Monsanto posts worse-than-expected earnings

Monsanto posts worse-than-expected earnings

Net income was $717 million, compared to $1.14 billion a year earlier.

by Lydia Mulvany

Monsanto Co., the world’s largest seed company, posted worse-than-expected fiscal third quarter earnings amid continued pressure from weak global agricultural markets. The company also said it’s been in discussions “with others” seeking alternatives to a proposed bid from Bayer AG.

Related: Bayer bids $62 million for Monsanto

Monsanto posts worse-than-expected third quarter fiscal results. (Photo: Duncan Smith/Thinkstock)

Net income was $717 million, or $1.63 a share, in the three months ended May 31, compared with $1.14 billion, or $2.39, a year earlier, St. Louis-based Monsanto said in a statement Wednesday. Profit excluding one-time items was $2.17 a share. That’s lower than the $2.42 average of 17 analysts’ estimates compiled by Bloomberg. Sales fell to $4.19 billion from $4.58 billion a year earlier, trailing the $4.49 billion average estimate.

“Our industry is running at a low point in the overall agriculture cycle and we’ve experienced an unforeseen level of challenges affecting our business in fiscal year 2016,” Hugh Grant, chairman and chief executive officer, said in the statement.

The worse-than-expected results undercut the company’s argument that Bayer’s proposed $53.7 billion bid is less than adequate. Monsanto has been facing aggressive cutting of seed prices by competitors and falling prices for the herbicide glyphosate amid overproduction by Chinese generic producers.

Related: Monsanto rejects Bayer’s $62 billion bid

‘Alternative’ Options

“While there is no formal update on the Bayer proposal, I have been personally in discussions with Bayer’s management over the last several weeks, along with others regarding alternative strategic options,” Grant said. “We remain open and will continue to actively engage in constructive dialogue to pursue value enhancing strategic options.”

Related: Monsanto due diligence looms as next step in Bayer deal push

Bayer made an offer in May to acquire Monsanto for a $122-a-share, all-cash offer, which the company rejected as too low. Discussions between Bayer and Monsanto are at an impasse at the moment, with the German company seeking to do due diligence on Monsanto’s book, while Monsanto is holding out for a higher bid first, people familiar with the matter said earlier this month.

The bid adds to the wave of consolidation in the agricultural chemicals sector. Aside from Bayer’s bid for Monsanto, China National Chemical Corp. said in February that it reached a deal to buy Syngenta AG, and Dow Chemical Co. and DuPont Co. announced in December they would merge before breaking into three separate entities.

Related: Monsanto earnings to weigh on prospect of higher Bayer offer

Positive headwinds

In a media statement, the company said it is seeing signs of positive resolution of several issues, including:

-18-month extension of existing authorization for glyphosate use in the European Union.

-Anticipated E.U. approval for Roundup Ready2 Xtend stacked trait.

-Argentina’s policy to support mandatory testing for tech traits in soybeans.

Fiscal year outlook

Monsanto’s fiscal year 2016 full-year as reported earnings per share is expected to be at the low end of the $3.36 to $4.14 adjusted range, according to the media statement. The company also expects to be at the low end of its ongoing EPS full-year guidance range of $4.40 to $5.10.

Net cash provided by operating activities is expected to be $2.2 billion to $2.6 billion and net cash required by investing activities is expected to be about $900 million to $1.4 billion for fiscal year 2016. Full year free cash flow projections for fiscal year 2016 are $1.3 billion to $1.5 billion.

The company expects gross profit growth from its Seeds and Genomics segment to be down about 5% for the full fiscal year.

Growth in fiscal year 2017 is expected to be partially offset by declines in glyphosate pricing.

Monsanto was little changed at $101 at 8:17 a.m. before the start of regular trading in New York.

Related: Monsanto reported to rebuff new Bayer offer

To contact the reporter on this story: Lydia Mulvany in Chicago at [email protected]

To contact the editors responsible for this story: Simon Casey at [email protected]

Millie Munshi, Robin Saponar

© 2016 Bloomberg L.P

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