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Monsanto cuts earnings hopes, as tumbling peso weighs

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Monsanto cut its forecast for full-year earnings, despite unveiling a smaller decline into quarterly loss than investors had expected, as the depreciation in the Argentine peso added to headwinds.

The US group, the world's biggest seeds company, reduced to $4.12-4.79 per share, from $4.44-5.01 per share, its forecast for earnings in the year to the end of August.

Underlying earnings per share will fall within the "lower half" range of $5.10-5.60 previously guided too.

Monsanto also trimmed to $1bn-1.2bn, from $1.1bn-1.3bn, the net cash thrown off by its operating activities.

Peso pressure

The downgrades came despite the group reporting, at $0.11 per share, a smaller underlying loss for the September-to-November period than the $0.23-0.33 per share than it had guided too.

The loss was also less than the $0.26 per share expected by Wall Street.

However, Monsanto highlighted timing changes relating to a restructuring programme which it increased from 2,600 jobs to 3,600 jobs, and said it now expects to yield cost savings of $500m, compared with previous expectations of at most $400m.

It also underlined an increase to $0.60-0.70 per share, from $0.35-0.40 per share, in the "headwinds from currency" expected for the full-year.

The group highlighted the "recent currency devaluation in Argentina", where the peso has plunged to stand at 13.70 to $1 on Wednesday, down from 9.8144 pesos per $1 on December 16, before the country's new government liberalised the currency as one of its first acts in power.

A weaker currency cuts the value, in dollar terms, of Monsanto's earnings in the country, besides making imports more expensive for Argentine farmers – a combination which in Brazil has already tripped up many major agriculture companies.

Corn seed downturn

Indeed, Monsanto attributed its decline to an after-tax loss of $253m in the latest quarter - from a $243m profit a year before -largely to "weaker foreign currencies", as well as to lower prices of glyphosate weedkillers – the type which includes its Roundup brand.

The group also attributed the loss - the first for a September-to-November quarter in six years - to lower volumes in Latin America of corn seed sales, as farmers switch to soybeans, which have been offering them better returns prospects.

Monsanto's gross profits from corn seed for the quarter tumbled by 30% to $366m, on sales down 19.8% at $366m.

While the group trumpeted better-than-expected Brazilian sales of its Intacta genetically modified soybeans, gross profits from the oilseed, while up 9.0% at $302m, could not offset the decline in corn.

Overall gross profits in Monsanto's seeds division fell by 23% to $728m.

Corn pledge

The agricultural productivity division, meanwhile, saw profits tumble by 63% to $173m, on sales down 34% at $820m.

The downturn reflected timing factors, as well lower herbicide prices, with the group sticking by expectations of a divisional gross profit of $900m-1.1bn for the full year, and sales of some 300m gallons of glyphosate.

For the seeds division, Monsanto "affirmed its intent" to hold, or increase, its share "in every major corn market again in 2016", and unveiled advances in its product pipeline.

It forecast an increase of 5-7% in gross profits from its seeds division in the year to the end of August, compared with a previous forecast of "mid-to-high single digit growth".

Monsanto shares stood 1.3% lower at $95.51 in early deals in New York.

By Mike Verdin

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