Monsanto Gains as Profit, 2008 Forecast Top Estimates (Update2)

Monsanto Gains as Profit, 2008 Forecast Top Estimates (Update2)

By Jack Kaskey

March 25 (Bloomberg) -- Monsanto Co., the world's biggest seed producer, rose the most in seven years in New York trading after preliminary second-quarter profit topped analysts' estimates and the company raised its 2008 forecast.

Monsanto climbed $10.28, or 9.9 percent, to $114.54 at 4:15 p.m. on the New York Stock Exchange, the biggest gain since Jan. 3, 2001. The shares gained 2.6 percent this year and more than doubled in the past 12 months.

Monsanto Chief Executive Officer Hugh Grant is grabbing U.S. corn-seed sales as record grain prices allow farmers to buy genetically modified products that resist bugs and weed killer. Gross profit from seeds may jump as much as 23 percent this year and profit from Roundup weed killer may more than double, St. Louis-based Monsanto said today in a statement.

``Roundup is a big contributor here,'' Jason Dahl, who manages $1.5 billion, including 520,000 Monsanto shares, in the Focused Growth Fund at Victory Capital Management, said by phone from New York. ``The fundamentals are phenomenal.''

Profit in the three months ended Feb. 29 was about $1.75 a share, excluding a settlement-related gain, the company said. That tops the $1.34 average estimate of 15 analysts surveyed by Bloomberg.

The company raised its 2008 profit forecast to $3.15 to $3.25 a share, excluding the settlement, from $2.70 to $2.80. The average estimate of 15 analysts in the survey was $2.87 a share.

`Gained Confidence'

``As we move closer to the Northern Hemisphere planting season, we've not only gained confidence in our 2008 opportunity, but also in our strategic path to 2012,'' Grant said in the statement.

Monsanto said in November that gross profit may double to $8.5 billion by 2012 because of surging demand for genetically modified seeds that boost crop yields. Better-than-expected results will boost total gross profit to as much as 54 percent of sales this year, achieving a 2010 goal ahead of schedule, the company said today.

``While we are still sorting through these numbers, given Monsanto's new gross profit objectives for 2008, we believe the company's new EPS range of $3.15 to $3.25 remains conservative,'' Kevin McCarthy, a New York-based analyst at Banc of America Securities, said in a report.

Net income in the second quarter and full year will include a 23-cent benefit from the settlement of Monsanto's claims related to Solutia Inc.'s emergence from bankruptcy, the company said.

Forecast Raised Again

Monsanto raised its 2008 profit forecast last month because of improved demand for Roundup, and the company today said global demand is outpacing supply. That probably means the company has raised prices for weed killer, Victory Capital's Dahl said. Monsanto has a history of repeatedly increasing its profit forecast and may do so again this year, he said.

Gross profit from Roundup weed killer this year may surge to as much as $1.8 billion, from $854 million in 2007, exceeding the company's February estimate of $1.4 billion. Gross profit from seeds, including traits licensed to competitors, may jump to as much as $3.7 billion in 2008, Monsanto said.

Corn futures are up 35 percent in the past year and reached a record $5.795 a bushel on March 11 in Chicago. Soybean futures gained 70 percent in the past year and reached a record $15.8625 a bushel on March 3.

Farmer incomes will continue to rise in tandem with global grain demand, Grant said in a Feb. 6 telephone interview. Rural Chinese are flooding the nation's cities and adding meat to their diets, buoying grain demand for years to come, he said.

Triple-Stack Seeds

So-called triple-stack corn seeds will be planted on as many as 27 million acres in the U.S. this year, up 50 percent from 2007, Monsanto said last month. Triple stacks, the company's most-profitable seeds, are engineered to resist Roundup weed killer and insects above and below ground.

The company has said it expects to win an additional 3 to 5 percentage points of the U.S. corn-seed market this year. Monsanto last year surpassed DuPont Co.'s Pioneer unit as the largest producer. Monsanto had 32 percent of U.S. corn-seed sales in 2007, and DuPont had 30 percent.

Monsanto's cost controls also are boosting results. Selling, general and administrative costs are 20 percent of sales, compared with an October forecast of as much as 21 percent, the company said. Research-and-development expenses will be 9 percent of sales this year, less than the 10 percent forecast in October, Monsanto said.

Free cash flow will be $1.4 billion this year, higher than an earlier forecast of as much as $1 billion, the company said.

Monsanto plans to announce full results for the fiscal second quarter on April 2.