Bayer Q2 Profit Down; Sees Lower FY Earnings

(RTTNews) - Bayer (BAYZF.PK, BAYRY.PK, BYR.L) reported that its second-quarter net income declined by 34.7 percent to 799 million euros, from last year primarily due to the absence of earnings contributions from Covestro following its deconsolidation. But, core earnings per share from continuing operations increased by 1.3 percent to 1.54 euros. Meanwhile, Bayer said it has adjusted its Group outlook to account for the sales and earnings contributions from Monsanto from the date of the acquisition. The company aims to pay out a dividend per share for 2018 that is at least at the same level as in the prior year.

"We are on track to achieve our annual targets..... As the acquisition of Monsanto closed later than anticipated, Bayer's 2018 earnings will be lower than it had projected in its February forecast due to the seasonality of Monsanto's business. "The acquired business generates the majority of its sales and, above all, earnings in the first half of the year," said Werner Baumann, Chairman of the Board of Management.

EBIT for the second-quarter fell by 7.7 percent to 1.351 billion euros, after special charges of 363 million euros that resulted mainly from expenses in connection with the acquisition of Monsanto.

EBITDA before special items increased 3.9 percent to 2.335 billion euros. Negative currency effects held back earnings by around 130 million euros.

Sales of the Bayer Group in the second quarter rose by 8.5 percent to 9.481 billion euros on a currency- and portfolio-adjusted basis. On a reported basis, sales were up by 8.8 percent.

Bayer said it successfully completed the biggest acquisition in its history in the second quarter of 2018, while operational performance improved, even without taking into account the newly acquired Monsanto business. Sales advanced at three of the four segments on a currency- and portfolio-adjusted basis or Fx & portfolio adj. Bayer completed the acquisition of Monsanto on June 7, 2018, for 63 billion dollars including debt.

Sales of the Bayer Group are now expected to come in at more than 39 billion euros, with more than 5 billion euros attributable to the acquired Monsanto business. It previously expected Sales to be below 35 billion euros.

The divestment of selected businesses to BASF will reduce anticipated sales by approximately 1 billion euros. This forecast now corresponds to a mid-single-digit percentage increase (previously: low- to mid-single-digit percentage increase) on a currency- and portfolio-adjusted basis.

Bayer now expects EBITDA before special items to increase by a low- to mid-single-digit percentage. Previously it expected EBITDA before special items to decline by a low-single-digit percentage. On a currency-adjusted basis, this corresponds to an increase by a high-single-digit percentage (previously: increase by a mid-single-digit percentage).

Core earnings per share are now seen coming in at between 5.70 and 5.90 euros (previously: at the prior-year level). On a currency-adjusted basis, this corresponds to a decrease by a high-single-digit percentage (previously: increase by a mid-single-digit percentage). Prior-year core earnings per share were restated to 6.64 euros to reflect the bonus component of the capital increase with subscription rights, and this is taken into account here.

Bayer said it aims to pay out a dividend per share for 2018 that is at least at the same level as in the prior year, which would represent an upward deviation from its existing dividend policy, 30-40 percent of core earnings per share.

In view of the highly seasonal nature of the sector, the acquired Monsanto business will provide a small contribution to core earnings per share. However, it will provide substantial operating cash flows. In addition, Bayer is able to benefit from the expected proceeds from the divestments to BASF and the income from the sale of Covestro shares that has already been recognized. Net financial debt at the end of the year will be significantly lower than originally anticipated, amounting to around 37 billion euros, Baumann said.

The outlook takes into account the financing costs for the acquisition of Monsanto shares as well as the higher number of shares of Bayer AG following the capital increases on a pro rata temporis basis. The businesses divested to BASF are excluded as of their respective divestment dates.

For Pharmaceuticals and Animal Health, Bayer has confirmed its previous sales and earnings guidance.

For Consumer Health, the company has confirmed its expectations for sales and currency-adjusted EBITDA before special items. As for EBITDA before special items, Bayer now anticipates a decline by a mid-single-digit percentage (previously: decline by a low-single-digit percentage) as a result of currency effects.

For Crop Science, the company now forecasts sales of slightly more than 14 billion euros (previously: more than 9.5 billion euros). As previously outlined, this includes a positive sales effect of more than 5 billion euros from the acquired business as well as a negative effect of approximately 1 billion euros from the divestment of selected businesses to BASF. Bayer continues to expect a mid-single-digit percentage increase on a currency- and portfolio-adjusted basis.