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Monsanto flags 'signs of ag recovery' - even as it unveils profits drop

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Monsanto cut its profit hopes, again, even as it heralded the end of the agriculture downturn, with the downgrade reflecting a $219m hit on Argentine tax accounting, besides a worsened operational outlook.

The US-based group, the world's biggest seeds company, said it would report profits for the year to the end of August at the "low end" of a range of $3.36-4.14 per share.

The downgrade reflects the latest of a series of cuts in profit hopes by Monsanto, which had initially expected to report full-year earnings of $4.44-5.01 per share. Three months ago, the estimate range stood at $3.72-4.48 per share.

The group said that its latest revision reflected "Argentine tax-related matters", and a charge of $219m as it cut the value of deferred tax assets in the South American country.

"With growth in the [Argentine] business, the company would expect so see this allowance reversed partially, or in full, over time," the company said.

Operational downgrades

However, Monsanto also cut to "down just under 5%" its estimate for gross profits in its key seeds division, which it had previously said would achieve a "relatively flat" performance in the financial year.

The agricultural productivity business, which includes the glyphosate weedkiller Roundup, was seen reporting achieving full-year profits "at the low end" of the target range of $900m-$1.1bn.

Monsanto in March guided investors a result at the "mid-point of the range".

Corn vs soybeans

The downgrades followed a February-to-May quarter for which Monsanto reported earnings of $717m, down 38% year on year, on revenues down 8.6% at $4.19bn.

The drop reflected largely a halving, to $331m, in gross profits at the agricultural productivity division, fuelled by "lower Roundup pricing".

Profits in seeds and genomics were flat at $2.05bn, with gains in corn and vegetables products offsetting falls in soybeans and cotton.

'Signs of recovery in agriculture'

Monsanto's group earnings for the quarter, equivalent to $2.17 per share, fell short of the $2.40 per share that investors had expected.

Nonetheless, Monsanto shares gained 2.6% to $103.76 in early deals in New York - outperforming a 0.9% rise in the average share, as measured by the Dow Jones industrial average – as the company outlined signs of recovery in the sector.

"Our industry is running at a low point in the overall agriculture cycle, and we've experienced an unforeseen level of challenges affecting out business in fiscal year 2016," said Hugh Grant, the Monsanto chairman and chief executive.

"Today, however, we anticipate positive resolution on the horizon for several of these challenges, coupled with early signs of recovery in agriculture."

The group flagged "signs of positive resolution… for several of the headwinds" it has been facing, including the European Union review of glyphosate weedkillers.

And it forecast a return to growth in earnings per share in its 2017 financial year, which starts in September, plus a target of earnings per share growing at mid-teens levels, on a compounded annual basis, for the following four financial years.

By Mike Verdin

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