Monsanto cuts price on weedkiller, trims outlook in face of intense pressure from generics

Cheaper weedkillers force Monsanto to cut prices

ST. LOUIS — Monsanto Co. has been forced to cut prices on its Roundup weedkiller due to intensifying competition from generics, and company shares slumped to a three-year low Thursday on more modest profit expectations.

Monsanto said that lowering its prices will cut earnings per share by 50 to 70 cents this year, sending shares down 8 percent in active trading. Annual earnings are now projected to be between $2.15 and $2.41. Earnings for the third quarter are expected to range between 65 and 72 cents a share.

Monsanto’s price cuts accelerate the company’s strategy to cut back on Roundup production and focus on developing genetically engineered seeds. The Roundup herbicide, once a profit machine for Monsanto, has become a money loser as discounted generic versions have flooded the market.

CEO Hugh Grant said previously that Monsanto was caught off guard by a flood of generic Roundup on global markets, which drove prices down steeply. The company laid off workers and slimmed down its Roundup division to respond.

But more drastic action was needed. After pouring over early season herbicide data, Monsanto found “systemic margin compression,” and said Chinese capacity was “profoundly overbuilt.”

That, Grant said, has led to fundamental structural changes for the industry. In response, Monsanto plans to “radically simplify” its product offerings and slash prices to help save money.

Monsanto said its rivals, particularly in China, are selling their versions of Roundup at a loss.

Monsanto previously expected to report a fiscal 2010 profit of $3.10 to $3.30, although it said in April that it would reach only the low end of that range. Thomson Reuters says analysts expected a profit of $3.13 per share on average.

Monsanto’s shares were already trading at annual lows, and on Thursday they fell to their lowest prices since December 2006. They fell as far as $48.16.

In April, Monsanto reported that its second-quarter profit fell 19 percent to $887 million, in part because of woes from the Roundup division.

At the same time, Grant said farmers are unwilling to pay premium prices for the Monsanto’s new lines of biotech seeds. Some of those seeds are twice as expensive as the varieties most farmers grow today.

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