ST. LOUIS — Monsanto Co. said higher sales of genetically engineered seeds helped boost its third-quarter profit 77 percent, as the company disclosed federal regulators have subpoenaed the company as part of an investigation into its herbicide business.
Monsanto said the U.S. Securities and Exchange Commission is investigating customer incentives the company paid out for its Roundup herbicide business during fiscal years 2009 and 2010. Monsanto said it is cooperating with an SEC subpoena for documents related to the incentives.
During a conference call with investors, CEO Hugh Grant refused to elaborate on the investigation "out of respect for the SEC and their process." He declined to say what kind of incentives are under investigation or what kind of regulatory action Monsanto might face, if any, saying only that the investigation was in its "early days."
Monsanto has been working for years to shift its business focus away from farm chemicals and into genetically altered seeds, and Grant said the third-quarter earnings show the strategy is working. Profits were boosted by rising sales of engineered corn and soybean seeds, as Monsanto convinced more farmers to buy pricier varieties with several engineered traits.
The St. Louis company reported Wednesday its net income rose to $680 million, or $1.26 per share, for the quarter that ended May 31, compared with $384 million, or 70 cents a share, a year ago. It says revenue increased 21 percent to $3.59 billion.
The results widely beat expectations, with analysts surveyed by FactSet expecting net income of $1.10 per share on revenue of $3.4 billion. Shares of Monsanto rose $3.36, or 5 percent, to close at $70.26.
The unexpectedly high sales prompted Monsanto to raise its 2011 outlook for ongoing earnings per share to between $2.84 and $2.88, from the prior estimate between $2.72 and $2.82.
The fiscal third quarter is critical for Monsanto because it includes the spring months in which the company makes the bulk of its seed sales to farmers. Monsanto is locked in a competition for farmers' dollars with seed developers like Dupont, which owns the seed company Pioneer Hi-Bred. Monsanto is trying to convince farmers to pay a premium for seeds that include many genetically altered traits, rather than choose a cheaper version with just one or two traits.
Monsanto said its total seeds and traits revenue rose to $2.65 billion from $2.36 billion last year. Corn seed sales jumped 10 percent from last year to $1.12 billion. Soybean sales rose 10 percent to $605 million.
Monsanto said sales at its agricultural productivity segment, which produces Roundup, surged 57 percent to $943 million. The segment had been languishing in recent years in the face of cheaper, generic Roundup versions produced in China.
The rise in seed sales came from a mix of U.S. customers who traded up for more expensive brands and from an increased market share in international markets in Latin America and Brazil. Monsanto said it is on track this year to boost the number of U.S. acres with top-of-the line engineered seeds to the "mid-teens millions." That would still be a relatively small share of the roughly 167 million acres of corn and soybeans expected to be planted this year.
Grant has said previously that it's critical to get the more expensive seeds planted on farmers' acres, so they can see the economic benefits of the crops, even if Monsanto has to discount its prices. Once the new lines of seeds get a foothold in the market, Monsanto will be able to charge more for them, Grant said. Shifting to new seed lines is important to Monsanto because the patent on its most popular trait, which makes plants resistant to the popular herbicide Roundup, is set to expire in 2014.
Monsanto can make more money off its newer, patented seeds, like "Roundup Ready 2 Yield" seeds, which the company says are more productive. Grant said Wednesday that the third-quarter sales showed Monsanto's strategy is working. As more farmers plant the new generation of crops, they are seeing the technology first hand, he said.
The number, type or even price of the new traits isn't as important to farmers, who are more concerned with how much the seeds will boost their harvest, he said.
"I don't think there is any one silver bullet, but you have to satisfy the farmer's demand for driving yields" higher, Grant said.