Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Farmer Lawsuit could cost Monsanto a lot of Revenue

A lawsuit filed by a group of Nebraska farmers could kill one of Monsanto’s (NYSE: MON) biggest cash cows; the weed killer Roundup. The suit could seriously damage the popular product’s reputation and sales.

The farmers are alleging that they developed a variety of cancer called Non-Hodgkin’s Lymphoma because of exposure to glyphosate; the active ingredient in Roundup. The federal lawsuit; filed by the Domina Law Group, is based on the World Health Organization’s (WHO) March 2015 determination that glyphosate is a potential carcinogen – or cancer-causing agent.

“Monsanto championed falsified data and has attacked legitimate studies that revealed Roundup’s dangers. Monsanto led a campaign of misinformation to convince government agencies, farmers and the general population that Roundup is safe. Its continuing denial extends to the date of this Complaint,” an excerpt from the suit printed in The Lincoln Star Journal claims.

The damage this could do to Monsanto’s business and revenue is vast. Even if the claims are not true; and Monsanto wins the suit, large numbers of customers will be scared away from using Roundup.

Monsanto’s Revenues are falling

Monsanto’s revenues have already taken a serious hit since the March 2015 WHO report ycharts data indicates. Right after the report was released in March 2015, Monsanto reported $15.28 billion in revenue in May 2015, that fell to $15 billion in August, $14.35 billion in November 2015 and $13.69 billion in February 2016.


The agribusiness giant has lost $1.59 billion in revenue over the past year. Since the revenue drop began right after the WHO report it is not hard to draw a conclusion.

Monsanto’s revenues were already falling because of the WHO findings, now there’s a lawsuit out there generating more negative headlines. More suits and clients could be possible because the Domina Law Group is actively recruiting more clients at its website. Domina has also teamed up with the New York firm Weitz & Luxemburg.

An even worse public relations nightmare could be brewing in California; where a lawsuit blames Roundup for a man’s death. A suit filed by a group of attorneys that includes Robert F. Kennedy Jr.; President John F. Kennedy’s nephew, in March alleges that farmer Jack McCall died of non-Hodgkin’s Lymphoma contracted because of exposure to Roundup.

The presence of Kennedy’s name on the suit will guarantee a lot of media exposure, and frightening headlines. Monsanto is already losing revenue because of the WHO reports, what happens when Bobby Kennedy’s son starts holding press conferences about the McCall suit?

Is Monsanto a Good Investment?

Naturally a lot of people will be wondering if this bad publicity makes Monsanto a value investment. The answer when looks at the company’s financial numbers is no.

The bad publicity about Roundup is hurting Monsanto terribly. The company’s revenue fell by $1.1179 billion between May 2015 and February 2016. Monsanto reported a net income of $2.653 billion in in May 2015 that fell to $1.456 billion in February 2016.

The company still reported some good numbers including a profit margin of 23.46%, a dividend yield of 2.08% and a return on equity of 23.71%. Yet it also reported a free cash flow of -$137 million.

Despite that Monsanto still has some float, it reported $2.979 billion in cash from operations in February 2016. That was up significantly from $2.653 billion in May 2015 but down slightly from $3.122 billion in November 2015.

Monsanto also reported $1.062 billion in cash and short-term investments in February 2016. That figure was down dramatically from $3.748 billion in August 2015.

Monsanto Enters the Death Sprial

From these numbers I would say that Monsanto is not a good investment; because it does not have enough float to survive the Roundup bad publicity. Instead it’s a company in a risky position because of its bad reputation.

The debacle at Monsanto demonstrates why investors need to pay attention to the news. Bad publicity can undermine even the strongest companies; and a few news stories can decimate a company’s revenue. Monsanto is a badly damaged company, because Roundup is a terribly damaged brand.

It will be a miracle if Monsanto can survive as an independent company because its flagship brand; Roundup, is effectively dead. This company could be on the edge of the death spiral because of the scare stories about Roundup.