Monsanto profit forecast trails estimates amid farm pressure

[CHICAGO] Monsanto Co, the world's biggest seed company, forecast a return to earnings growth in fiscal 2017, but one that trailed some analysts' estimates as lower crop prices continue to weigh on farmer spending.

Profit excluding one-time items will be US$4.50 to US$4.90 a share in the 12 months through August, up from US$4.48 in fiscal 2016, the St Louis-based company said Wednesday in a statement.

The midpoint of that forecast range was lower than the US$4.89 average of 18 analysts' estimates compiled by Bloomberg.

The company said earnings growth will be fueled by more sales of its Intacta and Roundup Ready 2 Xtend genetically-modified soybean seeds, while operating expenses will rise "slightly". Monsanto also reiterated that it expects its US$66 billion takeover by Bayer AG, which was announced last month, to close by the end of 2017.

"The softer guidance only makes completing the deal with Bayer that much more important," Chris Shaw, an analyst at Monness Crespi Hardt & Co in New York, said in note. If the takeover doesn't happen, he said, Monsanto shares could trade below where they were before the deal was announced.

Monsanto climbed 1.6 per cent to close at US$103.18 in New York, less than Bayer's all-cash offer of US$128 per share.

Monsanto's customers remain under pressure from low crop prices, something that's helping to depress US farm profits. That in turn has led to aggressive price-cutting among seed companies. Monsanto has also been frustrated by a glut of glyphosate, the herbicide the company sells under its Roundup brand, and a delay to the government's approval of its dicamba herbicide, which has hampered the introduction of dicamba-resistant seeds.

Tough market conditions have led to unprecedented consolidation in crop chemicals. In addition to the Bayer deal, two other large peers may also emerge, through China National Chemical Corp's proposed acquisition of Swiss pesticide maker Syngenta AG and DuPont Co and Dow Chemical Co's plan to merge and then spin off their combined crop-science unit.

Monsanto's fourth-quarter earnings excluding one-time items were 7 US cents a share, beating the average estimate for a 2-US cent loss. The net loss for the quarter was 44 US cents, compared with US$1.06 a year earlier.

Sales rose to US$2.56 billion, compared with the US$2.29 billion average estimate. The three months through August is a seasonally weak period, largely dependent on sales in South America.

BLOOMBERG