Monument Circle Acquisition Corp (MON)

[Democritus_of_Abdera]

Re: Reconfirmation of Guidance...

It is true that Monsanto constantly reconfirms the 2007 guidance for 2012 profit targets; i.e. that it will double the gross profit line between 2007 and 2012 and that it is still on track in 2010. The 2010 reconfirmation suggests that the larger than expected drop in Roundup revenue likely will be compensated by a larger than expected increase in Seeds & Traits revenue.

But more important with respect to near term price action, MON has been trying to reduce/adjust expectations for some upcoming financial comparisons. In particular (with quotes from Carl Casale’s Recent Biennial Investor Event presentation):

1. earnings will be lower next quarter (year-on-year) ...

There’s a couple other points I’d like to make about how the year is going to unfold. And the first is just the sequence and timing of earnings throughout the year. With the Roundup reset what we’re going to see is more of a return to our historic pattern of earnings, which is basically breakeven to a slight loss in the first quarter, virtually 100% of our business done in the second and third quarters roughly split 50-50 to perhaps 60-40 second and third and returning to a loss again in the fourth quarter.

2. there will be a dramatic drop in cash flow next quarter (year on year) ...

So as we think about the year right now although our order book is very, very strong, really we’re going to get a much better line of sight on how the business is going to unfold as we move into the second quarter. The other point that I’d like to make is on cash flow for the first quarter. Last year we generated or had a source of approximately $128 million of cash. We’re anticipating that the first quarter of this year will be a use of cash on the order of $1.8 billion. ... we’re not going to have the operational benefit of that [Roundup] as we look into 2010 ... we’ve actually shortened our selling terms to some of our customers and ... what that’s done is move cash from the first quarter into the fourth quarter.... we have basically partnered some of our customers directly with commercial banks for financing. And so we don’t have the benefit of that cash nor do we have the use associated with it..... a year ago we received the proceeds from a Posilac business divestiture, which was $300 million. And of course that was a one-time event, which isn’t going to be repeated as we look to 2010.

3. there will be an increase in receivables and reduction in inventory next quarter (year-on-year) ...

Now what we’re going to see in 2010 is we will see a slight increase in receivables, that’s by design because as I mentioned earlier, we want to re-establish our position in the Roundup business. We’re going to sell more volume than we did a year ago, and that’s going to generate a higher level of receivables. However, at the same time, we’re going to see reduction in inventory year-on-year. And that’s a function of two things. We are going to reduce inventories as we transition from Roundup Ready 1 to Roundup Ready 2 Yield and we’re also going to see reduction in inventories as we transition from our Triple Stack products to our SmartStax products.

4. there will be decrease in operating cash next quarter (year-on-year) ...

Now a lot of times you correlate growth particularly in emerging markets to increases in working capital, but I go back to the example that Brett used. Brazil has been a high-growth market for us now for some time. It’s going to be a high-growth market for us as we work through the rest of this operating plans for 2012. Brazil also has a lowest day sales outstanding in the company today. So you can’t manage this growth through strong discipline in receivables and inventory without having to compromise the results and of course that obviously then allows to translate earnings growth into operating cash.