Bayer (BAYRY) Misses Earnings and Revenue Estimates in Q1
Bayer AG’s BAYRY first-quarter 2018 earnings per share were 69 cents per American Depository Receipt (“ADR”), which missed the Zacks Consensus Estimate of 71 cents.
On Sep 20, 2017, Bayer performed an ADR ratio change. With the new ratio, four Bayer ADRs correspond to one Bayer ordinary share. The first-quarter 2018 core earnings per share incorporate the effect of ADR ratio change. Earnings were up 12.9% year over year at 70 cents from 62 cents per ADR.
Total sales in the quarter were approximately $11.23 billion, up 8.9% from 10.31 billion in the year-ago quarter. Sales missed the Zacks Consensus Estimate of $11.46 billion. While the company registered sales growth at Pharmaceuticals and Animal Health, business declined at Consumer Health. Sales at Crop Science were on par with the year-ago quarter.
Year to date, shares of the company have lost 4% compared with the industry’s decline of 4.3%.
All growth rates mentioned below are on a year-over-year basis and after adjusting for currency and portfolio changes.
Q1 and Full-Year Highlights
The Bayer Group lost de facto control over the Covestro Group at the end of September 2017. As of Sep 30, 2017, there are four reporting segments — Pharmaceuticals, Consumer Health, Crop Science and Animal Health. As such, total figures for the four Life Science segments will no longer be presented separately.
Revenues at the Pharmaceuticals segment increased 2.9% to €4,075 million in the first quarter. The growth for full-year was backed by a persistently strong performance of the key products like Xarelto, Eylea, Xofigo, Stivarga and Adempas. However, this division suffered a considerable decline in Kogenate’s sales, mainly because of the termination of an agreement with a distribution partner at the end of 2017.
However, Consumer Health sales were down 2.2% to €1,409 million in the first quarter. This stemmed from decline in revenues in Asia/Pacific. Further, the Chinese authorities unexpectedly changed the legal status of two of Bayer’s medicated skincare brands from OTC to prescription, which led to sales declines in the first quarter of 2018.
In the reported quarter, Crop Science sales were €2,861 million, on par with the strong year-over-year quarter. Sales grew in three out of four regions which almost offset the decline in Europe/Middle East/Africa. Sales in Latin America grew by 4.8%, due to stronger demand for fungicides and insecticides in Brazil and the continued normalization of inventories there. Insecticides and Other (Seeds & Traits) delivered positive performance. However, sales declined by 14.3% at Environmental Science due to lower product deliveries to the purchaser of the consumer business.
Sales of the Animal Health segment came in at €414 million, up 3% in the first quarter. Business developed especially well in Asia/Pacific, while only the Europe/Middle East/Africa region posted a decline.Sales of the Advantage family of flea, tick and worm control products decreased by 8.2%.
Acquisitions and Divestment
The company made progress with itsproposed acquisition of Monsanto Company MON. The European Commission and other regulators, including those in Brazil, China and Russia, approved the transaction in 2018 representing two-thirds of the around 30 anti-trust approvals that Bayer is seeking. The conditions imposed by the European Commission and other regulators include in particular the divestment by Bayer of various Crop Science businesses. The company reached agreements to this effect with BASF in October 2017 and April 2018. Bayer expects to close the transaction in the second quarter of 2018.
In April 2018, investment company Temasek subscribed to 31 million new shares of Bayer, corresponding to around 3.6 percent of the increased capital stock, for total gross proceeds of €3 billion.
For 2018, Bayer continues to expect sales to increase by a low- to mid-single-digit percentage on a currency- and portfolio-adjusted basis.
Including the impact of currency, the company expects sales to decline in 2018 overall by a low-single-digit percentage down from its previous expectation of sales to remain at the prior-year level. The company expects sales to come in at below €35 billion down from its previous expectation of around €35 billion.
The company aims to increase earnings before interest, tax, depreciation and amortization (EBITDA) before special items and core earnings per share by a mid-single-digit percentage on a currency-adjusted basis. The company expects core earnings per share to come in at the prior-year level, as previously forecast.
Zacks Rank & Stocks to Consider
Bayer is a Zacks Rank #3 (Hold) stock.
A few better-ranked stocks from the same space worth considering are Ligand Pharmaceuticals LGND and Protagonist Therapeutics PTGX. Both Ligand and Protagonist sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Ligand’s earnings per share estimates have moved up $4.20 to $4.43 for 2018 over the last 30 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 24.88%. The company’s shares have rallied 13.1% year to date.
Protagonist’s loss estimates narrowed from $1.68 to 66 cents for 2018 and from $2.43 to $1.26 for 2019, over the last 60 days. The company delivered a positive earnings surprise in three of the trailing four quarters, with an average beat of 24.95%.
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