Monsanto Co. (MON), the world’s biggest seed company, said it stands to gain from the worst U.S. Midwest drought in a decade because the difficult conditions may demonstrate its superior yields and create seed shortages for competitor.
Drought may cut seed output at smaller U.S. competitors, while Monsanto has the option of shipping more seed from Latin America, Chief Executive Officer Hugh Grant said today on a conference call to discuss third-quarter earnings. Monsanto also stands to win new customers who see the company’s seeds outperforming the competition in hot weather, he said.
“Our genetics tend to do well in warm, dry conditions,” Grant said on the call. “It’s not something that you hope for, but we have an edge in that.’”
U.S. corn futures have surged 28 percent since June 15 as a Midwest heat wave damages the largest crop in 75 years. Monsanto’s third-quarter earnings climbed 35 percent, topping analysts’ estimates, as sales of corn seed rose to a record, the St. Louis-based company said today. Monsanto will be able to fill shortages in U.S. seeds next year, Grant said.
The company will raise enough seed to supply a 96 million- acre corn crop, 2 million to 4 million acres more than anticipated in the company’s forecast for a “mid-teens” percentage rise in 2013 earnings, Chief Financial Officer Pierre Courduroux said on the call. U.S. corn growers planted 95.9 million acres this year, according to U.S. Department of Agriculture estimates.
Growth drivers next year include corn and soybeans in the U.S. and Brazil, Argentine corn, vegetables, and price gains associated with seed improvements, Monsanto said in a presentation on its website.
Net income rose to $937 million, or $1.74 cents a share, in the three months through May 31, from $692 million, or $1.28, a year earlier, Monsanto said in a statement. Profit excluding a legacy tax matter was $1.63 cents a share, topping the $1.60 average estimate of 13 analysts compiled by Bloomberg. Monsanto forecast profit of $1.57 to $1.62 on May 30.
Sales climbed 17 percent in the quarter to $4.22 billion, topping the $3.98 billion average estimate of 13 analysts in the survey. Sales of corn seed and genetic licenses rose 35 percent and soybean sales gained 15 percent. Grant also is expanding into Latin America and Eastern Europe.
“Corn is clearly the driver now,” Chris L. Shaw, a New York-based analyst at Monness Crespi Hardt & Co. who recommends holding the shares, said today in a phone interview. “It was strong across the board.”
The shares rose 3.9 percent to $80.89 at the close in New York. The company has climbed 15 percent this year.
Monsanto plans to use its cash to repurchase shares, pay dividends and make acquisitions, CFO Corduroux said.
Monsanto, which last week closed on its purchase of closely held Precision Planting Inc. for as much as $250 million, plans to invest more in tractor technology that uses data on seed varieties and soil conditions to boost yields, Grant said.
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