NEW YORK — Monsanto will cut prices on its newest genetically modified seeds to accelerate adoption and help boost profit about 15 percent a year starting in fiscal 2011.
Discussions with 1,200 growers and weaker-than-forecast sales of SmartStax corn seed and Roundup Ready 2 Yield soybeans drove the decision to lower prices, Chief Executive Officer Hugh Grant said Wednesday on a conference call with analysts. Profit will increase 13 percent to 17 percent a year from this year's company forecast of at least $3.10 a share, Grant said.
"A penetration pricing approach is more focused on rapid adoption," Grant said on the call after Monsanto, the world's biggest seed company, reported a decline in fiscal second-quarter earnings. "This is a path that will allow us to deliver strong earnings growth consistently."
Monsanto is unlikely to meet its 2007 goal of doubling gross profit by 2012, he said. Generic versions of Roundup weed killer forced Monsanto to halve herbicide prices and the company said it now expects sales of SmartStax and Roundup Ready 2 to be at least 25 percent lower than it had forecast. Roundup Ready 2 was priced 42 percent more than the original herbicide- tolerant beans introduced in 1996, and SmartStax was 17 percent more than earlier premium corn seed.
"We are re-thinking our pricing strategy in corn and soy so we can reinvigorate the business," Chief Financial Officer Carl Casale said on the call.
The shortfall in Roundup Ready 2 will cause Monsanto to lose market share in U.S. soybeans this year, and corn share should be unchanged, Casale said.
Monsanto's growth projections imply earnings will trail average estimates of $4.39 in 2011 and $5.38 in 2012, analysts said. The forecast implies 2011 profit of about $3.60 a share, Mark Gulley, a New York-based analyst at Soleil Securities, said in a report. Profit in 2012 may be $4.15 a share, said Jeffrey Zekauskas, a New York-based analyst at JPMorgan Chase.
Lower prices will help Monsanto meet its goal of selling at least 16 million acres of Roundup Ready 2 soybeans next year, compared with 6 million acres this year, Casale said. Greater penetration will ensure that more farmers experience the seed's improved yield before the original Roundup Ready beans lose patent protection after the 2014 planting season, Grant said.