Monsanto beats expectations with results

By Carey Gillam
Thursday, January 4, 2007; 11:37 AM

KANSAS CITY, Missouri (Reuters) - Monsanto Co. (MON.N) posted a higher-than-expected quarterly profit on Thursday, citing strong sales of U.S. corn seed and herbicide as well as a reduced tax burden, but shares fell as the company elected not to raise its fiscal-year earnings forecast.

Monsanto, a leader in genetically altering crops to resist pests and tolerate weed-killing treatments, said only that fiscal-year results should come in at the high end of its previous outlook.

Argent Capital Management portfolio manager Tom Leritz, who noted that Monsanto typically "underpromises and overdelivers," said the company's reluctance to raise its forecast for the year was weighing on the stock.

"When the price continues to appreciate the way it has, the hurdle becomes higher and higher," Leritz said.

Shares of Monsanto were off 2 percent at $50.58 in late-morning trading.

Monsanto said net income rose 53 percent to $90 million, or 16 cents a share, in the first quarter ended on November 30. Analysts on average were expecting 10 cents a share, according to Reuters Estimates. A year ago, net income totaled $59 million, or 11 cents a share, in the first quarter.

A key boost came from a reduction in Monsanto's effective tax rate for the quarter, which fell to 10 percent from 37 percent, adding 4 cents a share to earnings. The company said its full-year tax rate would be about 30 percent.

Monsanto, which is locked in a tight competition for U.S. corn acres amid booming demand for corn-based ethanol, said its high-margin "triple-stack" corn product, which provides farmers above- and below-the-ground insect resistance as well as herbicide tolerance, was seeing brisk sales ahead of the spring planting season.

"The real blockbuster for the year will be U.S. corn," said Monsanto chairman Hugh Grant in a conference call. Grant said early orders indicate market share growth in the company's DEKALB and Asgrow brands of 1-2 percentage points.

Overall, sales of U.S. corn seed and genetic traits aimed at enhancing performance jumped 35 percent in the quarter to $360 million, Monsanto said. Herbicide sales rose 18 percent to $649 million, driving total quarterly sales to $1.54 billion, up from $1.41 billion a year earlier.

The gains were partly offset, however, as sales of soybean seeds and traits, vegetable and fruit seeds and all other crops and traits fell 18 percent to $320 million.

Monsanto said total U.S. soybean acreage, where it has dominated the market for specialty seeds, may decrease slightly this growing season as farmers devote more land to corn instead.

The company also reported reduced sales of cotton traits in Australia amid drought conditions and lower revenue from its Seminis vegetable and fruit seed business.

Bank of America Equity Research analyst Kevin McCarthy said in a report to investors that the quarterly results were "uninspiring" and he remained neutral on Monsanto shares as Monsanto faces increasing competition, emerging market risk and price concessions in Brazil and India, among other factors.

Monsanto Chief Financial Officer Terry Crews said the majority of the company's earnings would come in the second and third quarters with a loss expected in the fourth quarter.

The company left unchanged its forecast for full-year earnings of $1.50 to $1.57 per share, though it said it expected to hit the top end of that range. Analysts' on average were looking for $1.61.

Monsanto's shares had hit a multiyear high of $53.49 last week.

© 2007 Reuters