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April 04, 2009

Monsanto's 2009 second quarter profits higher than expected

Monsanto Co., the world’s largest seed producer, reported second-quarter profit that topped analysts’ estimates as U.S. farmers increased purchases of genetically modified corn seeds.

Profit excluding an acquisition-related cost in the three months through February was $2.16 a share, St. Louis-based Monsanto said April 2 in a statement. Analysts expected $2.07 a share, the average of 12 estimates in a Bloomberg survey. A year earlier, earnings excluding one-time items were $1.77.

Chief Executive Officer Hugh Grant raised prices for genetically modified seeds and Roundup weed killer, betting farmers would pay a premium for increased output even as crop prices decline. Net income slid 3.3 percent to $1.09 billion, or $1.97 a share, because of the acquisition cost and declining sales of Roundup. Total sales gained 8.3 percent to $4.04 billion.

“You are looking at a company that is still growing 20 percent a year in this market,” Russell Croft, who helps manage $550 million, including Monsanto shares, as a vice president at Croft-Leominster Inc., said by telephone from Baltimore. “The quarter looks pretty good.”

Chief Financial Officer Terry Crews said taxes will be 17 cents a share higher in the second half, contributing to a percentage increase in third-quarter per-share earnings that will be “in the single-digit range” and a fourth-quarter loss that will be wider than a year earlier.

Monsanto fell 33 cents to $81.41 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have gained 16 percent this year.

Monsanto repeated its Jan. 7 forecast for full-year profit of $4.40 to $4.50 a share. The average estimate of 12 analysts in the survey was $4.70, and the company earned $3.62 last year.

The lack of an improved outlook shouldn’t be viewed as a big concern because the company has a history of issuing conservative earnings forecasts, Croft said.

“Even with them being more cautious on the back half of the year, the valuation multiple remains in line for someone with a very good competitive position and no debt on the balance sheet,” Laurence Alexander, a New York-based analyst at Jefferies & Co., said by telephone. He rates the shares “buy.”

Third-quarter profit excluding one-time items was expected to be $1.72 a share, according to the average of 11 analysts surveyed. The analysts estimated a fourth-quarter loss of 5 cents a share, on average.

Net income in the second quarter was hurt by a pretax charge of $162 million, or 19 cents a share, for acquired in- process research and development related to the purchase of sugar-cane developer Aly Participacoes Ltda.

Gross profit from seeds, including engineered varieties and genetics licensed to competitors, rose 21 percent in the quarter to $1.98 billion, Monsanto said. Revenue in the unit gained 20 percent to $3.04 billion as higher prices for U.S. corn and soybean seeds more than made up for reduced plantings in Brazil because of a drought, the company said.

“Corn and soybean profits were stronger than expected,” Alexander said in a report.

Corn futures have declined 50 percent since a June peak, and soybeans have dropped 40 percent from a record in July.

Seed earnings also were hurt by a pretax charge of $42 million to pay South African farmers whose corn plants didn’t produce satisfactory amounts of pollen, the company said.

Gross profit from crop chemicals dropped 5.7 percent to $544 million as sales declined 16 percent largely because customers a year earlier increased Roundup purchases ahead of an announced price increase, Monsanto said.

Grant repeated a pledge to double total gross profit in the five years ending in 2012 as global demand rises for genetically modified seeds that boost yields of corn, soybeans and cotton.

Gross profit from Roundup and related glyphosate-based herbicides will peak this year at about $2.4 billion and decline to “a steady state” of $1.9 billion by 2012 as increased output relieves recent supply tightness and leads to lower prices, Grant said on a conference call with investors and analysts. Monsanto’s growth won’t come from Roundup, he said.

“As we move toward 2012, it will simply once again become the hum in the background of a business where nearly 80 percent of the gross profit is derived from the seeds and genomics platform,” Grant said.

Monsanto next year plans to sell as much as 8 million acres worth of Roundup Ready 2 Yield soybeans, the first new version of the herbicide-resistant beans offered in 13 years. SmartStax corn seed, which contains eight genetic changes to combat weeds and bugs, will be launched next year, and drought tolerant corn should be available by 2012, Grant said.

Monsanto had 36 percent of U.S. corn-seed sales last year and 29 percent of soybean sales, topping DuPont Co., which had 29 percent and 24 percent, respectively, according to UBS AG. Monsanto expects to gain about 2 percentage points of corn market share this year.

U.S. farmers may plant about 86 million acres of corn and 77 million acres of soybeans this year, CFO Crews said. That’s 1 million acres more of each crop than the U.S. Department of Agriculture estimated this week.

Combined plantings of corn, soybean and wheat will drop 2.3 percent this year as farmers cut costs, the USDA said. Corn is the biggest U.S. crop, valued at $47.4 billion in 2008, followed by soybeans, valued at $27.4 billion. The U.S. is the biggest producer of both crops.


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