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Monsanto To Restructure Roundup Unit

– Monsanto Chairman Hugh Grant

“Over the last six years, Monsanto’s business has undergone a dramatic transition from a company historically built on chemical innovations…”

Monsanto Co. posted a smaller-than-expected slide in quarterly profit June 24 and said it would cut jobs and realign its Roundup herbicide business as surprisingly strong competition hammered sales.

The world’s biggest seed company, a leader in development of genetically modified crops, said net income for the third quarter totalled $694 million, or $1.25 a share, falling from $811 million, or $1.45 a share, a year earlier.

Analysts on average were expecting $1.18 a share after the company warned last month that tougher competition in the herbicide business would pressure results.

Company officials said they were creating a separate division for the struggling herbicide business to help stabilize and “better align spending and working capital needs” around the unit.

They said they had no plans to try to grow the business, and would not rule out divestiture, preferring instead to focus on a more profitable seed sector.

“Over the last six years, Monsanto’s business has undergone a dramatic transition from a company historically built on chemical innovations to one focused on delivering enhanced seed offerings,” said Monsanto chairman Hugh Grant in a statement accompanying the results.

Analysts initially cheered the better-than-expected results and the company’s move to realign its herbicide-related resources.

“This has been a dark cloud looming over Monsanto’s head,” said Morningstar analyst Ben Johnson. “The Roundup numbers today were disastrous.

“The seed franchise continues to go very strong,” but herbicides have been a “wet blanket on their shares,” Johnson said.Net

sales of $3.2 billion for the quarter were down 11 per cent due in part to declines in the company’s Roundup and other glyphosate-based agricultural herbicides globally.

Agricultural productivity, including herbicide revenues, fell 39 per cent to $913 million and gross profit fell 54 per cent amid increased competition in the sector while net sales of seeds and genomics grew nearly 10 per cent.

Monsanto officials said future gross profits from the Roundup herbicide business would drop by half to about $1 billion annually from $2 billion in 2009 as the company grapples with increased competition in the sector.

The business, once a core money-maker for Monsanto, in the future should amount to less than 15 per cent of the company’s total gross profit, officials said.

Officials said surprisingly strong competition had pushed herbicide prices lower than expected, faster than expected.

Grant said future growth, including any merger and acquisition efforts, will be focused on expanding the high-margin seed and traits businesses and expanding presence in the vegetable seeds market, with no “broad chemical portfolio” seen in the future.

Monsanto also said it will cut about 900 employees. The reduction will vary from country to country and will be less than four per cent of the company’s global workforce.

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