Monsanto Raises Forecast as Profit Tops Estimates on Corn

Monsanto Co., the world’s largest seed company, raised its full-year earnings forecast and posted fiscal second-quarter profit that beat analysts’ estimates as sales of corn seed and Roundup weed killer climbed.

Net income rose 22 percent to $1.48 billion, or $2.74 a share, in the three months through February, from $1.21 billion, or $2.24, a year earlier, St. Louis-based Monsanto said today in a statement. Earnings excluding a discontinued operation were a record $2.73 a share, topping the $2.57 average of 20 estimates compiled by Bloomberg. Revenue rose 15 percent to $5.47 billion.

Monsanto said it will earn $4.40 to $4.50 a share in the 12 months through August excluding discontinued operations, an increase of 10 cents from the January forecast. The average of 22 estimates was $4.57 a share.

Chairman and Chief Executive Officer Hugh Grant is selling more corn seed engineered to kill bugs and tolerate Roundup herbicide as U.S. farmers prepare to plant the biggest crop in 77 years. Higher sales of Roundup and a lower-than-anticipated tax rate were responsible for profit beating estimates, said Michael E. Cox, an analyst at Piper Jaffray & Co.

“Seeds and traits were basically in line, so it takes a bit of the wind out of the beat,” Cox, who recommends buying the shares, said today by telephone from Minneapolis. “The issue some investors will have is the majority of the upside came from the Roundup franchise and there is healthy skepticism about the sustainability of margins in that segment.”

Shares Rise

Monsanto rose 0.5 percent to $104.51 at the close in New York. The shares have gained 10 percent this year.

Monsanto still expects as much as $2 billion in free cash flow this year and will become “more aggressive” in returning cash to shareholders through dividends and “opportunistic” share repurchases, Chief Financial Officer Pierre Courduroux, said on a call with analysts today. The company bought back $300 million of shares in the second quarter, he said.

Gross profit from seed sales and genetic licenses increased 8.4 percent in the quarter to $2.7 billion. A 16 percent increase in sales of corn seed and genetics, the company’s largest unit, more than made up for declines in soybean, vegetable and cotton seeds. The U.S. and Brazil drove the gains in corn seed, which is headed for a record year, Monsanto said.

U.S. farmers may plant 97.3 million acres of corn this year, the most since 1936, the U.S. Department of Agriculture said last week. Corn prices reached a record last year after the worst drought since the 1930s cut production by 13 percent. Monsanto has enough seed for U.S. farmers after increasing winter production, boosting costs in the quarter, the CFO said.

Soybean Forecast

Farmers in the U.S. probably will plant as much as 41 million acres of Roundup Ready 2 Yield soybeans, a higher-yielding version of original Roundup tolerant beans that lose patent protection next year, Monsanto said. That’s the high end of what the company has forecast.

Sales of the newest corn seeds engineered to produce their own insecticides also will be at the high end of the forecast range, the company said.

Gross profit from crop chemicals such as Roundup jumped 73 percent to $371 million as sales rose 37 percent. The gain was due to higher global prices for generic versions of the weed killer, which Monsanto tracks with its own prices, Grant said on the call.

Roundup Costs

Monsanto cut costs in its Roundup business after prices collapsed in 2009 and 2010. Prior moves combined with limiting Roundup sales to 300 million gallons a year should help reduce earnings volatility, President Brett Begemann said on the call.

Monsanto generates most of its sales and earnings in its fiscal second and third quarters, when farmers in the northern hemisphere are preparing for the growing season. Earnings gains in the second half will continue to be driven by corn seed and Roundup, Courduroux said.

Excluded from this year’s forecast is an estimated 20 cents to 25 cents a share of earnings from soybean sales in Brazil, which are the subject of a legal challenge, Monsanto reiterated in a slide presentation. The company suspended royalty collections for Roundup Ready soybeans late last year because of a legal dispute over patent expiration.

Monsanto and DuPont Co., its biggest competitor in the $34 billion global seed market, agreed on March 26 to drop their respective antitrust and soybean patent lawsuits. DuPont also agreed to license the newest versions of Monsanto soybeans engineered to tolerate weedkillers Roundup and dicamba for a minimum $1.75 billion in royalties over the next decade.

The DuPont deal is “a major breakthrough” that “increases the certainty” in long-term earnings goals and completes licensing of Monsanto’s engineered traits to “pretty much” the entire U.S. soybean industry, Grant said.

(Updates with closing share price in sixth paragraph.)
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