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Monsanto Holds Fast to 2011 Guidance

Monsanto posts a slightly wider loss than Wall Street was expecting, but the company held fast to guidance in the face of disappointing early results for its corn seed this harvest season.
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(Monsanto earnings item updated with analyst commentary and for stock-price movement.)



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spilled slightly more red ink during the fourth quarter than analysts were expecting, but the the company held fast to its financial guidance for 2011, which

had become a point of some concern

after an important new corn seed showed disappointing results in the early part of the harvest season.

Directly after the opening bell Wednesday morning, Monsanto shares shot as high as $51.27, or more than 5%, but they've since eased back. Recently, they were changing hands at $49.69, up about 2.4% on heavy volume. The early spike may have been caused by some short covering; as of Sept. 15, about 10 million shares were in the hands of short sellers.

In its earnings press release and during a later conference call to discuss results with analysts, Monsanto basically confirmed what it had been telling Wall Street since it pre-announced fourth-quarter numbers in early September. The company expects to record per-share earnings growth next year of between 13% and 17% from the $2.41 it reported for fiscal 2010. That would put the company's 2011 EPS at somewhere between $2.72 and $2.82. The consensus among analysts for Monsanto's full-year earnings in 2011 had been $2.83.

Monsanto also sought to reassure investors that sales of its new corn seeds would be OK next year, despite a

lackluster start to the harvest season

, in terms of yields, for the company's all-important SmartStax product. The genetically modified seeds were planted commercially for the first time in 2010.

Monsanto had been criticized by farmers for the high prices it had charged for the SmartStax seeds, which sport certain kinds of bioengineered traits that growers in certain regions have said they don't require (a gene that promises to defend a plant against a pest that doesn't exist in some areas, for instance).

That blow back from its customer base forced Monsanto earlier this year to cut prices, and to revise the aggressive growth goals it had targeted for the next few years. Monsanto has also been dogged by the continued crumbling of its Roundup weedkiller business amid severe generic competition from manufacturers in China, not to mention studies that have shown a rising resistance among weeds to the the chemical. Monsanto had to slash prices for Roundup, which also hurt its overall earnings this year.

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Monsanto's stock has lost about 40% of its value in 2010, hammered by investors for that string of bad news. The decline recently gave rise to speculation that Monsanto would begin a share buyback program, but the company's management squelched that theory during the conference call, denying that such a program was imminent or even likely.

In its press release, Monsanto said, "In corn, the company will execute on its plan to offer farmers more choices of products at more price points and expects to earn the farmer's business on mid-teens millions of acres total," which includes mostly SmartStax, but also a much smaller portion of acres from two older legacy corn seeds.

That "mid-teens millions of acres" also confirms earlier guidance from the company. Still, in reiterating that projection, Monsanto may have offered up at least some hope to investors that SmartStax's early yield disappointments this harvest season won't torpedo its ability to sell the stuff next year. Many analysts had trimmed their forecasts for SmartStax sales volumes for 2011, based on those subpar yields.

"I still believe there's some upside" to the stock, said Colin Isaacs, an analyst with

Atlantic Securities

in London. "The SmartStax issue has probably been overdone."

Isaacs, who has a neutral rating on Monsanto stock, also noted that within the next six months, the company could receive approval from U.S. regulators to begin mixing SmartStax seeds in bags that also contain non-genetically modified seeds. Approval, he added, would give a boost to sales. "There's still a lot of value in the pipeline," Isaacs said.

Data tracking the seed's yield performance this year will continue to emerge until the harvest in the North American bread basket is complete. Monsanto plans to will make a statement on the results in early November.

As for the fourth quarter, a seasonally slow period that typically results in red ink for the company, Monsanto lost 9 cents a share, excluding charges, wider than the 6 cents a share that analysts were expecting on average, according to

Thompson Reuters


Still, the company improved its performance compared to the year-ago period. Monsanto's net loss for the quarter ended Aug. 31 came to $143 million, narrower than the $233 million it lost a year earlier.

Revenue, too, improved year-over-year, inching up 4% to $1.95 billion.

-- Written by Scott Eden in New York

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