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Bayer (BAYRY) Q4 Earnings Beat Estimates, Revenues Up Y/Y

Zacks Equity Research

Bayer AG’s BAYRY fourth-quarter 2018 core earnings per share were down 24.3% year over year to 31 cents, per American Depositary Receipt (“ADR”), compared with the Zacks Consensus Estimate of 26 cents.

However, loss per share was $1.14, per ADR. The loss was due to a series of impairments at the company’s consumer health and pharmaceutical divisions, and one-off charges associated with the Monsanto takeover.

On Sep 20, 2017, Bayer performed an ADR ratio change. With the new ratio, four Bayer ADRs correspond to one Bayer ordinary share. Fourth-quarter 2018 core earnings per share incorporate the effect of ADR ratio change.

Total sales in the quarter were approximately $12.61 billion, up 24.6% from 10.12 billion in the year-ago quarter. The Crop Science and Pharmaceuticals divisions registered higher sales year on year, while sales of Consumer Health declined compared with the prior-year quarter’s figure.

All growth rates mentioned below are on a year-over-year basis and after adjusting for currency and portfolio changes.

Quarter Highlights

The company completed the acquisition of Monsanto on Jun 7, 2018, for $63 billion, including debt. With the acquisition, Bayer now has the strongest portfolio of seed and crop protection products for a wide range of crops and indications, the best research and development platform and the leading digital farming business.

Bayer 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 1.8% to €4,291 million in the fourth quarter. Growth was backed by consistent strong performance of key products like Xarelto, Eylea, Xofigo, Stivarga and Adempas. Strongest sales growth among the other top Pharmaceuticals products was recorded for the diabetes treatment Glucobay, driven by expanded volumes in China.

However, sales of Adalat, Bayer’s product to treat hypertension and coronary heart disease, decreased due to temporary supply disruptions.

Consumer Health sales were down 4.9% year over year to €1,331 million in the fourth quarter. The business gained in Latin America and Asia-Pacific on a currency- and portfolio-adjusted basis. However, sales declined in North America, and Europe, Middle East and Africa (EMEA). Temporary supply difficulties held back sales at Consumer Health. The company initiated a series of strategic measures to achieve success in this rapidly changing market environment.

In the reported quarter, Crop Science sales were €4,661 million, up 106% from the year-ago quarter. Bayer also benefited from service agreements, especially product supply and distribution agreements, with BASF in connection with the divested businesses. In Europe, sales were down, due to unfavorable weather conditions and regulatory changes affecting certain SeedGrowth products in France.

Sales of Animal Health came in at $330 million, up 2.5% year over year. Business expanded (Fx & portfolio adj.) in all regions except EMEA. Sales of the Seresto flea and tick collar increased, while sales of the Advantage family of flea, tick and worm control products were down.

2018 Results

Core earnings came in at $1.75 per share compared with earnings of $1.87 in 2017. Earnings beat the Zacks Consensus Estimate of $1.63.

Sales came in at $46.8 billion, up from $39.5 billion in 2017.

2019 Outlook

The company confirmed its outlook for 2019 and the medium-term targets for 2022 that it had provided on Capital Markets Day, on Dec 5, 2018.

Sales are expected to come in at more than €46 billion, corresponding to an increase of about 4% on a currency- and portfolio-adjusted basis.

Core earnings per share are expected to rise to about €6.80 on a currency-adjusted basis.

Zacks Rank & Stocks to Consider

Bayer currently is a Zacks Rank #4 (Sell) stock.

Some better-ranked stocks worth considering are AstraZeneca PLC AZN, GlaxoSmithKline Plc GSK and Celgene Corporation CELG. While Celgene carries a Zacks Rank #1 (Strong Buy), AstraZeneca and GlaxoSmithKline carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Celgene’s earnings per share estimates have increased from $10.21 to $10.75 for 2019 and from $11.63 to $12.70 for 2020 in the past 60 days. The company delivered a positive earnings surprise in all the trailing four quarters, with average of 2.65%.

AstraZeneca delivered a positive earnings surprise in all of the trailing four quarters, with average beat of 106.4%.

GlaxoSmithKline’s earnings per share estimates have increased from $2.86 to $2.95 for 2019 and from $2.93 to $3.05 for 2020 over the past 60 days. The company delivered a positive earnings surprise in two of the trailing four quarters, with average beat of 3.74%.

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