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Revenues Rise at Bayer, Guides up

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Bayer’s (BAYRY) earnings per share during the second quarter of 2012 came in at €1.47 (approx $1.89) compared with €1.29 (approx. $1.62) in the year-ago period driven by strong revenues.

The company recorded a 10.0% (5.0% on an adjusted basis) growth in revenues to €10,177 million. Growth was witnessed across all divisions at Bayer. Moreover, foreign exchange translations had a positive impact on the sales.

Segmental Performance

The three major segments: Healthcare, Crop Science and Material Science accounted for approximately 45.5%, 22.4% and 29.1%, respectively, of total revenue during the reported quarter. Revenues from the Crop Science, Healthcare and the Material Science segments improved by 17.1%, 10% and 6.5%, respectively.

The Healthcare segment recorded revenues of €4,628 million in the second quarter of 2012. Both sub-segments, Consumer Health (adjusted growth of 3.8%) and Pharmaceuticals (adjusted growth of 4.3%), performed well in the quarter.

Robust sales of products, such as Betaferon/Betaseron, Nexavar and Mirena  boosted sales of the Pharmaceuticals segment. Blood-thinner Xarelto, co-developed with the Janssen Research and Development unit of Johnson & Johnson (JNJ), also performed well during the quarter.

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 in the emerging markets. All the sub-groups, Consumer Care, Animal Health and Medical Care performed well during the quarter.

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 €2,276 million in the second quarter of 2012.

Crop Science segment exhibited solid growth in all the regions, especially  North America, driven by improved market conditions. Two of the three sub groups -- BioScience (up 21%) and Crop Protection (up 14%) performed impressively during the quarter. However, Environmental Science declined 4% due to weaker sales in Europe and Japan.

The Material Science segment, one of the world’s largest polymer manufacturers, posted impressive sales of €2,962 million in the reported quarter. Gains from higher prices and volumes were partially offset by the high raw material costs.

2012 Outlook

Apart from releasing financial results, Bayer also raised its guidance for 2012. Earnings at Bayer are expected to increase by 10% as opposed to its previous guidance of slight improvement.

Bayer now expects 2012 sales in the range of €39 billion to €40 billion (previous guidance: €37 billion).

The Healthcare segment revenues are expected to increase 3%–4% (previous guidance: low-to-mid single digit growth). While Pharmaceuticals sales are expected to increase marginally (previous guidance: flat or move slightly higher), 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 likely to remain flat year over year.

Our Recommendation

We currently have a Neutral recommendation on Bayer in the long run. The company carries a Zacks #3 Rank (Hold rating) in the short run.

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