emerging. Basically, we've built Roundup as a centerpiece of simple affordable weed control. In the process, it creates the incentive for farmers to proactively get ahead of weed resistance broadly rather than reacting once resistance has become an issue. I think cotton becomes a bit of a case study for this strategy. Part of the reason that resistance has been delayed in cotton is because of the widespread use of multiple herbicides as a part of standard regimen. As we move forward in our Roundup positioning, this is exactly the practice that we will build on. We will wrap other active ingredients around Roundup to create a complete weed control system. With Roundup coming down in price, and with the ability to tier that with effective genetics, that means that for less than what you're paying for weed control today, a farmer gets a total weed control package that actually fights against weed resistance before its ever an issue. That simple, cost-effective weed control program then sets the stage as we transition into multiple modes of action via our next generation biotech traits. The leading edge of that is dicamba tolerance in soybeans. And the early indicators from this year's field trials continues to confirm for us that our dicamba control is excellent and will be an ideal complement to our Roundup Ready system.

If we move entirely to the Seeds and Traits side of the business, there's a couple of areas where we're developing some interim data points that inform how we're thinking about 2011. The first of these is in Roundup Ready 2 Yield where I believe we're seeing some legitimate momentum coming together which is captured in Slide 10. I recognize that the proof will be in the performance once farmers check the yield monitors this fall. But we're seeing an increasing number of players make the substantial bet that the performance will be there. There's no doubt in my mind farmers aren't betting against the technology since 40% of our U.S. brand customers are using Roundup Ready 2 Yield this year. But just as importantly, the industry is now validating the technology. Earlier this month, Dow (NYSE: DOW) signed on as a commercial licensee for Roundup Ready 2 Yield. They now join Syngenta (NYSE: SYT) as another major soybean player who has the chance to evaluate both Roundup Ready 2 Yield and the competitive options and voted to go with Roundup Ready 2 Yield. And these are decisions that they've made with data that they've generated independently using competitive comparisons. Between these companies, our brands, and our licensee partners, more than two-thirds of the soybean industry has embraced the new Roundup Ready 2 Yield platform. Likewise, just a couple of weeks ago, an independent insurance provider in the Ag sector unveiled that the biotech yield assurance program for 2011 built on Roundup Ready 2 Yield. This is a nice incentive for farmers to try Roundup Ready 2 Yield. More importantly, when you make your living on the risk calculation on (inaudible) for crop performance as these guys do, it takes a lot to show this level of support. So the fact that they've made the determination that the yield advantage is statistically strong enough to expand greater coverage, it's another signal, I think, that the industry isn't treating Roundup Ready 2 Yield as a possibility, but the likely industry platform going forward.

There are certain big areas within our U.S. corn product strategy. I mentioned that I felt like the feedback that we've gotten from our customers has been encouraging. And I'd say that this is particularly true when it comes to the feedback on our corn product strategy. If you go to Slide 11, I dare say that nobody else in this industry can offer a family of reduced refuge products in the form of a double stack, a triple stack, and an all-in-one 8-gene stack. This is a truly differentiated product portfolio, and to be clear, I continue to expect that because of that technological differentiation, we will be the premium priced seeds. Increasingly, that value proposition is really us versus us, rather than us versus the competition. So our implementation is focused on getting our relative value propositions against the current products right from the draw.

Going forward, we expect our differentiated products will become even more differentiated with refuge in a bag or RIB. The reality is these products would represent the industry's only single bag RIB option. In fact, I'm happy to be able to say that in the last few days, we've submitted an application to the U.S. EPA for a 5% RIB for VT Double Pro in the Cotton Belt. That means pending EPA approval, we expect to make the leap from refuge reduction to RIB in both SmartStax and Double Pro beginning in 2012. That's important, because the refuge matters to farmers and it ensures the durability of the technology. Planting and managing the refuge is complex and it's inconvenient. But we've just completed new market research that indicates that 97% of growers who use insect-protected corn do plant refuge acres in some configuration. And maybe more importantly, almost half of the farmers indicated that they would be likely to switch brands to get a 5% RIB product because of the simplicity of a single bag solution.

Directly related to that corn strategy as well as Roundup Ready 2 Yield momentum is our pricing approach. To be blunt, I recognize that one of the biggest areas of outstanding questions revolves around our pricing. In the last couple of weeks, we've ruled that out. We've ruled out our initial trait pricing to our seed licensee partners. So we've taken the first step on this pricing journey. And to be fair, we've intentionally played the specifics of our pricing strategy closer to our vest, because that's an advantage that we don't need to offer our competitors.

But if you go to Slide 12, you'll see we've given you an index look at the gross profit per equal expectations for our complete corn product strategy. This is the all-in bag price index from our 2010 triple stack and weighted across our zones. It's a bit of a modeling aid, and it's more directional than it is absolute. But more importantly, I think it illustrates a couple of key things. Most importantly, we've done what we said we would. We'll generally keep prices in line on our triple stacks. We've narrowed the premiums for SmartStax to recognize the up-front risk sharing. And we're inserting new products into the value ladder. The same basic premise holds in soybeans. We've made the adjustments to our pricing approach for Roundup Ready 2 Yield that gives farmers the incentive to make the leap from Roundup Ready One. Generally speaking, we'll give farmers the option of choosing the seed treatment, and we'll adjust the premium to be closer to Roundup Ready One. These are steady state ranges, so you'll see that we'll realize a stat change in the margin contribution from SmartStax and Triple Pro over our triple stacks offerings.

In 2011, you'll actually carry in about a million acres of SmartStax at the higher cost position for this year. The margin uplift then will be a bit muted while the launch costs and the carrying inventory work out through 2011. That will put SmartStax at somewhat below its steady state landing point this coming year.

And that leads me to a quick word about production. By calibrating how we deploy this family, we will be able to maximize our summer production for each product while minimizing our higher cost winter production. The benefit is reflected in our margin progression where we'll get to these steady state ranges in 2012, a year earlier than we would have with greater winter production. With this production approach, we stay on track for a significant rampart across the SmartStax family, hitting mid-teens total acreage in 2011. So in terms of the addressable opportunity and our first real year of having this family approach, we will replace almost half of our flagship triple stack acres. From there, the beauty of this production approach is we can then use this year's farmer purchases and grower feedback to inform how we rampart each product within the family for 2012 without having to do any extraordinary production.

So if you take all of that together, you get exactly where Carl indicated we'd be, even with multiple price points across the market. The average margin that we'll realize goes up. Since we were never going to take SmartStax to every acre at equal prices, that average margin benefit is the reason that matching the cost position to the market segment makes good economic sense for us and, more importantly, for our grower customers. And if you build in the direct feedback from farmers with the feedback that came from our licensee partners recently, I'll tell you that the product strategy and the placing approach were well-received. It's still early communication, but the feedback suggests that we've been responsive and that there's some excitement building moving forward.

So as we wrap up, I'd step back and I'd recognize that as good as you can feel at this point, a lot of this only really matters once growers see the products perform and start voting with their purchases. But if I end where I began, our task is executing on the operating plan. Those purchases are born of a lot of the work that gets done well before seed ever reaches a bag. And in that regard, I feel good about a couple of key things. Firstly, we've done what we needed to do with Roundup, and we'll now focus on using our crop protection business to support Seeds and Traits. And secondly, with the experience and the agility, the user products, and our leadership, to use 2010 as a pivot point to create mid-teens growth opportunities. So with that, we'll turn the call back to Bryan and look forward to your questions.

Bryan Hurley
We'd now like to open the call to your questions. As we typically do, I'll ask that you please hold your questions to one per person so that we can take questions from as many people as possible. You're always welcome to rejoin the cue for a follow-up question. With that, I think we're ready to get started.

Kevin McCarthy, Bank of America Merrill Lynch
Good morning. I have a two-part question on seed pricing. First part would be, what is the all-in pricing assumption that is embedding in your forecast of double-digit growth in the season genomics platform in gross profit terms for fiscal 2011? And the second part would be, more specifically, you've had some preliminary talks with your licensees at this point; I was wondering if you could comment on the magnitude of the reduction in the premium both Roundup Ready 2 Yield seed and SmartStax, if those premium were X last year, would they be half of X or more or less? That kind of color would be helpful. Thank you.

Hugh Grant
Kevin, good morning. So I'll maybe cover the second piece and let Carl cover the first. The feedback from licensees - and you have to be so careful at this time of the year, and so we're going to be probably more cautious than we have been traditionally. But the feedback from licensees was very encouraging, because they felt that they had been hurt. So on SmartStax versus triples and on Roundup Ready 2 Yield versus Roundup Ready One, and being as we took out the - we gave growers the optionality on seed treatment, it's my expectation that many of them will go ahead and use that seed treatment. But it's their option now. And that move in itself reduces the premium by about half from where we were previously. It reduces the premium from about $20 to about $10, and then we skinny down a piece of that remaining $10. On SmartStax, you know, ballpark, half or more wouldn't be too far away. It's probably in the region of about - moving towards that magical number of 1/3 to 2/3 value share. So as we migrate within these premiums and we look to corn pricing, the clear feedback that we got and all the modeling that we did after the fact, and we've tried our best to drive that 1/3 - 2/3 value share, and I anticipate that that's going to be received well as we run into this fall. And then your first question, Carl.

Carl Casale
Just in terms of general pricing trends, Kevin, you know, you talked about basically the trade platform, but the other thing that impact the price benefit are the mixes set for year will be - you know, we will launch our new best hybrids, obviously at a premium to what they're replacing. But the nuance and the effect is it's just not the delta between next year's price and the previous year's price; it's the delta between next year's price and the 4 or 5 year old hybrids that they're replacing in the portfolio. So you get a nice live-through as well. So there's a mix effect in combination - a mix effect on the genetics, as well as the mix effect on the trait upgrade that Hugh mentioned as well.

Kevin McCarthy
Just as a quick follow-up to that. As I think about first generation soybeans and triple stacked corn, would it be your intention to hold prices stable for the first generation or prior generation products or make an adjustment?

Hugh Grant
Broad philosophy, we would anticipate holding them pretty stable, Kevin. We get one or two geographies we need to do a lot of that cleanup. We'd hold stable and cue off that.

Vincent Andrews, Morgan Stanley
Thank you, and good morning everybody. I guess my one question is unfortunately going to be - You know, I'm looking at the Roundup gross profit though 9 months, and it's minus 103. And you're still talking about doing $50 to $200 million for the full year, and you didn't narrow your guidance range, which for a quarter as small as 4Q seems pretty wide. So I guess I'm just wondering how you're going to do what looks to be $150 of GP at least in Roundup in the fourth quarter?

Hugh Grant
Vincent, good morning to you. You're right. The last quarter, as it's been for a long time, the last quarter has ebbs and flows and runs up in it, and we're unevenly distributed because a lot of our branded business falls in the back end of the year. And you see Brazil and Argentina wakening up again in the back end of the year. So Carl, maybe a little bit of color on what that spread looks like and how we see the Roundup business unfolding.

Carl Casale
As we look at Roundup, Vincent, for the fourth quarter, I'd say there's probably three big variables that are going to drive the performance for the business. You just mentioned one of them, which is we're very front-loaded with our supply business in the first half of the year, and we're back-loaded with the brands on the second half, and obviously, which commands higher prices. The second is - the intention is that the producer will benefit from our new pricing predominantly in FY11 but not yet in 10. And then the third one is the timing of the remaining actions around repositioning of the Roundup business. But those are kind of the three moving parts that are going to generate that range and that outcome. And that's why that range is still wide.

Vincent Andrews
But you're still very comfortable that you can do north of 50 in the fourth quarter?

Carl Casale
We're comfortable with the $50 to $200 million range for the full year on the Roundup business.

Vincent Andrews
Ok, I'll pass it along. Thanks so much.

Jeff Zekauskas, JP Morgan
Hi, good morning. Can you update us on the percentage of corn and soybeans sales that you sell in North America relative to what you sell offshore; what your expectations are for 2010?

Carl Casale
I mean, just rough numbers in terms of impact on the business, it'd be probably two-thirds North America, one-third rest of the world. And if you include Latin America in that, you'll probably get north of three-quarters, Jeff, in terms of where our corn business is.

Jeff Zekauskas
And then finally, Carl talked about a number of extra charges that you have this year. But I would imagine that total management compensation expenses, the bonus expense, is probably down this year. So what's the delta in terms of compensation expense for 2010?

Hugh Grant
It's going to be significantly down, Jeff. We haven't broken that out, but given our results and the performance this year, it's going to be a very thin year for bonuses and comp.

Carl Casale
Jeff, this is Carl. The way that I think about that, you know, kind of in forming 2011, our SG&A guidance that we just gave for 2011, which is inflationary above our current run rate of $2 billion to $2.1 billion, would include a more normalized run rate on incentives embedded within that. So in anticipation that we're going to achieve the desired performance within the business and pay incentives at the target level. Again, that's inclusive in that guidance.

Jeff Zekauskas
OK, thank you very much

Hugh Grant
And the only other piece that I would add, Jeff, so the one-third, two-thirds split is really rough. The piece that gets masked in that is the emerging technology penetration in Brazil and Argentina. We've seen a really, really fast ramp on singles to doubles, and after 10 years we're seeing Brazil approving products at a pretty rapid clip. So that traditional mix will change as we see patentfication in those cotton markets.

PJ Juvekar, CitiGroup
Good morning. You know, as you lower prices for SmartStax and Roundup Ready 2 Yield, can you give your acreage expectations for those products? I mean, do the acres go up as you lower prices?

Hugh Grant
PJ, I think if you look at cotton first, we are moving - You know, I made the comment on us versus us and us versus competition. And a piece of this work is being narrowing of Kevin's question, narrowing the premiums between our product offerings and in certain additional products in there. So the way we're - with the news today that we've now submitted for a double stack with refuge reduction, we're thinking about that family of refuge reduction products with narrowed premiums between that range to drive, file, and adoption. We just planted our production acres in the last few weeks, and I'd say in corn, if you look at that whole family, and mid-teens acres projection for the coming year, and we've got a little bit more concern about the winter production because of the dramatic effect that it has on margin lift. So I think trajectory-wise that we're going to be in the zone. On soybeans, a lot of this is going to be based on what we yield that was production and acres this year. But we're saying mid-teens for Roundup Ready 2 Yield. And it's hard. I think we learned a lesson last year. It's been a warm wet season that's had spectacular growth. But just like farmers, I'd feel a whole lot better with another 6 to 8 weeks under my belt before I plan on what are yields are going to be.

PJ Juvekar
And you know, you said that you're going to hold the base pricing on your products. My guess is that your competitors are going to react. They're not going to make it easy for you to take share. So what are you building in for that, and is there any risk that the entire pricing curve in the industry comes down?

Hugh Grant
I can only speak to my products and my strategy. So what they choose to do is their call. I think, from the research that we've done and conversations that we've had, the key for us is to drive adoption and encourage growth, put your toe in the water and try these products. And when we get to that - So we've moved - as you know well, we've moved a 50-50 value share. As we dial back to one-third, two-thirds, I believe that we will see grower adoption, and with grower adoption and the performance of these technologies, we should be in good shape. So in each one of these segments, PJ, we will continue to be the premium price product. So from the perspective of what happens if price spirals, I think we will continue to be premium priced in every single one of these segments, because our performance. And if you think over the last couple years, with flat share growth in corn, we're about a third of the market. Our biggest competitor is about a third of the market. And the remaining companies are the remaining third. And despite price disparity, we held share. So the share growth from our biggest competitor came from others. So I think we've done a ton of work in this. We're still operationalizing it and rolling out or sales teams. But the key for us is sharing the value that we're creating aggressively, and I think that prompts growth despite our premium prices.

PJ Juvekar
And I'm just looking for a clarification. You said that you got rid of dealer incentive programs on Roundup. I just want to make sure I understand that you are keeping the Roundup rewards program, or are you getting rid of that as well? Thank you.

Carl Casale
PJ, this is Carl. You know, a key component of the revised or reset Roundup strategy is that when you get pricing approaching generic levels, but you continue to provide the benefits or Roundup rewards, which we will, that makes that a pretty compelling offer relative to the alternatives that are out there. So given that in the Americas the purpose of Roundup now is to support our Roundup Ready franchise and Roundup rewards is an integral part of that, you know, we will be maintaining it. In fact, we'll be looking for perhaps ways to enhance the offering going forward.

Robert Koort, Goldman Sachs
Thank you, good morning. Could you talk a little bit about what you think a farmer would need to see in his SmartStax performance this year to embrace the product and want to buy more next year?

Hugh Grant
So he's looking for a yield improvement over his triples? I guess two or three things. He's looking for a yield improvement over his triples, and he knows that he has bucks in the field even though he hasn't seen them for the last couple of years, so he's anticipating a - he's hedging on normalized weather, and he's looking for the performance in new hybrids that he hasn't seen. The other piece, Bob, as you talk to these guys, a lot of them are maxed out on refuge management. They've taken triples as far as they can on their farm, and he's looking for the edge on refuge management. But the awareness amongst that community on RIB in 2012, they are absolutely focused on it. So I'd say it's yield, it's a quick peak on our new hybrids, which he still hasn't really had the feel for, and it's that next level of refuge management. Carl?

Carl Casale
Yes, I think that's exactly right. I mean, the way that a farmer's thinking about it, and with what we've done with our premiums, you know, a farmer doesn't need to see more dead bugs in SmartStax versus triples, they just need to get the benefit of the refuge reduction which we've built in, regardless of whether it's a wet year or a dry year. So in anticipation of refuge in a bag coming in 2012, you know, with what we've done with our premiums, if there were no additional benefit other than just refuge reduction, this is a pretty compelling opportunity for the farmer.

Robert Koort
And can you just refresh my memory, how many unique isolines were developed for this year on SmartStax versus taking the existing triple and adding any of the SmartStax trait package, and then what does that look like as you go into 2011 in terms of numbers that are available?

Carl Casale
The SmartStax were basically new isoline conversions. It's a different product than what the triple product was in the marketplace. Basically, about 40% of the genetics in SmartStax this year are brand new genetics that aren't shared with the triple stack product, Bob.

Robert Koort
How many numbers did you have - how many specific hybrids were out in '10 for these trials, and how many do you think will be out in '11?

Carl Casale
Yeah, we had dozens this year and we'll continue to ramp that up so we're not constrained by basically '12, '13-ish we should have full availability across the whole portfolio.

Sandy Klugman, Cisco Hanna Financial Group
Good morning. A question on Roundup Ready pricing, how is the increased incidence of glyphosate-resistant weeds impacted the perception that farmers had surrounding the value of the the Roundup Ready trade in corn, soy, and cotton? I understand you've reimbursed some farmers for the cost of additional herbicides to control pigweed in cotton. As a follow-up, what impact will this have on your per-acre returns on Roundup Ready cotton, and do you anticipate extending this practice to any other crops?

Hugh Grant
Sandy, thanks for the question. I'll start and I'll let Carl comment. I think, so there's been a lot of coverage on the whole Roundup resistance conversation. Let me try and frame this for you. It's predominately an issue of the South. Not exclusively, but predominately, and within the South it's predominately an issue in cotton. So we see very little incidence in corn, and the reason that you see very little of it in corn is the range of chemistries that are applied in corn. And there's a lesson and a learning in that. It's emerging in soybeans particularly in the South, and cotton is the first piece of work to be done. Our strategy - so directly at your question on how does this influence this - the grower is looking for help. And that's why I think there's an opportunity here and it's the emergence of a new category. And what we are going to work on is defining a handful of products, and by a handful, I'm thinking half a dozen products, of which we have two in glyphosate and in (inaudible). And those will become the base treatments to manage resistance before it becomes a problem. And the key in this is offer the grower those half dozen products at affordable prices, and I think if we can give them advice, we can drive price discovery and we can help educate that grower on to fight this rather than using expensive bundled materials. You get a long way down the path in solving this in cotton, and head off of the path before it becomes an issue in soy. So that's a piece of go-forward strategy on how we manage Roundup, how we link that to Roundup rewards, and how we help the grower with affordable solutions.

Sandy Klugman
That's helpful. Thank you. If I could just ask a quick follow-up on SmartStax and RR2. You know, we've seen at least in Illinois some indications that we've returned to the more normal root worm infestation levels. Can you comment in any of the other key growing areas what you're seeing and how this will likely impact the yield performance versus the VT triple? And similarly, for RR2, has white mold been less common this year, and if so, are you anticipating that that's going to help you yield results in RR2?

Hugh Grant
With a caveat of Scottish optimism, Sandy, in - so white mold is a problem in cold, wet years, and this year it's been wet with a lot of moisture, but it's very warm. So, so far, we haven't seen any incidence of mold emerging. It's a little like a more normalized year. And so far, on early, early buck accounts, as you make the point in Illinois, we're seeing a slight elevation. But I'm - as I said to an earlier point, we're growing our own seeds right now. It's really, really early in the season, so it's probably - You know, from some of the early reads we're seeing, ear worm could be every bit as much a problem as cotton root worm, but there's every play at force. So you can say at this stage we know we're not losing, but it's a bit early to declare victory though.

David Begleiter, Deutsche Asset Management
Now you've dialed back on the value captured to a third. Can you start walking up that value capture model in 2012 with higher pricing, and can RIB be an enabler of higher pricing starting in 2012?

Hugh Grant
David, thanks for your question. I'd like to deliver on '11. I think we owe our owners that and we owe our farm customers that. So I think the key for us in this is we placed our bets a few weeks ago on seed that we're producing, and as you say, we've dialed back - I'd actually say we've advanced our thinking and we discovered the one-third, two-thirds value share. And with that, I think we improved our sentiment and reputation with growers, and we win on those head-to-head tests. In 2012, RIB, I think, has the capacity to be a game-changer, and growers are anticipating that. And right on the back of RIB, particularly, you know, having applied for the double-stack RIB product a few days ago, that becomes the early flagship for drought. So I'll tell you how I'm thinking about '11, '12, and '13, is how do we continue to drive unit volume growth? How do we continue to satisfy growers? And how do we deliver innovation on these two new platforms? And the platforms will be RIB and Roundup Ready 2 Yield in beans. And I think it's way premature to be talking about, you know, are we going to be walking prices up. I'd just like to regain the momentum that we lost in the last two years.

David Begleiter
But with this longer term, do you think farmers are still willing to share half the value with you, longer-term on your technology?

Hugh Grant
I think the end points on the value that we create are exactly the same. I think how we get there is probably a more regulated march. But if I take to you to 2013, one side of the house you've got RIB across all your major products, and you've weathered drought on it and you've delivered yet another increment of yield. And on the other side of the house, you've got soybean business that looks a lot like corn because of multiple stacks, so then you have soy with dicamba and a yield gene in that 13-14 pound frame, and we should be first pick for the grower because we deliver more increment or yield than anybody else. And it's kind of the algebra of if that, then what? I think job one for us is secured in the (inaudible) yields, and then we can talk about that, David. Thank you, it's a great question.

Lawrence Alexander, Jefferies & Co.
Hi, this is Lucy Watson on for Lawrence today. Would it be possible to quantify by segment the cost savings that you've achieved so far from restructuring actions?

Carl Casale
Basically, we share SG&A across the enterprise. If you look at the actions that we did a year ago, those were predominantly directed at some -- you know, the direct SG&A support of the Roundup business. What we're looking at now is basically the things that I would call the supporting SG&A that's associated with the business, and those will be the areas that we're looking at right now for 2011.

Hugh Grant
Carl, a few words about how you project SG&A going forward, because it kind of ties with the incentives questions. We're king of looking at flat SG&A in a year-to-year basis, so we fundamentally shifted that, but with the exception of some cost of living increases, it's flat, right?

Carl Casale
Yes, so as -- We're basically at $2 billion to $2.1 this year, we're basically saying inflationary growth on top of that. But if you look at the big benefit that we got from the restructuring we took, it fundamentally changed the slope of our run rate. And we just now fundamentally spend less as a company than the path that we were on in 2008. And if you look at that, you know, the delta between those two run rates over time, there's a huge, huge SG&A avoidance benefit for the company.

Lucy Watson
OK, and just a quick follow-up on corn, if I may. With the -- I guess, large step change in your branded portfolio to 75% triples and SmartStax, it looks like corn gross profits were still down about 10% year-over-year, and I know there were some launch year costs and restructuring in there. But I guess would you just be willing to walk us through the year-over-year bridge in a little bit more detail?

Hugh Grant
Yeah, sure, that's a great question. I think if you -- and I'll maybe ask Carl to just give a brief dissection of this. But were it not for some of the actions that we took this year in corn, we would be exactly in line with our expectations. So we took a series of actions that I think clears the decks for 2011 growth. And they were largely conscious and they're all one-time actions that I think set us up nicely for next year. But Carl, maybe just kind of highlight on what they were and how they reflect on the margin.

Carl Casale
Sure. So the way that I think about it is, about $120 million in actions at one time, as Hugh said, that affected the gross profit line for the business in corn this year. The composition of that $120 would be roughly one-third some corn hedges that we had that we changed -- basically a loss to have lower cost of goods going forward. And then the other third -- or I should say another third was our domestic corn portfolio to reshape it for the smart stack family going forward. And the other third is largely international corn, predominantly Brazil, as we transition our portfolio in Brazil from our first generation single trait to our second generation single trait down there. But again, those are one-time effects that we had this year to position the business for growth for 2011.

Hugh Grant
So again, I'd just like to thank you for joining us this morning. I think with everything we've come through, this is a pretty straightforward quarter to our report, and that's a good thing. So there's not a lot of news, there's not a lot of new data points. But I guess there's three things that I would leave you with in a quarter like this. First, with the Roundup repositioning, we've made a number of significant decisions, improved the predictability of our business performance in Roundup, and I believe a straightforward quarter is the first step in the right direction. Secondly, it's a year where we made adjustments, and I'm personally encouraged with the feedback from our customers, albeit on an early read on those adjustments and the course that we're on for next year. So it doesn't guarantee success, but I think that's some very good early indicators. And thirdly, we have some work to do closing out 2010. As a team, we're increasingly turning out attention to 2011, and I feel very good about the product plan, the pricing, the operational focus, and the opportunities going into 2011 for our prospects in delivering consistent annual earnings growth in the mid-teens. So we hope that many of you will be able to join us in August for our whistle-stop event which this year is in Nebraska, to see both our current products and some of our pipeline technologies in the field. So until then, thanks very much for your support and for your time this morning.