Found this in the Dow Jones News service. Could also be people liquidating shares due to the recent Solutia spin off.
Monsanto Shares Slip On Near-Term Earnings Concerns
NEW YORK (Dow Jones)--Monsanto Co. (MTC) shares were weaker in heavy trading, probably on concerns about the company's second-half earnings picture.
Analysts at J.P. Morgan Securities Inc. and Schroder & Co. cautioned that near-term earnings may come under pressure, in part from increased research and development costs at Monsanto's Searle pharmaceuticals unit.
"The second half is shaping up to be very difficult for Monsanto from an earnings perspective," said J.P. Morgan's Donald Carson in a research note. "Searle has significantly increased its gross R&D spending in order to accelerate the development of the five drugs it currently has in Phase III testing."
Following Monsanto's spinoff of its Solutia Inc. (SOI) applied chemistry business, Carson noted the company's agricultural products segment now accounts for about 66% of operating profits. He added that agricultural profits are weighted toward the first half of the year.
Christopher Willis, who follows Monsanto at Schroder, said he expects combined operating income from agricultural products, Searle and the company's food ingredients division to decline about 25% in the third quarter unless Searle books a co-development or co-marketing deal by the end of September.
He said the food ingredients business will likely post a 50% drop in operating income because of inventory adjustments by bulk aspartame customers in the soft drink industry and increased competition in the tabletop sweetener business, which includes the company's Equal product.
Both analysts agreed that without partnering revenue from another drug company, Searle will have no operating profit in the second half of the year. According to Carson, this compares with $64 million in the first half and $200 million for full-year 1996.
Willis lowered his third-quarter earnings estimate to 15 cents a share from 25 cents, bringing his 1997 outlook to $1.35 a share from $1.45. He also lowered his 1998 estimate to $1.50 a share from $1.75, which was at the high end of Wall Street's view. Carson's earnings forecasts remain at $1.35 a share for 1997 and $1.60 a share for 1998.
Monsanto earned $1.48 a share in 1996, excluding charges.
A spokeswoman at Monsanto declined to comment specifically on the stock movement, but said there had been no corporate news released that would account for the weakness.
The NYSE-listed shares were off 1 7/16, or 3.8%, at 36 7/8 on volume of 5.6 million shares, compared with average daily turnover of 1.8 million.
- Thomas Granahan |
