Seed Today

Syngenta Profit Rises 25 Percent on Pesticide, Seed Demand

(July 24, 2008) -- Syngenta AG, the world's biggest maker of agricultural chemicals, reported a 25 percent increase in first-half profit and raised its earnings targets as record grain prices spurred farmers to buy more pesticides and seeds. Net income rose to $1.52 billion, or $15.93 a share, from $1.22 billion, or $12.43, a year earlier, Basel, Switzerland- based Syngenta said in a statement today. Analysts in a survey predicted profit of $1.47 billion.

Syngenta, the maker of the Karate pesticide brand, raised its forecast for earnings growth this year to more than 35 percent as farmers spend more on chemicals and high-yielding crops. Chief Executive Officer Mike Mack is stepping up his challenge to St. Louis-based Monsanto Co., the world's No. 1 seeds maker, by expanding in genetically modified seeds that resist bugs.

"The outlook remains positive and management is successfully delivering on its strategy,'' said Damien Weyermann, an analyst at Vontobel in Geneva, in a note. "Syngenta shares still provide investors with an attractive defensive play boasting double-digit earnings growth, high cash generation and an attractive exposure to the booming agricultural industry.'' He rates the stock a "buy.''

Syngenta, formed in 2000 from the merger of the farm- chemical units of drugmakers Novartis AG and AstraZeneca Plc, climbed as much as 6.4 percent to 299.5 Swiss francs, and traded at 285.25 francs as of 11:38 a.m. local time. The stock has slipped 1.1 percent this year, valuing the company at 28.7 billion francs ($27.6 billion). Monsanto is little changed, compared with DuPont Co.'s 2.1 percent advance.

Targets Raised

Syngenta said it now aims for "high-teens'' earnings growth next year, up from "double digit'' target previously. It had predicted earnings per share growth of more than 20 percent for this year prior to today's lift.

"This is a substantial increase in the guidance,'' said Martin Schreiber, an analyst at Zuercher Kantonalbank in Zurich, who rates Syngenta "overweight.'' The first-half price rise of 3 percent achieved is " not bad,'' he said, adding that he expects further increases in the next 18 months.

Syngenta raised prices, joining other global chemical makers that are seeking to defend margins against higher raw-material costs. It uses ethyltoluene and other derivatives of oil in its chemicals, and has predicted costs will rise by as much as $50 million this year.

Sales gained 28 percent to $7.3 billion. The importance of the northern hemisphere's growing season means the company tends to do two-thirds of its business in the first half.

Price Rises

Mack said he aims to boost prices at least 5 percent this year. He played down the risk of a bubble in commodity prices following a 90 percent advance in the price of corn in the past year, a 75 percent gain in soybeans, and a 30 percent gain in wheat.

"Even if there were to be a pullback in some of these prices, they would still be higher than they have been historically,'' the CEO said in an interview. "Inventory is still below historical levels, so fundamentally growers will continue to make an investment in yield-enhancing productivity.''

Monsanto plans to raise prices on its most popular corn seeds by an average of more than 20 percent next year. U.S. farmers may plant at least 90 million acres, up from 86 million projected this year, according to the St. Louis-based company.

Triple Stacker

The Swiss chemicals maker last year won U.S. approval to market a modified triple-stacked corn that has greater resistance to rootworm in 2008. The seeds enable farmers to use all-purpose weed killers on fields without damaging the plants. The other traits thwart the corn borer and corn rootworm.

The global market for crop protection, seeds and other chemicals used in agriculture is valued at $60 billion, according to Phillips McDougall, an Edinburgh-based adviser on the industry.

CEO Mack will next year introduce a corn seed with an enzyme that can boost the efficiency of ethanol factories. In all, the research and development budget will equal about 10 percent of sales this year, with seeds increasingly taking a bigger share. Syngenta will target acquisitions of as much as $100 million apiece to grow its seeds business, Mack said.

Monsanto, which surpassed DuPont Co. as the largest U.S. corn-seed producer last year, said it grabbed at least 3 percentage points of market share this year, with a similar gain predicted for 2009. DuPont's claim it held its share in the U.S. corn market implies Syngenta lost ground, said Mark Connelly, an analyst at Credit Suisse, in a July 22 note. Syngenta's triple stack was available in limited quantity this year, he said.

© 2008 Bloomberg L.P.