Monsanto Raises Guidance, Right Ahead of Earnings (MON, MOO)

Monsanto (NYSE: MON) has just raised its guidance for earnings per share and for free cash flows.  The company is now projecting $3.15 to $3.25 EPS for fiscal-2008 targets, up from its prior guidance of $2.70 to $2.80 EPS.  It does note that its as reported EPS will be in a range of $3.38 to $3.48 for the full year.  Free cash flows are now being put at approximately $1.4 Billion, above the $900 million to $1 Billion previously offered.

For the coming quarter it sees $1.75 in ongoing EPS, although its as reported EPS in the range of $1.98.

The second quarter, and therefore the full year, will be favorably affected by a $0.23 item from a settlement of Monsanto’s claim in conjunction with Solutia’s emergence from bankruptcy.  First Call estimates are listed as $1.35 EPS for the quarter and $2.87 EPS for the fiscal-August 2008 year-end.

Upside contribution is coming from its seeds and traits business, along with Roundup and other herbicides.  Much of this strength is based on the previewing of the Northern Hemisphere planting season.  Gross profits from its seeds and traits business is running ahead of plan and is now expected to show 20% growth with gross profits of $3.6 to $3.7 Billion. Roundup is now expected to show $1.7 to $1.8 Billion in gross profits.  Monsanto is now expected to achieve its original target of reaching a 52% to 54% gross margin by 2010 two years ahead of schedule.

Monsanto says that it will continue to look for ways to invest in acquisitions that further growth, and it cash flows support the current business’ growth and dividend and share-repurchase programs.  Earnings will formally be announced on April 2, 2008.

If you ever wonder why companies issue their guidance just days ahead of the formal date, it is often because the shares have pulled back.  Shares closed down at $104.26 yesterday, but that is down from recent highs of $129.28.  So far it appears to be working, as shares are up 9% to $113.70 in pre-market trading.

This raised guidance was strong enough that it is also helping out the ETF in the Agriculture sector, as the Market Vectors Global Agribusiness ETF (AMEX: MOO) is trading up 2.3% at $54.76 in pre-market trading.

Jon C. Ogg
March 25, 2008