Bayer Posts Net Loss as Tough Agriculture Market Bites — Update

By Helena Smolak

Bayer posted a second-quarter net loss and lower underlying earnings, dragged by its crop-science division as agriculture companies face a tougher market amid falling crop prices.

The German pharmaceutical and agricultural group on Tuesday became the latest company to warn of challenging conditions in a market that soured after years of higher prices that boosted profits for those that supply it--from seed and pesticide makers to grain traders. However, Bayer said it is optimistic about progress at its pharma business, which helped it cushion the blow.

Future contracts for agricultural commodities have declined across the board since the start of the year, led lower by wheat, corn and soybeans on an exceptionally strong harvest and further positive weather ahead in the U.S. and abroad. The low prices prompted some farmers to use less crop chemicals, hitting suppliers like Bayer.

Bayer said it now expects both sales and underlying earnings for its crop-science division--the group's largest by revenue--to be at the lower end of its previous projections for the year. It also lifted guidance for its pharmaceutical division, confirming the full-year outlook for the group as a whole.

The company's previous guidance for its crop-science division called for sales to fall by between minus 1% and positive 3%, adjusting for currency and portfolio changes, and projected its earnings before interest, taxes, depreciation, amortization and special items margin--a key company metric--between 20% and 22%.

Last week, seed and pesticide maker Corteva cut its outlook for the year, citing a competitive pricing environment in the crop protection industry that is tightening farmer margins. Grain traders Archer Daniels Midland and Bunge reported quarterly results that undershot Wall Street analysts' estimates.

For the second quarter, Bayer said Ebitda before special items at its crop-science division plunged 28% compared with the same period last year, resulting in a 16.5% drop for the group to 2.11 billion euros ($2.31 billion). This was a touch above analysts' expectations of EUR2.08 billion, according to consensus estimates compiled by Vara Research.

Crop-science revenue rose 1.1% when adjusted for currency and portfolio changes, helped by higher sales driven by glyphosate-based herbicides, particularly in North America. However, the mix of products sold weighed on the division's earnings, Bayer said.

The company posted a net loss of EUR34 million in the quarter compared with a loss of EUR1.89 billion in year-earlier period, when it booked impairments and charges related to its agricultural business. The result fell short of the EUR70 million net profit expected by analysts.

Sales rose to EUR11.14 billion from EUR11.04 billion, beating consensus expectations of EUR10.82 billion. The group benefited from a 4.5% increase in pharma sales, boosted by sales of new cancer drug Nubeqa and kidney-disease treatment Kerendia that offset lower revenue from its bestselling blood-thinning drug Xarelto. Bayer's smaller consumer-healthcare division returned to sales growth in the quarter, it said.

For its pharma division, the company now expects 2024 sales to grow by up to 3%, having previously expected them to range from being flat to down 4%.

Bayer has been trying to fix its pharma pipeline and cut debt as part of Chief Executive Bill Anderson's plan to regain investor trust. The company plans two new drug launches early next year--menopause treatment elinzanetant and cardiology drug acoramidis--as it faces generic competition for Xarelto and its eye treatment Eylea, for which it owns exclusive rights outside the U.S.

The company made progress on its turnaround efforts, and its plan to deliver annual savings of EUR2 billion by 2026 is on track, Anderson said. Bayer cut 3,200 jobs--mostly at the management level--since the start of the year, it said.

Free cash flow--a metric that analysts are watching as a gauge of turnaround progress--improved to EUR1.27 billion in the quarter from an outflow of EUR473 million a year before, due to inventory optimization efforts. Bayer is set to improve its inventories for cash generation in the second half, Anderson said.

--Joe Hoppe contributed to this article.

Write to Helena Smolak at helena.smolak@wsj.com

(END) Dow Jones Newswires

August 06, 2024 06:56 ET (10:56 GMT)

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