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Bayer Up on Higher Q4 Earnings

Zacks Equity Research

Bayer’s (BAYRY) earnings during the fourth quarter of 2013 came in at €1.10 per share (roughly $1.50) compared with €1.01 per share (approximately $1.31) in the year-ago period. Bayer’s shares gained more than 2.9% following the fourth quarter results.

Bayer’s fourth-quarter revenues of €9.9 billion remained almost flat year over year. Revenues during the quarter were boosted by recently launched pharmaceutical products and the robust expansion of volumes at the company’s Crop Science segment. Revenues from the Crop Science and HealthCare segments improved 5.1% and 0.4% respectively, whereas sales at the Material Science segment declined 2.5% year over year.

Bayer’s earnings during 2013 came in at €5.61 per share (approximately $7.45) compared with €5.30 per share (approximately $6.82) in the prior period. Revenues during the year were up 1% to €40.2 billion.

Segmental Performance During the Quarter

The three major segments – HealthCare, Crop Science and Material Science – accounted for approximately 50.0%, 19.7% and 27.2% of total revenues, respectively, during the fourth quarter of 2013.

The HealthCare segment recorded revenues of €4.9 billion in the reported quarter. Revenues from both the Pharmaceuticals (adjusted growth of 11.5%) and the Consumer Health (adjusted increase of 1%) sub-segments saw year-over-year improvements.

Sales of new products like Xarelto (anticoagulant), Eylea (eye drug), Xofigo (oncology) and Stivarga (oncology) boosted the Pharmaceuticals segment. Bayer’s Consumer Health subgroup sales benefited from increased sales in the Medical Care and Animal Health sub-businesses.

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 €2.0 billion in the fourth quarter of 2013. The segment exhibited solid growth particularly in Latin America, Africa and the Middle East, along with Asia/Pacific.

The Material Science segment, one of the world’s largest polymer manufacturers, posted sales of €2.7 billion in the reported quarter. Challenging market condition impacted the segment’s revenues.

2014 Outlook

Bayer expects 2014 sales to be around €41−€42 billion, an increase of 5% on an adjusted basis from the 2013 figure.

Revenues from the HealthCare segment are expected to come around €19.5−€20 billion (mid-single-digit percentage growth). Bayer expects the Pharmaceuticals sub-segment to exhibit high-single-digit sales growth in 2014, primarily due to its recent encouraging performance. Bayer also expects its new products to contribute around €2.8 billion to segmental sales in 2013.

The company still expects Consumer Health sales to exhibit low-to-mid, single-digit sales growth in 2014. The Crop Science segment is expected outperform the market. Segmental sales are expected to grow in the mid- to high-single-digit percentage range. The company meanwhile believes its Material Science segment will turnaround this year with sales expected to grow in the mid-single-digit percentage range.

Other Developments

Last week, Bayer announced its intention to acquire China-based privately held pharmaceutical company, Dihon Pharmaceutical Group Co., Ltd. The transaction is expected to close in the second half of 2014 conditional to fulfilment of some conditions. Bayer however did not disclose the financial details of the deal.

With the acquisition, Bayer will get hold of products like Kang Wang (dandruff and other scalp disorders), Pi Kang Wang (antifungal cream) and Dan E Fu Kang (various women’s health indications). Apart from China, Dihon products are also sold in Nigeria, Vietnam, Myanmar and Cambodia.

The Chinese company recorded sales of €123 million in 2013. More than contributing to its HealthCare segment, the Dihon acquisition will help Bayer to strengthen its position in the emerging markets.

Our Take

Bayer’s results in the fourth quarter were encouraging. We are impressed by the performance of the newly launched products at Bayer during the quarter. These products are expected to perform well in the coming quarters. The company made significant progress on its pipeline as well. Moreover, the company’s 2014 outlook looks promising.

Bayer presently carries a Zacks Rank #3 (Hold). Some better-ranked stocks include Alexion Pharmaceuticals, Inc. (ALXN), Shire (SHPG) and Auxilium Pharmaceuticals Inc. (AUXL). All the stocks carry a Zacks Rank #1 (Strong Buy).

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