Monsanto Co, the world's biggest seed company, posted a smaller-than-expected slide in quarterly profit on Wednesday and said it would cut about 900 employees and realign its declining herbicide business, news that sent its shares higher.

St. Louis-based Monsanto , a leader in development of genetically modified crops, said net income for the third quarter totaled $694 million, or $1.25 a share, falling from $811 million, or $1.45 a share, a year earlier.

Analysts on average were expecting $1.18 a share after a warning by the company last month of lower earnings due to tougher competition in the herbicide business.

Company officials said they were creating a separate division for its struggling herbicide business to help stabilize and better align spending and working capital needs around the unit, which has been hurt by increasing competition.

Over the last six years, Monsanto's business has undergone a dramatic transition from a company historically built on chemical innovations to one focused on delivering enhanced seed offerings, said Monsanto Chairman Hugh Grant in a statement accompanying the results.

Monsanto shares rose 3.3 percent to $81.92 on the New York Stock Exchange as analysts were cheered by the better-than-expected results and the company's move to realign its herbicide-related resources.

This has been a dark cloud looming over Monsanto's head, said Morningstar analyst Ben Johnson of the herbicide business. The Roundup numbers today were disastrous.

The seed franchise continues to go very strong, but herbicides have been a wet blanket on their shares, Johnson said.

Net sales of $3.2 billion for the quarter were down 11 percent due in part to declines in the company's Roundup and other glyphosate-based agricultural herbicides globally.

Agricultural productivity, including herbicide revenues, fell 39 percent to $913 million and gross profit fell 54 percent amid increased competition in the sector while net sales of seeds and genomics grew nearly 10 percent.

Monsanto officials said future gross profits from the Roundup herbicide business would drop by half to about $1 billion annually from $2 billion in 2009 as the company grapples with increased competition in the sector.

The business, once a core money-maker for Monsanto, in the future should amount to less than 15 percent of the company's total gross profit, officials said.

Officials said surprisingly strong competition had pushed herbicide prices lower than expected, faster than expected.

In addition to the new division for the herbicide business,

Monsanto announced a planned restructuring that will include a reduction of approximately 900 employees across the entire company. The reduction will vary from country to country and will be less than 4 percent of the company's global workforce.

The company anticipates the actions will require a one-time restructuring charge estimated at approximately $350 million to $400 million, or $0.41 to $0.47 per share to the company's fourth-quarter EPS in fiscal year 2009. The company expects to complete its restructuring in fiscal year 2010.

The company is now projecting its free cash flow will be approximately $1.4 billion for the fiscal year, down from $1.8 billion previously projected.

(Reporting> by Carey Gillam, editing by Dave Zimmerman)