Monsanto Cuts Costs, Sees No Respite From Low Crop Prices

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Monsanto Co., the world’s largest seed company, signaled low corn and soybean prices are likely to persist beyond 2015 as it prepares for potentially reduced revenue by cutting expenses.

Monsanto, which is trying to acquire Swiss pesticide maker Syngenta AG, said Wednesday it’s cutting costs this year and developing plans to reduce operating expenses by as much as $500 million through August 2017. The shares fell 5.7 percent to $106.32 in New York, the biggest drop in three years.

“The company anticipates the continuation of several of the industry headwinds, ranging from weakening foreign currencies to low commodity prices driving reduced acres,” the company said in its third-quarter earnings statement.

The comments show St. Louis-based Monsanto is “very cautious” about the results it expects in the fiscal year that begins in September and beyond, Matt Arnold, an analyst at Edward D. Jones & Co., said in an interview.

“They are acknowledging that this is an agriculture bear market that is going to continue,” Chris Shaw, a New York-based analyst at Monness Crespi Hardt & Co., said by phone Wednesday.

Corn and soybean prices have fallen in the past year as global crop output heads for a record.

While Monsanto posted fiscal third-quarter earnings of $2.39 a share, exceeding the $2.06 average of 20 estimates compiled by Bloomberg, the beat was driven by a one-time licensing payment from lawn-care company Scotts Miracle-Gro Co. The fee added $274 million to gross profit, offsetting lower-than-expected revenue from seeds and herbicides, Shaw said.

Forecast Reiterated

“The beat was all that one-time payment from Scotts,” he said.

Monsanto reiterated its forecast for full-year earnings at the low end of $5.75 to $6 a share, before one-time items. Its forecast for the fiscal fourth quarter, which began this month, trailed estimates. Fourth-quarter earnings will be break-even, Monsanto said. That compares with the 32 cent-per-share average estimate of 19 analysts surveyed by Bloomberg.

(Updates with closing share price in second paragraph.)
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