By Jacob Bunge and Anne Steele
Target of Bayer takeover pins hopes on sales of new soybean varieties
Monsanto Co. said it anticipates a return to higher profits next year as the biotech seed maker rolls out new soybean varieties.
Monsanto on Wednesday reported an unexpected profit for its fiscal fourth quarter. While the company will continue pursuing research into high-tech seeds and data science to improve harvests, executives said the main focus has shifted to closing the sale to Bayer.
“We recognize what matters most to our owners now is delivering 2017 and closing the deal,” said Hugh Grant, Monsanto’s chief executive and chairman, on a conference call discussing the results.
Monsanto, along with competitor seed developers like DuPont Co. and farm equipment makers like Deere & Co., has struggled against a three-year slide in major crop prices, spurred on by good weather and bountiful harvests. Cheaper agricultural commodities have translated to sharp declines in farmers’ income, forcing some to hold off on purchasing new combines, switching to generic chemicals or shopping for cheaper seeds.
That decline helped drive Monsanto, which on Wednesday reported its second straight year of declining profits, and other seed makers to pursue mergers the companies say will bolster research capabilities while reducing costs.
For fiscal 2017, Monsanto projected earnings of $ 3.83 to $ 4.35 a share, up from the $ 2.99 a share earned in the company’s fiscal 2016. Soybeans are expected to power much of the growth, with profits in that division — where sales fell 5% to $ 2.2 billion in the past fiscal year — expected to rise by more than one-fifth next year. Monsanto said it is counting on higher sales of insect-resistant soybeans in South America and a new soybean variety resistant to tougher herbicide formulations, which were introduced in the U.S. this year.
The outlook was weaker than analysts expected. BMO Capital Markets called the 2017 projections “disappointing.” Investors remain mixed on Bayer securing regulatory and antitrust approvals for the deal, with Monsanto shares continuing to trade at a steep discount to the $ 128-a-share sale price. The stock recently gained 0.7% to $ 102.33 in early trading Wednesday.
Mr. Grant reiterated his confidence that Monsanto can complete the Bayer deal. He said it was too early to discuss which of the companies’ businesses may need to be divested to secure antitrust approval. Monsanto and Bayer both operate major businesses in cotton and canola seeds, as well as herbicides designed to kill a wide variety of weeds.
A September hearing of the U.S. Senate Judiciary Committee examining the potential effects of the merger deals on farmers and other players, “bolsters” Monsanto’s confidence in the deal, Mr. Grant said.
“It showed the indication of a broader understanding of the factors and the regulatory process,” he said.
In all for the August quarter, Monsanto reported a loss of $ 191 million, or 44 cents a share, compared with $ 495 million, or $ 1.06 a share, a year ago.
Excluding certain items, adjusted per-share earnings swung to a profit of 7 cents from a loss of 19 cents a year earlier. Total sales shot up 8.8% to $ 2.56 billion. Analysts, on average, projected an adjusted a per-share loss of 3 cents on $ 2.36 billion in sales.
Revenue from seeds and genomics, Monsanto’s biggest business, surged 25% to $ 1.57 billion. Sales in its agricultural productivity segment, meanwhile, slid 9.7% to $ 997 million.
Monsanto also addressed a long-running legal battle around health concerns over polychlorinated biphenyl, or PCB, chemical compounds manufactured by its former corporate iteration that for decades were widely used in electrical wiring, caulking and other industrial functions.
The company on Wednesday said it reached a deal to potentially settle all personal injury claims around PCB. Monsanto stopped making the product in 1977.
Write to Jacob Bunge at jacob.bunge@wsj.com and Anne Steele at Anne.Steele@wsj.com
(END) Dow Jones Newswires 10-06-160248ET Copyright (c) 2016 Dow Jones & Company, Inc.
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