Monsanto Sees ‘Growth Opportunity,’ Raises Cash-Flow Forecast

Monsanto Co. (MON), the world’s largest seed company, boosted its forecast for free cash flow after posting second-quarter earnings that topped analysts’ estimates on higher sales of herbicide and genetically modified seeds.

Per-share earnings excluding discontinued operations were $1.87 in the three months through Feb. 28, Monsanto said today in a statement. That topped the $1.84 average estimate of 18 analysts in a Bloomberg survey.

The St. Louis-based company said free cash flow will be $900 million to $1.1 billion in the current fiscal year, up from an earlier prediction of $800 million to $900 million, because of better working-capital management and “a strong economic climate in agriculture.”

A “solid” sales season and Monsanto’s “disciplined approach to spending have positioned the company to realize its mid-teens earnings growth opportunity this year,” it said.

Chief Executive Officer Hugh Grant doubled gross profit from agricultural chemicals after restructuring the unit last year amid declining prices for Roundup, the world’s best-selling herbicide. Profit from seeds and genetic licenses climbed 5.9 percent in the second quarter as corn and cotton prices gained, boosting U.S. planted acres.

“Between the increased cash flow and the progress they are making on cost controls, that’s a good sign,” Chris Shaw, a New York-based analyst at Monness Crespi Hardt & Co. who rates the shares “neutral,” said today in an interview.

Monsanto dropped $1, or 1.4 percent, to $72.60 as of 8.48 a.m. before the start of regular trading on the New York Stock Exchange.

Earnings Forecast

Net income climbed 15 percent to $1.02 billion, or $1.88 a share, in the three months ended Feb. 28, from $887 million, or $1.60, a year earlier. Sales rose 6.1 percent to $4.13 billion, trailing the $4.15 average analyst estimate in the Bloomberg survey.

Profit in the crop chemicals unit was better than expected, Shaw said.

“Seeds and traits were a little disappointing,” he said.

Profit excluding some items will rise to $2.72 to $2.82 per share in the 2011 fiscal year, from $2.41 a year earlier, Monsanto said, reiterating a forecast first made in October. The average estimate of 21 analysts surveyed by Bloomberg was $2.85.

Monsanto’s newest corn and soybean products were planted last year on fewer acres than the company forecast and failed to meet growers’ yield expectations in their debut. The company responded by cutting prices for SmartStax corn seed, which was developed with Dow Chemical Co. (DOW) to combat bugs and resist herbicides, and Roundup Ready 2 Yield soybeans.

Market Share

The Pioneer unit of Wilmington, Delaware-based DuPont took 35 percent of the U.S. corn-seed market in 2010, a 3 percentage- point gain, to tie Monsanto, which lost 1 point, Don Carson, a New York-based analyst at Susquehanna Financial Group LLC, said this week in a report. DuPont gained 5 points in soybean seeds for 31 percent of the market, while Monsanto fell 3 points to 25.5 percent, he said.

Monsanto’s share of the U.S. market should increase this year to 37 percent in corn and 27 percent in soybeans, Carson said.

To contact the reporter on this story: Jack Kaskey in New York at jkaskey@bloomberg.net

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net

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