Monsanto's Pricing Strategy Withers on the Vine
KELLY EVANS
Wall Street Journal, APRIL 7 2010
http://online.wsj.com/article/SB10001424052702304172404575168382041917708.html?mod=googlenews_wsj

Monsanto Co.'s earnings on Wednesday should be served up with a slice of humble pie.

That may make it easier for investors to swallow what are likely to be lackluster results from the herbicide-and-seeds giant. Analysts expect earnings of $1.73 a share for the three months ended February, down from $2.16 the prior year, while revenue likely fell 2.5%, to $3.94 billion.
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And Monsanto's investors already have had to stomach a lot. Its shares have fallen about 15% this year while the market has rallied. Monsanto's shares are trading at less than half a mid-2008 peak of about $142.

The reversal of fortune partly reflects the global recession and sharp drops in prices for crops such as soybeans and corn over the past two years. Farmers' demand for seeds and herbicides, particularly Monsanto's higher-cost, genetically modified offerings, has weakened as a result. DuPont's Pioneer unit, in contrast, expects to gain 1%-2% market share in corn this year by promoting its lower-cost seeds.

Rather than give in to these economic headwinds, Monsanto has bet its superior technology will justify higher-priced products. After all, technological prowess drove the company to dominance, with a U.S. market share north of 80% for its herbicide-resistant corn as well as soybean seeds that help farmers increase yields.

There still is little evidence the price-insensitive strategy is working. Sales of Monsanto's Roundup Ready 2 soybeans, which cost more than twice as much as their predecessors, and SmartStax corn seeds are seen falling below 2010 forecasts.

"In our opinion they priced these too aggressively," said UBS Securities analyst Don Carson.

Investors also seem to have lost faith that the company can meet its ambitious five-year goal of doubling profit by 2012 to $8.4 billion to $8.8 billion, generating earnings of roughly $6 a share.

But Monsanto hasn't faced up to its problems, to the dismay of some analysts and investors. "We believe that the company (and the stock) would be best served by lowering" its projections, Morgan Stanley analysts said in a note Monday.

Acknowledging missteps Wednesday, and adjusting course to reflect them, may be the best way for Monsanto to reap future gains. Otherwise, its shares may continue to wither.

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