UPDATE 3-Monsanto cuts 2010 outlook; shares fall 7 pct

* Repositions Roundup business

* Cuts FY 2010 earns and free cash flow guidance

* Sees ongoing EPS for 3rd qtr to be 75-80 cents

* Shares fall 7.2 percent
(Recasts paragraph 1, updates share drop, adds analyst
downgrade, details)

By Carey Gillam

KANSAS CITY, Mo., May 27 (BestGrowthStock) – Monsanto Co (MON.N: ),
the seed and chemical giant, sharply reduced its full-year
earnings and cash flow forecast, citing a need to cut back its
Roundup herbicide business as it gets hammered by Chinese
competition. It shares fell more than 7 percent to a three-year
low.

Monsanto, which is the world’s largest seed producer and a
leading maker of agricultural chemicals, said after
re-examining its herbicide business, it expects fiscal-year
2010 earnings of $2.40 to $2.60 per share on an ongoing basis,
and $2.15 to $2.41 per share on an as-reported basis.

Earlier this month, Monsanto said profit for fiscal 2010,
ending in August, would be at the low end of a range of $3.10
to $3.30 per share. Analysts had been looking for $3.13 per
share.

The company also said it now expects free cash flow of $400
million to $500 million, compared with the $900 million to $1
billion it projected in April.

Monsanto Chairman Hugh Grant said the company was revamping
its business in glyphosate — the key ingredient in Roundup —
to price its products closer to generic offerings and
streamlining its own products.

Grant specifically cited overbuilt Chinese glyphosate
capacity as a factor in “systemic margin compression.”

Monsanto will also accelerate payment on certain
distributor and retailer incentives to close out those
programs.

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

The changes being made to the Roundup business would reduce
ongoing earnings contributed by that unit by 50 cents to 70
cents per share for 2010, Monsanto said.

As shares fell, S&P Equity Research on Thursday cut
Monsanto to a “hold” from a “buy” and sharply reduced its
target price to $55 a share from $84.

Monsanto also on Thursday acknowledged spreading industry
concerns about increasing weed resistance to glyphosate, the
key ingredient in Monsanto’s Roundup herbicide.

Monsanto said it would create “a simple weed resistance
package,” working with U.S. distributors to combine a
simplified Roundup brand with other complementary chemicals for
better weed control.

Critics said the moves should have been made sooner, and
farmers will need to decrease their use of Roundup Ready crops
to significantly turn back weed resistance.

“The chickens have come home to roost. It is going to take
a number of years to get ahead of these problems,” said Charles
Benbrook, chief scientist at The Organic Center and former
executive director of the agriculture board of the National
Academy of Sciences.

Jefferies & Co analyst Laurence Alexander said it was
noteworthy that Monsanto was giving validity to weed resistance
concerns and said this issue was likely to recur in the
future.

Roundup was once a key profit-driver for Monsanto, and it
has continued to generate sales even in the face of generic
competition, in part because of its development of “Roundup
Ready” crops — those genetically altered to tolerate
treatments of the Roundup weed killer. Monsanto’s Roundup Ready
soybeans, for example, have been wildly popular with U.S.
farmers.

But as problems with weed resistance have been mounting and
generic competition putting downward pressure on prices,
Monsanto has seen its herbicide revenue slide.

The company’s agricultural products segment, which includes
its Roundup business, reported a 35 percent drop in
second-quarter net sales to $642 million from a year earlier.

At the same time, analysts have become increasingly
critical of the company’s market moves, chiding Monsanto for
taking an arrogant approach in marketing and pricing of both
its Roundup herbicide and branded seeds.

Monsanto is also dealing with an antitrust probe by the
U.S. Department of Justice and several states related to its
pricing and control of the U.S. seed industry.

In afternoon trading, Monsanto’s shares were down 7.5
percent, or $3.76, at $48.90 on the New York Stock Exchange.
Its shares are down more than 40 percent from a year ago.

Investment Research

(Reporting by Carey Gillam; Editing by Maureen Bavdek and
Steve Orlofsky)

UPDATE 3-Monsanto cuts 2010 outlook; shares fall 7 pct