Revenues Rise at Bayer, View Backed


Bayer’s (BAYRY) earnings during the third quarter of 2012 came in at €1.20 per share (approx $1.50) compared with €1.12 (approx. $1.58) per share in the year-ago period. The company recorded an 11.5% (5.5% on an adjusted basis) growth in revenues to €9,665 million. Growth was witnessed across all the major divisions at Bayer.

Segmental Performance

The three major segments: Healthcare, Crop Science and Material Science accounted for approximately 48.8%, 17.0% and 31.0%, respectively, of total revenue during the reported quarter. Revenues from the Crop Science, Healthcare and the Material Science segments improved by 19.0%, 12.4% and 8.1%, respectively.

The Healthcare segment recorded revenues of €4,719 million in the third quarter of 2012. Both sub-segments, Consumer Health (adjusted growth of 4.7%) and Pharmaceuticals (adjusted growth of 6.1%) performed well in the quarter.

Robust sales of products, such as Xarelto, Kogenate, Glucobay and Mirena boosted sales of the Pharmaceuticals segment.

Growth in the Consumer Health subgroup, comprising Bayer’s over-the-counter drug business for human beings and animals, was primarily driven by impressive performances across all sub-groups - Consumer Care, Animal Health and Medical Care.

Sales in the Crop Science division, which is engaged in developing and marketing chemical crop protection products (insecticides, herbicides, and fungicides), seeds and integrated plant biotechnology solutions for agricultural and non-agricultural uses, recorded sales of €1,641 million in the third quarter of 2012.

Crop Science segment exhibited solid growth in all the regions, especially Europe and North America, driven by improved market conditions. The Material Science segment, one of the world’s largest polymer manufacturers, posted impressive sales of €2,992 million in the reported quarter. Volume growth was primarily responsible for the impressive performance of the segment during the reported quarter.

2012 Projection Backed

Apart from releasing its financial results, Bayer also reaffirmed its guidance for 2012. Earnings at Bayer are still expected to increase by 10% year over year. Bayer continues to expect 2012 sales in the range of €39 billion to €40 billion.

The Healthcare segment revenues are expected to increase 3%–4%. While Pharmaceuticals sales are expected to increase marginally, Consumer Health is expected to exhibit mid-single-digit sales growth.

Crop Science segment sales are expected to increase 10%. The company expects the segment to outperform the market. The Material Science segment revenues are expected to increase marginally over 2011 levels.

Bayer to Buy Schiff Nutrition International

In a bid to expand its product portfolio, the Healthcare unit of Bayer inked a deal to buy nutritional supplement company Schiff Nutrition International, Inc. (SHF) for $34.00 per share in cash. The total value of the deal is estimated at approximately $1.2 billion (approx. € 920 million). The deal is expected to close by year end.

Our Recommendation

We have an Outperform recommendation on Bayer. The stock carries a Zacks #2 Rank (Buy rating) in the short run.

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