Chicago Financial Times
By Hal Weitzman
Monsanto, the world’s biggest seedmaker by revenue, is being investigated by the Securities and Exchange Commission over its use of cash to persuade distributors to use its herbicides.
The US company provides cash incentives to distributors to buy Roundup glyphosate, the world’s leading herbicide, and Roundup Ready seeds. Its most recent programme, introduced last year, offered up to $20 per acre.
Monsanto’s herbicide division was once a cash cow, but it has collapsed in the face of low-cost competition from China.
The company has been fighting to stabilize Roundup revenues, and cash incentives have played a big role in re-establishing the brand among farmers.
Monsanto said the watchdog had launched an investigation into its glyphosate incentive programmes for its 2009 and 2010 fiscal years. It said it had received a subpoena for documents from SEC staff and was co-operating with the investigation.
“We take this seriously,” said Hugh Grant, chief executive. He refused to be drawn on the details of the SEC’s concerns. “Out of respect for the SEC and their processes, there’s really not a great deal I can say at the moment. It’s early days. We’re just starting document production and we’re co-operating to our full ability.”
Monsanto is the subject of a separate long-running probe by the US Department of Justice into potential anticompetitive practices in the seed industry.
Monsanto revealed the SEC investigation as it raised its full-year earnings outlook and reported quarterly results well ahead of Wall Street’s expectations.
The seedmaker said net income for the three months to the end of May was $680m, or $1.26 per share, up from $384m, or 70 cents per share, in the same period last year, and above analysts’ average forecasts of $1.11 per share.
Monsanto expects full-year 2011 earnings, excluding extraordinary items, of $2.84-$2.88 per share, up from its previous forecast of $2.72-$2.82. It was raising expectations for free cash flow for 2011 from $900m- $1.1bn to $1.1bn-$1.3bn.
Roundup and other crop chemicals brought in a $76m profit in the quarter, from a loss of $175m in the period a year ago.
Mr Grant said the results indicated that the company was back on track after a disastrous year in which it was forced to scrap profit targets and abandon its premium pricing model as its higher-cost corn seeds failed to deliver hoped-for yields and as sales of Roundup plunged.
“The results of this achievement aren’t measured solely in [market] share points,” he said. “It also comes in the form of momentum, and I believe we now have that back again.”
Monsanto shares were up 4.4 per cent at $69.83 in mid-afternoon in New York.
