Monsanto sees $4.5 billion profit from seeds business in FY09

Monsanto Company is on track to meet the lower end of its earnings guidance for fiscal 2009 with outstanding performance from its seeds and traits business offsetting effects of stronger-than-expected competition for its roundup agricultural herbicides business, the company said in a release.

Monsanto expects its seeds and traits segment to deliver gross profit toward the upper end of its prior guidance of $4.4 billion to $4.5 billion in fiscal 2009.

With strong demand for the company's higher-yielding seeds and trait technologies, Monsanto projects that its corn and soybean businesses combined could generate $3.5 billion in gross profit in fiscal year 2009, or an approximate 20 per cent increase compared with the prior year.

Monsanto expects its earnings in fiscal 2009 to grow approximately 20 per cent year over year - the company's fifth consecutive year of 20 per cent or greater earnings growth.

Free cash flow of the company is now expected to be approximately $1.4 billion for fiscal year 2009, reflecting $2.4 billion in operating cash and $1 billion in investing cash.

For fiscal 2009, Monsanto now expects ongoing earnings per share (EPS) guidance of approximately $4.40 per share, the lowest point in its previously announced range of $4.40 to $4.50.

The company now believes the Roundup and other glyphosate business will generate approximately $2 billion in gross profit, down from its previous forecast of $2.4 billion.

''The continued strong performance of the company's seeds and traits business, combined with lower spending for marketing, administrative functions and incentives are helping to offset the expected decline in the profitability of Monsanto's Roundup business and enabling the company to maintain its full-year guidance,'' it said.

"Even in the face of a $400 million decline in our expected gross profit from Roundup, we can see a path to our fifth consecutive year of 20 per cent or greater earnings growth and a lift in gross margins this year of more than three percentage points for the entire company," said Hugh Grant, Monsanto chairman, president and chief executive officer.

Because of the faster-than-anticipated decline in Roundup, the company now expects to deliver third-quarter earnings, both on an ongoing and as-reported basis, of approximately $1.15 per share. For the second half of fiscal year 2009, the company expects that an approximate 10 per cent growth in gross profit for its seeds and traits segment combined with lower spending will offset the potential 20 per cent gross profit decline in Roundup.

Despite slower planting rates in parts of the Midwest, Grant noted that the US seeds and traits business remains on track to deliver up to one point of market share growth its branded corn seed businesses, and one point of share growth in its soybeans. The company's triple-stack mix remains above 70 per cent, with an estimated 32 million acres of triple-stacked corn sold or licensed by Monsanto in the United States.

Overall, corn gross profit is expected to grow by approximately 20 per cent to $2.6 billion for the full year, with a 1-to-2 percentage point lift in margins to 62 to 63 per cent. Soybean gross profit is expected to grow by better than 20 per cent with margins of roughly 62 per cent. Cotton and vegetable seeds are on track to meet their goals of approximately $300 million and $450 million in gross profit, respectively.  

Selling, general and administrative (SG&A) expenses for the full year are trending toward 18 per cent of sales, while research and development (R&D) should remain in the area of 10 per cent of sales. The expected corporate tax rate for the full year is 28 to 29 per cent.

"With the seeds and traits side of the business accelerating, our management team is focusing on how best to manage our Roundup operations in a way that optimizes returns at a lower percentage of overall revenue," Grant said. "That process inherently will slow our overall growth in 2010 even as farmers will have access to larger volumes of our new technologies next year."

Grant said that the company will speak more specifically to the longer-term outlook for Roundup during its third-quarter earnings call on 24 June.