(Bloomberg) -- Monsanto Co. posted a surprise fourth-quarter profit and said it still expects a surge in sales of a controversial line of genetically modified soybeans, despite complaints that an herbicide used along with the seeds has damaged some U.S. crops.
The world's largest seed company's profit excluding one-time items was 20 cents a share, it said Wednesday in a statement, compared with the 42-cent loss that was the average of 14 analysts' estimates compiled by Bloomberg. The beat was largely due to tax benefits and the unexpected granting of corn licenses in Brazil, Bloomberg Intelligence analyst Chris Perrella said. The shares rose to their highest in more than two years.
The St. Louis-based company also said its Roundup Ready 2 Xtend soybeans will cover more than 20 million acres in the U.S. in 2017 and in excess of 40 million next year. That's essentially unchanged from an August projection, despite concerns about the herbicide.
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“That would be a very big deal,” if Monsanto is able to execute its plan to expand its soybean footprint, Matt Arnold, an analyst at Edward Jones & Co. in St. Louis, said before the earnings were announced. “The product carries premium pricing” and that would hit the bottom line “if they penetrate that many acres.”
There has been speculation the company would take a hit from problems experienced by some growers this year as they apply dicamba, a weedkiller that Xtend seeds have been genetically modified to withstand. In some cases, the chemical has been "drifiting" across other fields that aren't planted with dicamba-resistant crops. At least 2.5 million acres (1 million hectares) were damaged in the latest growing season through mid-July, according to one estimate.
The issue led Missouri and Arkansas to implement temporary bans on dicamba earlier this year. Monsanto maintains that errors in applying the pesticide are to blame for any damage. But some observers question whether the chemical is drifting because it's too volatile.
The volatility may be inherent in dicamba's chemistry, in which case there could eventually be tougher rules on its usage, and lower adoption of Xtend, putting Monsanto's entire growth plan in jeopardy, Jonas Oxgaard, an analyst at Sanford C. Bernstein & Co. Inc., said in a note on Tuesday. Farmers may be hesitant to use dicamba if they fear they're liable for crop losses on a neighbor's land, Arnold said in an interview.
“It all comes down to, is the dicamba issue a chemical problem or an application problem?” Oxgaard said.
Soybean demand in the U.S. is expected to increase 4.4 percent this year, according to the U.S. Department of Agriculture. That's one of the few bright spots amid a sustained slump in the broader agricultural economy. American farmers are cash-strapped, with the government forecasting their income at $63.4 billion this year, down 49 percent from 2013. Their debt-to-income ratio has risen to the highest since 1984.
Pending Deal
Monsanto is in the midst of trying to get regulatory approval for its $66 billion takeover by Bayer AG. The deal is likely to be delayed until early 2018, Bayer said in September. Monsanto said Wednesday that it's continuing to make progress on closing the deal. The company didn't provide financial forecasts for fiscal 2018, citing the pending takeover.
Monsanto's fourth quarter is typically its weakest, since most sales in the U.S. have been concluded while Brazilian farmers have yet to get going, according to Oxgaard. Revenues were $2.69 billion in the period, more than the $2.53 billion average estimate.
Monsanto shares were up 0.4 percent at $120.21 at 10:02 a.m. in New York, after earlier gaining as much as 0.7 percent.
To contact the reporters on this story: Lydia Mulvany in Chicago at lmulvany2@bloomberg.net, Mario Parker in Chicago at mparker22@bloomberg.net.
To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net, Reg Gale
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