Monument Circle Acquisition Corp (MON)

[DewDiligence]

MON’s 27-May-2010 PR for archival purposes. I commented in the
bottommost paragraph on the implicitly lowered LT guidance for
the seeds & traits segment.

http://finance.yahoo.com/news/Monsanto-Repositions-Roundup-prnews-3511516505.html?x=0&.v=1

›Monsanto Repositions Roundup Business to Address Fundamental Market Changes; Adjusts Fiscal Year 2010 Guidance

• Actions Adjust Fiscal-Year Ongoing EPS Guidance to $2.40 to $2.60 and Revised Free Cash Flow Guidance to $400 Million to $500 Million

• New Business Model Creates New Category For Weed-Management Focused On Seeds-and-Traits Growth

• Company Continues to Expect Mid-Teens Annual Earnings Growth Beginning in 2011 Driven By Seeds-and-Traits

May 27, 2010, 8:30 am EDT

ST. LOUIS, May 27, 2010 /PRNewswire-FirstCall/ -- Monsanto Company (NYSE:MON) today announced it is repositioning its Roundup® business in the face of fundamental structural changes that have caused upheaval in the glyphosate industry. Focusing its glyphosate products on supporting the core seeds-and-traits business, the company plans to drastically narrow its Roundup® brand portfolio to offer farmers a simple, quality product that meets their needs at a price closer to generics.

"By reducing the uncertainty associated with Roundup, we free Monsanto to grow on its fundamentals," Chairman and Chief Executive Officer Hugh Grant said. "What matters to our long-term growth is our seeds-and-traits business, which is on track."

Grant indicated that the company has initiated a series of actions that are expected to cumulatively reduce the ongoing earnings per share (EPS) contribution of the Roundup® business in fiscal-year 2010 by $0.50 to $0.70. These near-term actions include lowering prices on volume for the 2011 season and accelerating payment on certain distributor and retailer incentives to close out multi-tier brand support and speed the transition to the new brand strategy. The company also stated negotiations to resolve breaches of contractual obligations by two major supply customers have been unsuccessful to date.

The company's ongoing EPS also reflects the acute effect of an abbreviated burn-down season in the United States that limited the opportunity for sales in the third quarter. The company now expects fiscal-year 2010 earnings per share to be in the range of $2.40 to $2.60 on an ongoing basis [i.e. non-GAAP] and $2.15 to $2.41 on an as-reported basis [GAAP]. With the changes in guidance, Monsanto now expects ongoing EPS for its upcoming third-quarter to be in the range of $0.75 to $0.80, and $0.65 to $0.72 on an as-reported basis.

The company's free cash flow guidance reflects the proportional decrease in contribution from the Roundup® business and is now expected in the range of $400 million to $500 million. The updated free-cash flow guidance is inclusive of the after-tax cash effect of the company's previously announced restructuring.

Redefining the Segment

Grant said the company acted once it had confirming data from the early U.S. Roundup® application season that the industry had undergone fundamental structural changes. Among the driving structural changes in the industry Grant noted are systemic margin compression in the distribution channel attributed to sustained oversupply of glyphosate and the reality that Chinese glyphosate capacity is profoundly overbuilt.

To address these issues, Monsanto is revamping its glyphosate business, pricing Roundup® nearer to the level of generics and simplifying its product offerings. In key segments within large markets like the United States, the company will move to a single-brand strategy, using resources to promote a single brand rather than splitting them among multiple tiers.

The company also is creating a new offering of solutions to address the need for a simple weed resistance package. It will work with key U.S. distributors to combine a simplified Roundup® brand with a package of complementary chemicals to create an affordable and easy-to-use weed control regimen.

"There's good news for farmers in all of this – we're going to bring simplicity to weed management," Grant said. "Weed resistance is real, but managing it doesn't have to be complex. The right tools exist today, and we're going to make it easy and more affordable for farmers to access those tools as a package, with Roundup as the cornerstone."

Outlook

With these structural changes, Monsanto now expects the ongoing gross profit contribution of Roundup® will be in the range of $250 million to $300 million per year. This brings total Agricultural Productivity gross profit to $550 million to $600 million. [I.e. the non-Roundup portion of MON’s chemicals segment will generate $300M of gross profit.]

The company continues to project earnings growth from the adjusted 2010 base in the mid-teens going forward, reflecting growth in the seeds-and-traits business. [It’s somewhat disingenuous to use the word “continues” in this context because MON has implicitly lowered the growth guidance for the seeds & traits segment. I.e., if growth guidance for seeds & traits remained the same, the lowered contribution from the chemicals segment should have led to an increased growth rate for the overall company.]‹