Article

by Carey Gillam

Monsanto Co (MON.N), the world's largest seed company, raised its full-year profit forecast on Wednesday after reporting a better-than-expected second quarter driven by strength in its global corn and herbicide businesses.

Shares were up 1.5 percent after the company, a leading developer of genetically engineered corn, soybeans and other crops, said it expects to sell a record amount of corn this year as it expands product offerings and deepens its penetration in Latin America.

If the company achieves the higher profit it targeted Wednesday, it will be the third consecutive year of greater than 20 percent growth in earnings per share, said Monsanto Chairman Hugh Grant.

"That is an important indicator of our momentum," Grant said on a conference call.

Still, the market reaction was less enthusiastic than it might have been because the gains that beat analysts' already lofty earnings expectations stemmed not from seed sales but from the company's smaller glyphosate herbicide business, and also from a lower tax rate.

"They did beat ... that is the good news, but most of the beat was due to a low tax rate and also due to Roundup (herbicide)," said BGC Financial analyst Mark Gulley.

Edward Jones analyst Matt Arnold also saw the quarterly performance as warranting only modest applause. But, he said, Monsanto appears well situated for continued growth.

"They've got a great portfolio," Arnold said. "The seeds and genomics business is performing quite well. This is a very, very well positioned company."

As well, many analysts expected Monsanto to raise its full-year earnings guidance even higher, to at least $4.58 a share.

Monsanto officials said the strength of the second quarter gave them confidence that they could raise the company's fiscal 2013 earnings guidance by 10 cents a share to a range of $4.40 to $4.50 per share before certain after-tax items. That compares with a target set in January of $4.30 to $4.40 per share.

The outlook for net earnings for the full year was raised to $4.42 to $4.52 a share, up from $4.31 to $4.41.

Monsanto said net earnings in the second quarter, ended February 28, were $1.48 billion, or $2.74 a share, up from $1.21 billion, or $2.24 a share, a year earlier.

It earned $2.73 a share before items, up from $2.28 a year earlier. Analysts were looking for $2.58, according to Thomson Reuters I/B/E/S.

BIG CORN SEEDINGS SEEN

Net sales for the quarter increased 15 percent to $5.5 billion, led by sales of corn seed and genetic traits, which rose more than 16 percent to $3.28 billion. The company benefited from a lower tax rate and a 37 percent jump in sales by its herbicide unit.

That offset a nearly 2 percent decline in sales of soybean seeds and traits, a 7 percent drop in vegetable seed sales, and a 9 percent slide in cotton seeds and traits.

Monsanto's corn revenue gains come as U.S. farmers are preparing to plant what the U.S. government expects to total about 97.3 million acres of corn this year, the most since 1936.

(For a graphic on U.S. corn, soybean and spring wheat plantings, click on link.reuters.com/zyz86t)

Monsanto also said Wednesday that it had $1.6 billion in free cash flow and forecast full-year free cash flow of $1.8 billion to $2 billion. And last week it announced a long-term deal with rival DuPont Co (DD.N) that will bring in at least $1.75 billion in royalty payments over the next several years.

Returning capital to shareholders should be a key priority, Gulley said.

Monsanto officials said Wednesday that they are working to share the riches with shareholders through tactical buybacks of shares and through dividend payouts.

"We are going to move toward returning more of the cash we generate toward our owners," said Monsanto Chief Financial Officer Pierre Courduroux.

(Reporting by Carey Gillam; Editing by Gerald E. McCormick and John Wallace)