Monsanto Profit Forecast Increase Fails to Boost Shares

Monsanto Co. (MON)’s third increase to fiscal 2013 earnings forecasts this year failed to move shares higher as the outlook from the world’s largest seed company fell short of analysts’ estimates.

Adjusted earnings per share will be $4.50 to $4.55 in the 12 months through September, the St. Louis-based company said in a statement today, with record sales of genetically modified corn and higher prices for its Roundup weedkiller. That compares with an April 3 forecast of $4.40 to $4.50 a share and the $4.62 average of 23 estimates compiled by Bloomberg.

“The increase still leaves it below the consensus estimate,” Chris Shaw, a New York-based analyst at research company Monness, Crespi, Hardt & Co. who recommends buying the shares, said in a note today. “Although we believe most of Monsanto’s businesses are performing well, we believe the majority of the upside in the second half of 2013 is coming from higher glyphosate earnings.”

Monsanto’s corn seed sales will climb by a percentage in the “mid teens” as volumes hit a record, Chairman and Chief Executive Officer Hugh Grant said at a Sanford C. Bernstein conference in New York today. Earnings also will benefit from higher prices for glyphosate-based herbicides such as Roundup, Grant said.

Monsanto fell 0.1 percent to $105.42 at the close in New York. The shares have gained 11 percent this year.

Corn Crops

Seed sales are benefiting from what the U.S. Department of Agriculture has forecast will be the largest corn crop since 1936. Monsanto each year replaces its oldest corn seed with better performing, newer varieties that cost farmers about 20 percent more, resulting in average price increases of about 8 percent a year for the past decade, Grant said.

Annual free cash flow is still expected to be as much as $2 billion this year.

Profit in the quarter that ends this month will be $1.55 to $1.60 a share, as a tax benefit and higher revenue from corn seed and Roundup help make up for fewer planted cotton acres and the exclusion of Brazilian soybean royalties due to a patent dispute, Monsanto said. Third-quarter earnings were expected to be $1.69 a share, according to the average of 20 estimates.

The fourth-quarter loss will be smaller than a year earlier as corn seed sales in Latin America increase, Monsanto said.

Earnings in fiscal 2014, which begins Oct. 1, will increase by a percentage in the “mid-teens,” Monsanto said. The company previously raised its 2013 earnings forecast in January and April.

The decision by the USDA to prepare an environmental impact statement on Monsanto’s application to deregulate soybeans and cotton engineered to tolerate dicamba herbicide will delay commercial sales by about one-and-a-half years, Grant said. Sales in the first year are usually small so the delay will have no financial impact, he said.

To contact the reporters on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net; Liezel Hill in Toronto at lhill30@bloomberg.net

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

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