April 7, 2011
Increased demand for biotech seed raises Monsanto earnings
Increasing sales of revolutionary corn and soy seed, and the reverting by farmers back to cotton, aided Monsanto in raising second-quarter earnings by 15% which surpassed Wall Street predictions.
Nevertheless, the failure of the world''s largest seed company to raise its earnings approximations disappointed investors, who sent its shares down 5%.
Monsanto announced earnings of US$1.02 billion for the December-to-February period, historically its most profitable quarter, which translates to US$1.87 a share on an underlying basis, higher than the US$1.84-a-share result forecasted by analysts.
The improvement, on revenues up 6.1% to US$4.13 billion, showed the increasing attractiveness of its genetically modified seeds among farmers expected to increase plantings of major crops by more than eight million acres this year in the US alone, and maximise yields to make the most of high crop prices.
American farmers, expected to increase total corn plantings by four million acres to 92.2 million acres, were on course to sow 13-17 million acres with Monsanto''s high-end Genuity Reduced Refuge brand of genetically modified seed.
Growers were expected to raise the area planted with Monsanto''s flagship biotech Genuity Roundup Ready soy seed to about the same level, from six million acres last year, in spite of predictions of a small decline in total US plantings of the oilseed.
The rising take-up of more high-end products creates a positive mix improvement in corn and soy operations, the company said.
Monsanto also said that its sales of branded seed in Brazil and the EU rose too, while its cotton business was doing well, aided by the fibre''s renewed popularity among growers after a rise in prices to record highs.
However, while the group earns substantially more from corn or cotton, per acre, than soy, the switch to corn and cotton forecast by analysts and the USDA would not have a large impact on group profits.
"In 2011, for every one million acres that shift from soy into corn or into cotton, we would expect only an estimated US$0.02-0.03 earnings per share change on average," Monsanto said. "With brands in corn, cotton and soy, Monsanto is positioned to meet demand regardless of normal fluctuations in crop planting patterns in any given year."
Indeed, the group stuck by a prediction of reported earnings for the whole financial year coming in at US$2.66-2.79 per share.
However, with analysts having already forecasted a US$2.85-a-share result, the prospects disappointed investors, who sent Monsanto stock down 5.7% to US$69.16 in New York.