Monsanto (MON) is set to report earnings Wednesday morning just over a week after the World Health Organization issued a damning report that the company’s Roundup pesticide “is probably carcinogenic to humans.”
“They put a lot of capital into Roundup and now the World Health Organization is saying it’s possibly cancer causing,” said Estimize’s Christine Short.
That’s a problem not just for those of us who may have come in contact with it, but for Monsanto shareholders as well. The company has already suffered from declining corn and soybean prices, with shares off some 5% so far year to date.
We should note that Monsanto has denied the WHO’s claims, even going so far as to ask the organization to issue a retraction. The WHO specifically says that glyphosate, an ingredient in the pesticide may "probably" cause cancer. Glyphosate is, however, approved by the U.S. government for use on crops, many of which are genetically engineered to resist it.
However, the ingredient is no stranger to controversy. It was one of the drivers behind Vermont's push to label food more carefully. Detractors have been pointing to a recent French documentary, in which Monsanto supporter Patrick Moore tells a journalist that it’s perfectly safe to drink Roundup, then refuses to imbibe it, on the grounds that he is neither “stupid,” nor an “idiot.”
As far as Monsanto's Wednesday earnings are concerned, Estimize is predicting a miss, calling for $2.95/share while Wall Street looks for $2.96. Expect questions on the WHO controversy to come up during the call.
“Last quarter they had an issue, they said profits were down 30%, revenues were down 8%, because of corn,” said Short. Corn prices as tracked by the Teucrium Corn ETF (CORN) are down more than 35% in the past 2 years. For awhile, Monstanto was able to offset that decline by shifting its focus to soybean sales. However, now soybean sales are experiencing the same concerns as their corn cousins – prices down more than 15% in the past two years as tracked by the Teucrium Soybean ETF (SOYB).
If commodity issues weren’t enough of an issue for the agricultural giant, the company is facing currency headwinds as well. The stronger dollar (UUP) means that it’s not just farmers in the U.S. experiencing troubles.
“Farmers are certainly trading down with the seeds they buy and they’re not buying as much farming equipment,” said Short. “It’s not just domestic farmers, you’re going to see farmers abroad, specifically Brazil which is a big market for [Monsanto], trading down as well.”
Despite all of this, Monsanto still paints a fairly optimistic picture. The company claims it will be able to double its earnings per share in the next five years. Wall Street, though, is not so sure. “A lot of analysts are doubting that at this point,” said Short.
We’ll know more Wednesday morning ahead of the bell when Monsanto reports.
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