Bayer Reports Higher Second-Quarter Profit, Raises Guidance -- Update
July 27 2016 - 4:36AM
Dow Jones News
By Christopher Alessi
FRANKFURT--German pharmaceuticals and chemicals company Bayer AG
reported a 19% rise in net profit for the second quarter of 2016,
boosted by strong growth at the pharmaceuticals and specialty
plastics businesses, while raising its earnings guidance for the
full year.
The results come as Bayer is pursuing what would be the largest
acquisition in its history--a $65 billion bid for Monsanto Co.--and
investors and analysts are watching closely to see if the German
firm has the wherewithal to further up its offer for the U.S.
agrochemicals giant.
Net profit for the period ended June 30 was EUR1.38 billion
($1.52 billion), compared with EUR1.15 billion during the same
period last year, in line with analysts' forecasts. Analysts had
predicted a net profit of EUR1.38 billion, according to a recent
poll conducted by The Wall Street Journal.
Bayer increased its earnings forecast, saying it aims to
increase earnings before interest, taxes, depreciation and
amortization, or Ebitda, before special items by a
high-single-digit percentage, up from a mid-single-digit
percentage. However, the company lowered its sales forecast for
2016, saying it now expects sales in a range of EUR46 billion to
EUR47 billion, compared with a prior forecast of sales above EUR47
billion.
Sales dropped slightly, to EUR11.83 billion, held back by all
divisions expect pharmaceuticals. Sales at the pharmaceuticals
division rose by 5.5%, to EUR4.1 billion, driven by continued
uptake of the company's recently launched blockbuster drugs,
including anticoagulant Xarelto.
The company's closely watched Ebitda before special items rose
by 5.7%, to EUR3.05 billion, driven by the pharmaceuticals business
and the specialty plastics unit, recently separated as Covestro
AG.
However, at the Crop Science division--the business area most
under scrutiny as a result of the bid for Monsanto--Ebitda before
special items fell by 8.2%, to EUR663 million, amid difficult
market conditions in the agricultural industry. The business
experienced strong sales growth in the Asia-Pacific region, the
company noted.
"Crop Science was steady despite the weak market conditions,"
according to Peter Spengler, an analyst at Germany's DZ Bank. He
added that the "focus is on new information about Monsanto."
Chief Executive Werner Baumann first moved to acquire Monsanto
in May, less than two weeks after taking over the top job. At that
time, Bayer put forward a bid of $122 a share, or $62 billion,
which Monsanto's board rejected. Earlier this month, Bayer raised
its bid to $125 a share. Monsanto again rebuffed Bayer's offer, but
the U.S. company left the door open to further talks about a
tie-up.
Bayer has said it would continue to pursue the deal, despite the
concerns of some shareholders that the acquisition would reshape
Bayer's portfolio at the expense of its lucrative pharmaceuticals
division.
"Our concerns remain the same as the ones we expressed when
Bayer's bid first surfaced, namely that the merged company will be
left with a highly geared balance sheet and that Bayer's executive
team may take their eye off the ball running the pharma business as
their energies are focused on integrating Monsanto," said Greg
Herbert, a fund manager at Jupiter Asset Management Ltd., a Bayer
investor.
Henderson Global Investors--Bayer's 16th-largest shareholder,
according to Thomson Reuters--earlier this month called into
question whether the deal would create value for investors and
urged Bayer to put the deal to a shareholder vote. Bayer has
previously said such a move could put the potential deal at
risk.
If the deal were to transpire, agrochemicals would account for
about half of Bayer's overall sales.
Mr. Baumann's dogged pursuit of Monsanto is a departure from the
strategy implemented by his recently departed predecessor, Marijn
Dekkers. During his six-year tenure, he invested heavily in health
care and tried to balance the company around its so-called life
science divisions--pharmaceuticals, over-the-counter drugs and
agrochemicals.
Mr. Dekkers presided over the launch of five new blockbuster
drugs, including Xarelto, the $14.2 billion acquisition of
U.S.-based Merck & Co.'s over-the-counter drug business and the
spinoff of Covestro. Bayer still holds a 64% stake in Covestro but
has indicated it would like to fully exit the business down the
road.
Write to Christopher Alessi at christopher.alessi@wsj.com
(END) Dow Jones Newswires
July 27, 2016 04:21 ET (08:21 GMT)
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