An important attitudinal shift regarding guidance ....
In the Q2 CC, Hugh Grant not only backed away from the FY2012 guidance, but more importantly , he backed away from detailed long-term forecasts altogether...
Relative to the implicit non-GAAP EPS guidance of 13-17% year-over-year growth, Hugh Grant’s comments in the Q&A suggest to me that this is his expected long term average; he is not committing to those numbers for FY2011 and FY2012 in particular:
<Q – Vincent Andrews>: I guess my one question will be, can you help us understand what the base is for this mid-teens EPS growth? And I think in particular what I’m talking about is that – let’s just assume the number for 2010 is $3.10. You’ve got 150 million bucks at least of Roundup make-goods in the channel that, if I’m correct, don’t reoccur next year. You’ve got this charge now for this SKU rationalization in corn. You’ve got some SG&A savings coming in. And then you’ve got some winter production costs that it’s unclear whether they’re going to – how much if any of them are going to recur next year given the So can you help us understand -- and you also have a corn hedge -- can you help us understand what the actual base is for this mid-teens growth? <A – Hugh Grant>: Vincent, good morning. Thanks for the question. Let me try and frame how we think about mid-teens at this part in our planning process, and then I’ll maybe ask Carl just to talk about some of the chapters in the book that you describe. As we think about mid-teens, we’re thinking about 13 to 17% as our band for growth. Some years’ll be stronger, some years will be weaker, but that’s the kind of spreads that we’re looking at going forward. And I think it’s important to call that out, so that you’re not guessing what we’re thinking about here. So that’s the kind of spread. You’re right that there’s a number of moving parts in this year, some of which don’t reoccur next year. I’ll maybe ask Carl just to do a kind of broad dissection of some of the areas that you described.
The attitudinal shift towards more ambiguity in guidance and less specifics when discussing anticipated metrics was notable in the following three exchanges in the Q&A:
<Q – Jeff Zekauskas>: ....And secondly, in changing your longer term target from a gross profit target to an EPS target, I guess when I try to translate it, it looks to me like you’ve cut your 2012 gross profit target by about 1.6 billion from maybe 8.7 to about 7.1 or – so is that correct order of magnitude or is that not correct? <A – Hugh Grant>: And Jeff, on the second piece, the 1.6 just in an order of magnitude approach seems high, seems very high. So we – I think as we – I think today’s conversation is we’re going to back off our commitment on doubling. We’re going to have a completely different product strategy around our seed business, particularly in corn. We’re going to revert to our tried and trusted approach on penetration pricing to drive earlier adoption. But your 1.6, if you take the 13 to 17 and layer it on top of 3.10, feels tough. I’ll tell you from the school of hard knocks, I don’t think you’re going be seeing us laying out long time targets. And the wisdom of saying let me tell you where I’m going be in five years time, we’re kind of re-trenching from that today. We’ll give you some metrics, we’ll give you some guide posts, we’ll give you some of the key drivers. I think the cockpit’s going to have a lot fewer dials on it going forward than what we’ve done in the last couple of years.
<Q – Jason Yeung>: So, question on just guidance in general going forward. When you kind of look back at the history of guidance, how much of a competitive disadvantage do you think it’s given you, kind of in certain instances, and the one that kind of comes to mind that I think about is, it might have been 3 or 4 years ago when you laid out this, we think that Roundup sustainably can be a $1.8 billion gross profit business. It’s the future. And if I’m sitting in Western China I’m thinking, “Ni hao ma, let me go turn on the glyphosate plant right now.” <A – Hugh Grant>: Yeah. I think the “Ni hao ma,” was absolutely right and it kind of ties with the previous question on how many dials do you need in the cockpit. So we’ve said this morning that we started our planning process a little bit more than two months early. As we are working through that, we are critically conscious of how much of our hand we have to play to give you an indication of how we’re thinking about this revitalized approach. And on the flip side, how much our hand we have to show that is the playbook for our competition. And I think we’re going to be much more conscious of that, Jason, going forward. Particularly as we pivot a new pricing approach and pivot a new product strategy. And I know that’s going to frustrate members of your community but it’s the right thing do for the long term health of the business.
<Q – David Begleiter>: Thank you. You – just on the SmartStax pricing, versus the $130 acre price you referenced last August, what price would you have had to have this year to realize your launch targets? And can you ever get back to that 130 per acre price you referenced last August? And if so, how many years will it take? <A – Hugh Grant>: So, David, I think that’s one that we would reserve judgment on and we’ll give you some indicative pricing on it but it kind of ties in with 2 or 3 of the previous questions. We’ll get this year’s – we sold SmartStax, we saw some of the natural discount at year end through the trade as the last of that was sold out. But the focus now is getting it planted and seeing what the yield benefits are. And I think rather than me giving you an absolute price – we’ve done a ton of research on this, but I’d rather lay out what our product strategy is and start coloring in the map on those value ladders than be leading with my chin in this relative to my competition right now. <Q – David Begleiter>: Understood. Thank you. <A – Hugh Grant>: I hate to be coy but you can put that in the coy category, that one.
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