Monsanto's Profits Take a Dive

Monsanto Lowers Views, Cites Argentina
Wed Jun 12, 2002

By Carey Gillam

KANSAS CITY, Mo. (Reuters) - Agricultural products maker Monsanto
Co. on Wednesday sharply cut its earnings outlook through 2003, sending
its shares down as much as 14 percent, due partly to problems getting
paid in crisis-torn Argentina.

In addition to its problems in Latin America, Monsanto said wet
weather in U.S. corn and soybean growing areas had delayed farmers'
use of its flagship herbicide Roundup, which would also hurt
second-quarter profits. It said those sales should be made up in the
third quarter, however, as farmers will need to apply the weedkiller
to new crops.

The company also said it would take a $2 billion charge to cover an
accounting change related to its corn and wheat businesses. Analysts
had expected a sizable impairment charge after Monsanto in January
adopted the new accounting standard.

St. Louis-based Monsanto said the reduced 2002-03 profits were
primarily tied to a number of steps it is taking to improve
performance in Latin America and reduce the company's credit risk
exposure and working capital needs.

The steps include cutting off extension of credit to customers in
Argentina, which has suffered from economic instability and a
devalued peso in recent months. Monsanto will now accept only
cash or grain for sales it makes there, said spokeswoman Lori Fisher.

After Argentina defaulted on part of its $140 billion public debt in
January, the government devalued its local peso currency which is
down more than 70 percent against the dollar after being at par with
the dollar for some 10 years.

Fisher said Latin America, Monsanto's second-largest marketplace
after the United States, would remain a very important market for the

"We are not walking away from it," she said. "We have been doing
business there for a long time, and we want to continue to do
business down there. But we need to find a way to do business down
there that greatly reduces our risk."

Monsanto has been evolving from a company largely dependent on its
top-selling Roundup weedkiller and other productivity products. Last
year, nearly 70 percent of the company's revenues were in its
agricultural productivity segment, but by 2007 Monsanto officials
expect more than half of Monsanto's revenues will come from its seeds
and genomics segment.


Monsanto reduced its second-quarter profit guidance to $1.10 to $1.15
per share from a previous $1.40 to $1.45. For the full year, it
pegged earnings at $1.50 per share, well below the previous view of
$2.23 to $2.27.

It also said earnings in 2003 are expected to be $1.90 to $2.05 a
share, below Wall Street expectations of $2.22 a share on average, as
tracked by Thomson First Call.

Monsanto shares were down nearly 8 percent at $24.82 in early
afternoon trading on the New York Stock Exchange ( news - web sites),
after sinking to a 52-week low of $23.05 earlier in the day.

Though the $2 billion charge will be applied to the first half of the
fiscal year, it is not included in the earnings outlook.

The company said it expects to establish a reserve of $120 million to
$150 million in the second quarter to cover losses in Argentina.

"Everybody knows what has been going on in Argentina. People just
don't have a lot of liquidity," Fisher said. "It is hard to know what
the government is going to do next. We are going to have to take some
bad debt. We are not going to be able to collect."

Fisher said though the company's collections period extends slightly
beyond the second quarter, the reserve range announced Wednesday
should cover "the bulk of" the bad debt.

To address the problems in Latin America, Monsanto also said it will
reduce its working capital in Brazil and Argentina and exercise its
right to use collateralized products to settle receivables in

While the moves will reduce Monsanto's credit risk in Brazil and
Argentina, they will also lower sales and earnings for the year, the
company said.

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