Monsanto earnings miss, guidance cut as deal talk continues

Monsanto earnings fell short of expectations for its fiscal third quarter as talks with German pharmaceuticals giant Bayer and other unnamed parties continue.

Last month, Monsanto rejected a $62 billion bid from Bayer, and during a conference call Wednesday, the company reiterated that the Bayer proposal was "financially inadequate."

"Over the past several weeks, with the support of our board and advisors, I have personally been in discussions with Bayer's management regarding this proposal, along with others regarding other strategic alternatives," Hugh Grant, chairman and CEO of Monsanto, said on the call.

"We have said we remain open and we believe our efforts and continued constructive dialogue could allow our joint teams to explore potential next steps," he said.

Those talks could be complicated by headwinds the industry is facing, which weighed on Monsanto's results in the latest quarter.

"While any value discussion is more complex given the fact that the industry is running at a low point in the ag cycle, we recognize the potential value these types of combinations create as they accelerate innovation and increase choice for farmers across a broader set of crops, geographies and production practices," Grant said.

For the fiscal third quarter, Monsanto reported diluted earnings per share from ongoing business operations of $2.17 per share, down 14 percent from $2.51 per share a year ago. The Street had looked for adjusted earnings of $2.40 per share. The adjusted results exclude items such as a restructuring charges, environmental and litigation matters and a net charge of $219 million for tax matters related to an Argentine business.

Revenue was $4.19 billion, down about 9 percent from $4.58 billion a year ago.

Some expect the weak results could help push Monsanto into a deal.

"The combination of weak results and a weaker-than-expected outlook suggests a more conciliatory tone will be taken to merger proposals," said Jefferies analyst Laurence Alexander in a note to clients Wednesday. "We expect a modestly better proposal (e.g. break-up fee, antitrust tactics) before Monsanto's annual meeting." The next annual meeting is in January.

Hopes for a new proposal for the St. Louis-based company pushed the shares up Wednesday, with the stock rising 2.4 percent or $2.43, to $103.52.

For the full-year outlook, Monsanto expects to be at the low end of its ongoing full-year guidance range of $4.40 to $5.10 a share. The company said it remains on track to deliver $165 million to $210 million in savings from its restructuring actions this fiscal year, primarily benefiting operating expenses.

Beyond fiscal 2016, the company said it continues "to target a mid-teens compounded annual growth rate in earnings per share from fiscal year 2017, now advancing to fiscal year 2021 from fiscal year 2019."

In the latest period, the company faced several challenges, but it does see the business cycle starting to turn.

"We encountered several headwinds in the quarter," said Monsanto CFO Pierre Courduroux. "These included the expected absence of last year's Scotts licensing agreements and the anticipated glyphosate pricing declines."

Glyphosate is an active ingredient in Monsanto's Roundup herbicide and among the company's most popular ag productivity products.

Other challenges included "Roundup Ready Xtend-related costs and lower soybean volumes — amplified by the delayed EU import approval — as well as lower cotton gross profit in India arising from pricing regulations and declines in planted acres," Courduroux said.

Roundup is used for weed control in agriculture, industrial and other applications and the company sells seeds with biotech traits that enable crops such as corn, soybeans and cotton to be tolerant of Roundup and other glyphosate-based herbicides.

Management was more bullish on its outlook in South America, saying it believes corn acres in Argentina could increase greater than 20 percent.

"Given our historic share in Argentina corn, this bodes well for the season ahead and beyond. In Brazil, we also see the outlook improving. We expect that acres planted to corn will increase in the mid-single digits," said Brett Begemann, president and chief operating officer.

Correction: This version corrects that Monsanto's fiscal third-quarter diluted earnings per share from ongoing business operations were down 14 percent and that revenue was $4.58 billion a year earlier.