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Earnings Preview: Monsanto to report 2Q earnings

WASHINGTON (AP) -- When Monsanto Co. reports its second-quarter results Wednesday, investors will be listening to hear how the agriculture products giant plans to spend $1.7 billion in royalty payments from competitor Dupont.

WHAT TO WATCH FOR: Last month Monsanto and DuPont reached a deal to dismiss pending patent lawsuits against one another over technology used in genetically modified soybean and corn seeds.

Under the agreement, Dupont will pay more than $1.7 billion in royalty payments over the next decade for soybean lines that are resistant to Roundup weed killer, which is made by Monsanto.

UBS analyst Bill Carroll estimated the payments could boost Monsanto's annual earnings by between 22 and 30 cents per share between 2014 and 2017. Carroll holds a "neutral" rating on the stock, with a price target of $103.

Analysts will also be looking to see whether the St. Louis-based company's biotech seed business maintained its momentum internationally, particularly in Latin America.

Sales of the company's seeds grew 27 percent to $1.1 billion in the last quarter, primarily on demand from farmers in Brazil and Argentina. Monsanto predicts that international sales will account for half of its growth in seeds for fiscal 2013, which ends in August.

Susquehanna Financial Group analyst Don Carson said in a research note that sales of corn seeds in South America are the company's "primary driver of near-term growth."

Carson, who holds a "positive" rating on the company's stock, estimates Monsanto could post annual earnings of $4.55 to $4.57 per share. That's above company guidance of between $4.30 and $4.40 per share.

WHY IT MATTERS: Monsanto is betting its future on biotech seeds. The company's corn, soybean, cotton and other seeds have genetically engineered traits that repel bugs, increase yield and make them resistant to weed-killer.

The company historically sold chemicals, from pharmaceuticals to pesticides, and most of its agricultural business used to be driven by chemicals like the herbicide Roundup. But Roundup isn't the cash cow it used to be, in part because competition from generic products from China and other nations has dragged down the price Monsanto can charge.

WHAT'S EXPECTED: Analysts polled by FactSet expect Monsanto to report earnings per share of $2.56 on sales of $5.27 billion.

LAST YEAR'S QUARTER: The company posted net income $1.21 billion, or $2.24 per share, on revenue of $4.75 billion in the second quarter of 2012.