Bloomberg News

Bayer Profit More Than Doubles on Emerging Markets Revenue

October 27, 2011

(Updates with closing share price in fifth paragraph.)

Oct. 27 (Bloomberg) -- Bayer AG’s third-quarter profit more than doubled as sales rose in emerging markets and a cost- cutting program announced last year began to take effect.

Net income increased to 642 million euros ($911 million) from 285 million euros a year earlier, the Leverkusen, Germany- based company said in a statement today. Core earnings per share, which exclude one-time items such as litigation costs, totaled 1.12 euros, beating the 1.03 euro average estimate of 20 analysts surveyed by Bloomberg. The company confirmed its earnings forecast for the year.

Bayer is depending on its chemicals units to fuel revenue growth this year, forecasting that sales gains at the prescription-drug unit won’t match expansion at rivals. Still, profit from the medicines unit will rise even as sales stagnate, Bayer said today. The drugs and chemicals maker said last year it would cut 2,000 jobs by the end of 2012 under a program to shift resources to emerging markets.

“This was a good solid set of numbers,” Jack Scannell, a London-based analyst for Sanford C. Bernstein Ltd., said in a telephone interview. “Margins were better than people expected.”

Bayer rose 7.1 percent to 48.01 euros at the close in Frankfurt, outpacing a 5.4 percent gain in Germany’s benchmark DAX Index, in the biggest one-day advance since March 20, 2009. The stock has lost 11 percent this year including reinvested dividends, compared with an 8.3 percent drop for the DAX.

Sales Forecast

Bayer repeated an April 28 forecast that group revenue will rise within a range of 5 percent to 7 percent this year, while earnings before interest, taxes, depreciation and amortization and excluding special items will exceed 7.5 billion euros.

The company is seeking “bolt-on” acquisitions in health care and for its CropScience unit, Chief Executive Officer Marijn Dekkers said today in a teleconference with journalists. The executive declined to comment on whether Bayer would do a deal the size of Abbott Laboratories, the U.S. drugmaker that said last week it plans to divide into two publicly traded companies next year.

The prescription-drug portion of a divided Abbott may be valued at $29 a share, Jeffrey Holford, a London-based analyst for Jefferies Group Inc., said last week. That would place its value at about $45 billion, based on 1.55 billion Abbott shares outstanding. Bayer, Roche Holding AG and Merck & Co. are potential buyers, Holford said.

Health-Care Sales

Sales rose 1 percent to 8.67 billion euros. Revenue from health care, which includes prescription drugs and over-the- counter products, dropped 1.7 percent to 4.2 billion euros, as increases in China and Brazil failed to offset slower sales in North America and Europe. Government cost-cutting continued to affect Bayer’s pharmaceutical business, the company said.

Bayer raised its forecast for the agricultural chemicals unit, saying Ebitda before special items will rise more than 20 percent, compared with a previous prediction for growth of about 20 percent.

The outlook was less positive at the MaterialScience plastics unit, where the company lowered its forecast, saying Ebitda before special items will decline slightly to about 1.3 billion euros because of rising raw materials and energy costs.

Job Cuts

Job cuts and the reorganization announced last year will boost margins at the health-care unit, Bayer said, with Ebitda before special items expected to increase by a mid-single-digit percentage this year to at least 4.6 billion euros. Sales for the unit will also rise less than previously forecast this year, with a low-single-digit percentage increase expected, the company said.

The company has identified about 1,500 jobs to be cut in Germany, though the reductions aren’t complete, spokesman Christian Hartel said. Bayer has already begun hiring new employees in emerging markets, he said.

The drug and chemical maker is awaiting regulatory approval to sell Xarelto, a blood thinner, to patients with an irregular heartbeat that can increase the risk of a stroke. The drug won the backing of U.S. and European advisory panels for that group of patients in September. The Food and Drug Administration is scheduled to decide whether to approve Xarelto by Nov. 5.

Lawsuit costs linked to genetically modified rice that depressed earnings a year earlier weren’t repeated. Bayer set aside 436 million euros last year to settle claims its rice contaminated U.S. long-grain rice fields.

--Editors: Kristen Hallam, Tom Lavell

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net


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