Bayer says 2019 profit goal becoming a stretch

File picture shows a Bayer’s shareholder arriving at the annual general shareholders meeting as people protest against the merger of Germany’s pharmaceutical and chemical maker Bayer with Monsanto, in Bonn, Germany, May 25, 2018. — Reuters pic
File picture shows a Bayer’s shareholder arriving at the annual general shareholders meeting as people protest against the merger of Germany’s pharmaceutical and chemical maker Bayer with Monsanto, in Bonn, Germany, May 25, 2018. — Reuters pic

FRANKFURT, July 30 — Germany’s Bayer has warned that its 2019 earnings target has become harder to reach, becoming the latest agricultural supplies company to be affected by flooded US farms and trade disputes.

The drugs and pesticides maker said it was still aiming to lift 2019 adjusted core earnings, or EBITDA, to about €12.2 billion (RM56.1 billion), excluding the effect of currency swings and the planned sale of assets such as its animal health unit.

“However, this outlook is becoming increasingly ambitious in view of the challenging environment for the Crop Science business,” the company, which last year acquired Monsanto for US$63 billion, added in a statement today.

Sales at the Crop Science unit, the world’s largest seeds and pesticides producer, jumped by almost 60 per cent to €4.8 billion in the second quarter, thanks to the addition of Monsanto in June 2018.

But a like-for-like comparison of the combined business showed a 9.9 per cent sales decline, also adjusted for currency swings.

“Flooding and heavy rains in the mid-western United States and drought in large parts of Europe and in Canada had a negative effect. Ongoing trade disputes also weighed on business,” it said.

Meanwhile the number of US plaintiffs blaming Bayer’s glyphosate-based weedkillers for their cancer continued to rise by 5,000 to 18,400, as a litigation wave that has crushed the group’s market value showed no sign of letting up.

Its shares were down 3.4 per cent at a one-month low at 0810 GMT, for a market value of about €53 billion, as Bayer continued to trade below the price it paid for the takeover.

Bernstein Research analyst Gunther Zechmann said investors would likely grow dubious of the maintained guidance.

Analysts at Liberum said the market continued to overestimate the payout that Bayer will eventually settle for to buy itself out of the litigation wave, as is widely expected.

“Bayer needs better news from the courts in the next 12 months, probably on appeal, to ease concerns,” they added.

Adjusted EBITDA for the group rose by about a quarter to €2.9 billion in the April to June period, bolstered by new prescriptions of its pharma bestsellers, stroke prevention drug Xarelto and eye treatment Eylea. That was broadly in line with market expectations.

Bayer has seen its market value slashed by more than €30 billion since August last year, when a California jury, in the first such lawsuit, found that Monsanto should have warned of the alleged cancer risks.

The company, which says regulators and extensive research have found glyphosate to be safe, is banking on US appeals courts to reverse or tone down the initial court rulings that have so far awarded tens of millions of dollars to each plaintiff.

Syngenta, its closest peer in pesticides and seeds, as well as smaller rival BASF, have previously flagged issues from flooding in the US Midwest and the US-Chinese trade dispute.

Those factors also forced fertiliser giant Nutrien to cut its full-year profit forecast yesterday.

Rival crop protection company Corteva, due to post its quarterly reports on Aug. 1, has also flagged problems. — Reuters

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