Monsanto Co. (NYSE: MON) pleasantly surprised the Street with a stronger-than-expected third-quarter profit. This morning, the company reported quarterly net income of $694 million, or $1.25 per share, besting analysts' expectations for a profit of $1.18 per share. Net sales arrived at $3.2 billion, down 11% from the year-ago period.
Additionally, Monsanto said it will create a separate division for its herbicides business, in order to "better align spending and working capital needs." The firm will also undergo a restructuring that will result in 900 lost jobs, or less than 4% of its global workforce. The change will translate to a fourth-quarter charge of roughly $350 million, or 41 cents to 47 cents per share.
MON shares were initially trading higher in the wake of today's news, but the stock has steadily pared its gains. In fact, just before midday, the shares collapsed completely and fell into the red. The equity is retreating from resistance at its 10-day and 20-week moving averages, both of which are looming directly overhead.
A rather bleak outlook for the company's herbicides business could also be dampening investors' enthusiasm. Monsanto says it expects gross profit from its Roundup unit to drop by half, falling from $2 billion in fiscal 2010 to $1 billion by 2012, due to increased competition. Executives confessed that 2009 should be the peak year for the business.
In the options pits, one of MON's LEAPS is attracting heavy attention from a less-than-bullish trader. The stock's January 2010 110-strike call has seen 6,660 contracts cross the tape on open interest of 8,757 contracts. A large block of 6,012 contracts traded at 9:50 a.m. Eastern at the bid price of $1.90, suggesting that the contracts were sold. By selling calls at this strike, the speculator is wagering that MON will remain pinned below $110 throughout the next six months.
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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