ST. LOUIS — Rising corn seed sales helped boost Monsanto Co.'s second-quarter profit by 15 percent compared to last year, but the company warned that seed discounts and continued losses on its popular Roundup herbicide would trim profits for 2011.
The pessimistic outlook dragged Monsanto's stock down more than 4 percent. Second quarter results are critical for Monsanto, because they cover a period when the company books its seed sales to farmers. As the world's biggest seed company, Monsanto is tying its future profitability to genetically altered seeds and moving away from its historical strategy of selling pesticides and herbicides.
CEO Hugh Grant said the results showed that Monsanto has been successful in its strategy to convince farmers that they should pay more money for genetically engineered seeds containing several of Monsanto's patented traits. Corn seed revenue jumped 7 percent during the quarter as farmers bought more seeds "stacked" with several traits.
But the higher sales came at a cost.
Grant said the St. Louis company cut deals with farmers so they would buy higher-end seeds, although he didn't specify the level of discounts. The price cuts helped get the seeds planted on more acres, which will help lock out competitors like DuPont Co. Grant said last year Monsanto would gradually raise prices as farmers see the benefit of the crops.
"If I've learned anything in the last year, it's the importance of promoting (seed) adoption," Grant told investors during the conference call. "It would be foolish for us to dampen adoption ... by being overly ambitious on price."
Grant said seed price increases will remain small through 2012, tracking closer to the rate of inflation rather than the 10 percent to 15 percent price hikes many investors would like to see.
At the same time, generic completion from companies in China and elsewhere has all but erased the profit margin of chemicals like Roundup. The company said Wednesday that losses in the herbicide division will make its fourth quarter loss larger than usual, though it didn't specify by how much.
Monsanto's forecast for the year was below what analysts expected. The company affirmed its full-year earnings forecast of $2.72 to $2.82 on an ongoing basis and between $2.66 and $2.79 per share on an as-reported basis. Analysts surveyed by FactSet expected earnings of $2.85 for the year.
Its shares fell $3.22, or 4.4 percent, to $70.10 in midday trading. They are still closer to the upper end of their 52-week range of $44.61 to $76.69.
The company's second-quarter earnings beat Wall Street estimates. Monsanto reported its net income rose to $1.02 billion, or $1.88 per share, for the quarter ended Feb. 28 compared with $887 million, or $1.60 a share, a year ago.
Revenue increased 6.2 percent to $4.13 billion from $3.89 billion. That included $2.4 billion in corn seed revenue.
Analysts expected earnings of $1.84 per share on overall revenue of $4.15 billion.