Bloomberg News

Monsanto Profit Forecast Beats Estimates on Brazil Demand

October 05, 2011

(Updates with closing share price in sixth paragraph.)

Oct. 5 (Bloomberg) -- Monsanto Co., the world’s largest seed company, forecast higher-than-expected fiscal first-quarter profit as Latin American farmers increase demand for genetically modified crops.

Profit will be 10 cents to 15 cents a share in the three months that began Sept. 1, St. Louis-based Monsanto said today in a statement. Five analysts surveyed by Bloomberg estimated earnings of 8 cents, on average. Full-year earnings will rise as much as 16 percent to $3.34 to $3.44 a share, from $2.96, Monsanto said. That brackets the $3.42 average estimate of 18 analysts in the survey.

“They have been really sticking to their story of mid- teens growth for awhile,” Chris Shaw, a New York-based analyst at Monness Crespi Hardt & Co. who rates the shares “neutral,” said today in an interview. “I don’t think there was ever any doubt that the ag economy was still going to be strong next year.”

Chief Executive Officer Hugh Grant plans to raise seed prices as much as 10 percent in Monsanto’s 2012 fiscal year as corn prices have gained 25 percent in the past 12 months in Chicago. Grant also plans to boost sales of bug-killing corn in the U.S. while launching the world’s first insecticide-producing soybeans in Brazil and expanding sales of modified corn in Argentina and Brazil.

Latin America

“The ramp-up of the corn opportunity in Brazil and Argentina will be one of the single largest sources of new growth in the next few years,” Grant said on a conference call with analysts and investors. Latin America “has now become a key driver” of biotech seed demand, he said.

Monsanto rose $3, or 4.7 percent, to $66.25 at 4 p.m. in New York Stock Exchange composite trading.

The company’s fourth-quarter net loss was $112 million, or 21 cents a share. The loss excluding restructuring costs was 22 cents a share, beating the 27-cent average of 14 analysts’ estimates compiled by Bloomberg. Sales were $2.25 billion, exceeding the $1.91 billion average of 12 analysts’ estimates.

Monsanto’s first- and fourth-quarter earnings are typically weaker than in the rest of year, when farmers in North America and Europe plant most of their crops.

Genetics Growth

The company didn’t give year-earlier numbers because it plans to restate earnings from 2009 to 2011, prompted by a U.S. Securities and Exchange Commission investigation into accounting for customer-incentive programs related to glyphosate, the main ingredient in Roundup herbicide.

Monsanto said 2012 gross profit from its unit that sells seeds and licenses genetics will rise as much as 10 percent to $5.7 billion to $5.85 billion, from $5.31 billion a year earlier. Gross profit in the agricultural productivity unit, which sells Roundup, will be about $800 million, it said.

Relatively high prices for crops and livestock may boost U.S. farm income by 31 percent this year to a record $103.6 billion, the U.S. Department of Agriculture said in August. That typically helps demand for pricier seeds that Monsanto engineers to kill pests and tolerate applications of weedkiller.

Brazilian regulatory approval this year will allow Monsanto to begin selling Inacta, a soybean seed engineered to produce its own pesticide and the first genetically modified crop developed for a non-U.S. market. About 200 farmers are testing the seeds ahead of widespread sales, Grant said.

SmartStax Rising

Monsanto also will begin selling bug-killing corn next year that contains 5 percent conventional seed, a product known as refuge-in-a-bag. Regulators require planting of conventional seed in a so-called refuge to deter the evolution of insects resistant to the modified plant’s insecticide. The refuge was 20 percent until Monsanto won regulatory approval for its SmartStax corn, which kills insects with two types of pesticide.

Plantings of SmartStax and other reduced-refuge corn seeds will rise to 22 million to 24 million acres, from 13 million acres in 2011, the company said. Roundup Ready 2 soybeans will climb to 27 million to 30 million acres in 2012, from 17 million acres, Monsanto said. Patents on the original Roundup Ready soybeans expire at the end of 2014.

The company gained market share in U.S. corn and cotton and ended two years of share erosion in soybeans, Grant said.

Monsanto ended the year with $2.57 billion of cash and expects to generate as much as $1.5 billion of free cash in 2012. Paying a dividend and repurchasing stock are cash priorities, Chief Financial Officer Pierre Courduroux said on the call. The company also is considering technology acquisitions, he said.

“Our intention is not to pile up cash on the balance sheet,” Courduroux said.

--Editors: {Charles Siler}, {Jasmina Kelemen}

To contact the reporter on this story: {Jack Kaskey} in Houston at jkaskey@bloomberg.net.

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


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