Traders Applaud Monsanto Profit

Shares jump after the company tops analysts' estimates, but a few uncertainties loom.
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Shares of

Monsanto

(MON)

rose Thursday, as investors indicated that strong second-quarter earnings outweighed some future uncertainties.

Shares closed up 2.5%, or 55 cents, at $23.00, as the farm-chemicals and agricultural-biotechnology company reaffirmed previous year-end earnings guidance and beat analysts' estimates for the second quarter. The stock had climbed as high as $23.55 at one point.

Monsanto said year-end earnings per share would be $1.30 to $1.40, slightly narrowing a forecast of $1.25 to $1.40 made in late May.

Monsanto earned $295 million, or $1.12 a share, for the three months ended June 30 -- a doubling of the $147 million, or 56 cents a share, for the same period last year. A consensus of nine analysts polled by Thomson First Call had predicted $1.02 a share.

Revenue for the three months ended June 30 rose 8% to $1.68 billion from $1.55 billion for the company based in Creve Coeur, Mo., a St. Louis suburb.

Monsanto also said the executive committee of its board of directors had authorized the repurchase of $500 million worth of common stock over three years. At Thursday's price, the buyback would represent 8% of the company's shares.

Monsanto's second quarter was highlighted by a more-than-doubling of its sales of genetically engineered seeds and seed traits designed to fight insects and/or tolerate the company's family of Roundup herbicide products. Sales jumped to $488 million from $214 million for the same period last year.

The company estimated that its bioengineered seeds were planted on approximately 104.8 million acres in the U.S., up from 97.3 million acres last year.

Sales of Roundup and other herbicides containing glyphosate -- Roundup's main ingredient -- dropped to $739 million from $844 million. Monsanto lost patent protection on glyphosate in September 2000, and generic competitors have swooped in.

Hugh Grant, Monsanto's president and chief executive, said the second quarter's performance marked a turning point in the company's transition from its reliance on Roundup to its advances in crop biotechnology.

But Monsanto also cautioned investors about some uncertainties, such as the company's ability to manage its Roundup herbicide franchise, which under increasing attack by generic competitors and the impact on biotech seed sales of European countries seeking to label foods with genetically engineered ingredients.

Another uncertainty is Monsanto's financial liability over the financial decay of

Solutia

(SOI) - Get Report

., a St. Louis-area chemical company suffering from a negative net worth; a string of lawsuits alleging health and environmental pollution damage; higher raw material and energy costs; and a stock that has spent most of July trading below the $2 price of a New York City bus ticket. In late afternoon trading, Solutia's stock was down 7.7%, or 10 cents, at $1.20.

Solutia was spun off by Monsanto in September 1997. Monsanto was subsequently acquired in April 2000 by

Pharmacia

, which wanted the company for its pharmaceutical business.

Pharmacia then respun Monsanto as an independent company in October 2000, with a public offering of about 15% of new Monsanto shares. Pharmacia completed the spinoff 11 months ago. And earlier this year,

Pfizer

(PFE) - Get Report

acquired Pharmacia.

Monsanto must indemnify Pharmacia/Pfizer if Solutia fails to meet obligations related to environmental cleanups, Solutia retirees' benefits and litigation related to health and environmental claims by Alabama residents over a former plant owned by the old Monsanto that produced polychlorinated biphenyls (PCBs).

The ultimate amount of Monsanto's liability, "cannot be calculated" at this time, said Terrell K. Crews, Monsanto's chief financial officer, in a Thursday telephone conference call with analysts and investors.

On Tuesday, Solutia issued a second-quarter financial report showing that the company lost $21 million, or 20 cents a share, compared with a profit of $23 million, or 22 cents a share, for the same period last year. Solutia painted a grim picture of an "ongoing cash drain" caused primarily by the PCB-related lawsuits.

John Hunter, Solutia's chairman and chief executive, warned that "without a dramatic change in circumstances," the litigation "will significantly restrict the alternatives" that Solutia will have to address "future liquidity requirements with respect to bond maturities in late 2004 and early 2005?"

On Thursday, Bear Stearns cut its rating on Solutia to underperform from peer perform.

Also on Thursday, Monsanto took notice of the bad news issued by its next-door neighbor by stating: "Obviously, these disclosures by Solutia suggest an increased level of potential risk for Monsanto."