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Q2 Revenues Rise At Bayer

By Zacks Investment Research on | More Posts By | Zacks.com

Bayer’s (BAYRY) core earnings per share (EPS) during the second quarter of fiscal 2010 came in at €1.15 (approx $1.52) compared with €1.05 (approx. $1.46) in the year-ago period. The Zacks Consensus Estimate for the reported quarter was $1.32.
 
The company recorded a 14.6% year-over-year growth in revenues to €9,179 million. Research and development expenses in the reported quarter climbed 12.7% to €747 million.
 
The three major segments: Healthcare, Material Science and Crop Science accounted for approximately 47%, 29% and 21%, respectively, of total revenue during the reported quarter. Revenues from the Material Science, Healthcare and the Crop Science segments improved by 46.9%, 6.4% and 1.7%, respectively.
 
The Healthcare segment recorded revenues of €4,305 million compared with €4,045 million in the year-ago quarter. The improvement in this segment is the result of a 10.3% growth in Consumer Health and a 4.3% growth in revenues from Pharmaceuticals. Products such as Kogenate (foreign exchange adjusted 25.2% growth), Avalox (foreign exchange adjusted 20.8% growth) and Nexavar (foreign exchange adjusted 19.6% growth) displayed robust growth during the reported quarter. However, the Yaz franchise (foreign exchange adjusted 14.9% decline) and Betaferon (foreign exchange adjusted 10.7% decline) performed disappointingly in the second quarter of 2010.
 
Revenues from Crop Science increased 1.7% to €1,884 million during the quarter. The disappointing performance in the conventional crop protection business due to the difficult market and weather conditions was offset by the positive showing at the Environmental Science/BioScience segment. Although revenues from Crop Protection (division of Crop Science) declined 1.3% to €1,520 million, sales of Environmental Science/Bio Science increased 16.7% to €364 million.
 
Material Science continued its strong performance in 2010. Sales in the segment climbed 46.9% year over year to €2,689 million due to an improvement in volumes. The company noted that demand increased significantly in Bayer’s primary customer industries.
 
2010 Guidance
 
Bayer maintained its optimistic outlook for 2010. The company expects the global recovery to continue based on which the company is targeting to post more than 5% currency and portfolio adjusted sales growth with EBITDA before special items exceeding €7 billion. Additionally, core EPS is expected to improve by more than 15%.
 
Our Take & Recommendation
 

Even though Bayer performed impressively in the most recent quarter and maintained its positive outlook for 2010, we remain concerned about the not-so-impressive performance of the Crop Science segment. Moreover, the delay in the approval of Xarelto also concerns us. Furthermore, the failure of Nexavar to prolong the overall survival in patients suffering from non-small cell lung cancer (NSCLC) in a late-stage study is a setback for the company. In view of these disappointments, we have a short-term Zacks #4 Rank on Bayer which is complemented by our long-term Underperform rating on the stock.

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