Bad News From Monsanto, Bad News for DuPont, Dow Chemical

Monsanto (MON) cut its 2016 earnings guidance today, a fact that has made its shares the worst performer in the S&P 500. Its guidance cut could also have an impact on other chemical companies, including DuPont (DD) and Dow Chemical (DOW). Citigroup’s P.J. Juvekar explains: This morning Monsanto announced that it was again cutting its 2016 EPS guidance from “lower half of” $5.10-$5.60 to $4.40-$5.10, down ~11% or 60c at the mid-point (Citi: $5.25). The drivers of the cut were: 1) Incremental FX headwinds, which accounted for 25-30c of the guidance cut; and 2) Challenging macro conditions in seeds, including the delay in securing “over-the-top” EPA approval for dicamba impacting Roundup Ready Xtend soybeans, which accounted for 30c of the guidance reduction. We also think pressures in US seed pricing likely had an impact…Additionally, it seems to us that the company is acknowledging the long-term difficulties in achieving its target of “doubling EPS” by 2019. At our conference in December the company highlighted its goal to grow EPS >20% CAGR from 2016-2019, while today’s press release indicates EPS growth in the “mid-teens” over that same period. We think investors will be disappointed in today’s announcements. Challenges in seeds, including pricing, are also likely to impact DuPont and Dow Chemical. Monsanto’s comments regarding tough glyphosate market conditions, if indicative of broader Ag Chem challenges, could have implications for DuPont, Dow Chemical, FMC Corp. (FMC) and Agrium (AGU). Shares of Monsanto have tumbled 7.5% to $85.54 at 1:10 p.m. today, while DuPont has dropped 1% to $62.28, Dow Chemical has declined 0.8% to $49.64, FMC Corp. has fallen 2% to $37.61, and Agrium is off 1.5% at $86.75.