Monsanto Expects Growth From Flagship Herbicide This Year -- Update

Monsanto Co., looking to wrap up its sale to German chemical conglomerate Bayer AG, reported lower-than-expected results in its latest quarter as sales of corn seeds declined.

The $57 billion deal, which would create the world's largest supplier of pesticides, seeds and crop genes, is expected to close early this year as the companies push for regulatory approval.

In recent months, Monsanto has faced both legal challenges and questions from regulators over two of its weed killers. The agricultural giant in October sued the Arkansas State Plant Board following the board's decision to bar Monsanto's new herbicide dicamba, claiming that its product was being held to an unfair standard.

But in November, the European Union ended a yearslong dispute and renewed a license for Monsanto's weed killer glyphosate, a herbicide that the World Health Organization's International Agency for Research on Cancer concluded had the potential to cause cancer in humans. Those findings have been refuted by the U.S. Environmental Protection Agency and other chemical regulators, and Monsanto has dismissed the findings as "agenda-driven."

Monsanto said pricing gains on glyphosate helped boost sales during the quarter and it expects pricing to continue to improve sales for the rest of the year. Monsanto also said it would move ahead with plans to invest in a dicamba manufacturing plant, set to be completed in 2020.

Total sales were essentially flat as increased sales from herbicides and soybean seeds barely offset a 17% decline in its corn seed and traits segment, the company's largest by revenue.

Overall for its first quarter Monsanto reported a profit of $169 million, or 38 cents a share, up from $29 million, or 7 cents per share, a year earlier. On an adjusted basis, earnings grew to 41 cents from 21 cents. Revenue edged 0.3% higher to $2.66 billion.

Analysts polled by Thomson Reuters had forecast earnings of 42 cents on $2.77 billion in revenue.

Monsanto didn't provide specific guidance for the year in light of its pending deal with Bayer. The company said it expects a benefit from the new U.S. tax legislation beginning in 2019 and that it could have an effective tax rate significantly lower than the 30% guided for the current year.

Shares edged 0.2% higher to $117.70 in premarket trading. The stock has risen 12% over the past 12 months.

Monsanto Co. anticipates reaping bigger profits this year from its flagship weed killer.

The maker of Roundup herbicide said that higher generic prices for the product's main chemical, glyphosate, would boost Monsanto's business over the coming year as the company works to close its planned sale to Bayer AG.

Glyphosate is the world's most widely used herbicide, and underlies much of Monsanto's franchise in crop seeds. Monsanto sells corn, soybean and cotton seeds genetically engineered to withstand glyphosate, which have come to dominate U.S. farm fields. The St. Louis company also sells the spray itself.

The division that sells glyphosate represents about 11% of Monsanto's profit. Executives on Thursday projected growth in the business this year as Chinese chemical companies, among the largest suppliers of generic glyphosate, implement new government-mandated environmental controls.

"They've been talking about it for years, but they're actually starting to do it now," said Hugh Grant, Monsanto's chief executive, on a conference call discussing the company's quarterly results.

Relocating Chinese glyphosate production to industrial sites and adding new pollution containment systems has driven generic prices for the chemical higher, allowing Monsanto to raise its own price for Roundup, executives said.

The chemical came under attack in 2015 after the International Agency for Research on Cancer, a World Health Organization agency, classified glyphosate as likely having the potential to cause cancer in humans. That finding, harshly criticized by Monsanto and farm groups, prompted lawsuits and calls for regulators to re-examine its use.

Monsanto has scored some recent victories in its defense of glyphosate. The European Union in late November approved the use of glyphosate for another five years after a two-year dispute among member nations, some of which voted against extending the license. Last month, the U.S. Environmental Protection Agency concluded that glyphosate is unlikely to cause cancer in humans, corroborating earlier findings.

The company is still fighting a California state requirement that glyphosate manufacturers label the herbicide as a potential carcinogen. Monsanto is also defending against lawsuits from farmers and other plaintiffs, alleging they got cancer from Roundup exposure and that the company hid that risk.

The European Union, which last year raised "serious doubts" about Monsanto's planned $57 billion sale to German chemical conglomerate Bayer, expects to rule on the merger by March 5. Monsanto expects the deal to close "in the early part of 2018," Mr. Grant said.

Monsanto didn't provide specific profit guidance for the year in light of its pending deal with Bayer. The company said new U.S. tax legislation could give it a tax rate in 2019 significantly lower than the 30% expectation it has set for the current year.

Monsanto on Thursday reported a fiscal first-quarter profit of $169 million, or 38 cents a share, up from $29 million, or 7 cents per share, a year earlier. Revenue edged 0.3% higher to $2.66 billion. Analysts had forecast earnings of 42 cents on $2.77 billion in revenue.

Monsanto shares were 54 cents higher at $118 in midday trading.

--Imani Moise contributed to this article.

Write to Jacob Bunge at jacob.bunge@wsj.com

(END) Dow Jones Newswires

January 04, 2018 13:48 ET (18:48 GMT)