Monsanto Earnings Recovery May Be Better Bet Than Bayer Deal

  • Company predicted to gain on lower costs, more soy-seed sales
  • Analyst estimate net income to rise 43% in 2017 financial year

The return of profit growth at Monsanto Co. next year may be a better bet than a takeover of the world’s largest seed supplier.

The St. Louis-based company reports fiscal fourth-quarter earnings on Wednesday morning and is expected to forecast its performance for the year through August 2017. After declining in fiscal 2016 amid depressed crop prices and farmer spending, full-year net income is expected to rebound 43 percent, according to the average of analysts’ estimates compiled by Bloomberg.

Monsanto will benefit from lower production costs, more favorable exchange rates and bigger sales of its new soybean technologies, Susquehanna Financial Group analyst Don Carson said in a report this week. While crop prices are still low and seed prices might not see many gains, farmers will buy more of the company’s newest genetically modified soybean seeds, including Roundup Ready Xtend in the U.S. and Intacta in South America, according to Bloomberg Intelligence analyst Chris Perrella.

That may help Monsanto’s stock price, which has lagged behind Bayer AG’s $128-per-share offer since it was made last month, something that Bloomberg Intelligence analyst Chris Perrella says indicates investor skepticism about the deal. The bid price was 25 percent more than the stock at Monday’s close. Bayer and Monsanto say the $66 billion takeover is expected to close by the end of 2017, subject to regulatory approvals.

“People are going to continue to value Monsanto on a standalone basis unless there’s progress on the regulatory process,” he said in an interview.

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Monsanto’s fourth quarter is typically its weakest because revenue peaks earlier in the year when Northern Hemisphere farmers buy most of their seeds and crop chemicals. The company lost 1 cent per share in the three months through August, according to the average of 15 estimates.

For the next fiscal year, net income will rebound to $2.09 billion, or $4.75 a share, from $1.46 billion, or $3.28, the same survey shows. Revenue is seen rising to $13.8 billion from $13.3 billion.

A Monsanto spokeswoman declined to comment on the earnings report, citing the company’s quiet period.

Monsanto said in August that 2016 earnings will come in at the the low end of its guidance of $4.40 to $5.10 a share. Diminished farm spending has helped drive aggressive cutting of seed prices, while there’s also a glut of glyphosate, a Monsanto herbicide that’s one of its biggest sellers.

Such tough market conditions have helped push the global crop-chemicals industry into an unprecedented round of consolidation. The Bayer-Monsanto deal would create the biggest company in the industry, while two new competitors of a similar size may emerge through China National Chemical Corp.’s plan to acquire Swiss pesticide maker Syngenta AG and DuPont Co. and Dow Chemical Co. plan to merge and then carve out a new crop-science unit.

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