Bayer cuts earnings forecast on delays in $63bn takeover of Monsanto
With lawsuits over the Roundup weed killer piling up, Bayer expects 2018 adjusted core earnings per share to decline to less than €6
Frankfurt — Bayer cut its earnings forecast on Wednesday due to delays to its $63bn takeover of Monsanto, and said sales of its consumer care products fell, hitting its shares, already reeling from a legal battle over the weed killer Roundup.
The weaker earnings forecast adds to a number of challenges facing the German drug maker as it braces for years of legal wrangling over the alleged cancer risks of glyphosate-based weed killers.
Bayer said the number of plaintiffs seeking damages over Monsanto’s Roundup and Ranger Pro herbicides had risen to 8,700 from 8,000 from last month, and said that it expected more to sue. It has vowed to defend itself in court, citing regulators and studies as saying the products are safe.
The first producers of aspirin in its current form and the maker of Yasmin contraceptive pills is struggling to stem falling sales at its consumer health arm as US consumers switch from drugstores to online shops, and it faces increasing pressure to strengthen its pharmaceutical division after a string of setbacks.
The company lowered its forecast for adjusted core earnings per share for the year to between €5.70 and €5.90, down from €6.64 in 2017, short of analyst expectations, dragging the stock down as much as 3.7% in morning trade.
The shares were down 1% at 10.30am GMT, leading to a loss of about 16% since a US jury’s verdict on August 10 for Monsanto to pay close to $300m in damages in the first of thousands of lawsuits over alleged links between Roundup and cancer.
Second-quarter earnings before interest, tax, depreciation and amortisation (ebitda), adjusted for one-off items, rose to €2.34bn, the company said on Wednesday, below an average estimate for €2.44bn in a Reuters poll of analysts.
The company blamed delays to the closure of its mammoth acquisition of Monsanto, which meant it missed out on a typically stronger first half than the second for the seeds maker it agreed to buy in 2016.
"It is clear that analysts have not appreciated the extent of this phasing deviation," said analyst Alistair Campbell at brokerage Berenberg. "Nevertheless, this will disappoint."
The addition of Monsanto will make Bayer as reliant on farming supplies as on pharmaceuticals for earnings. It is in the midst of an overhaul of its drug research and development activities that could result in job cuts as it faces calls to beef up its development pipeline.
Quarterly adjusted ebitda at the enlarged Crop Science division, now the world’s largest supplier of seeds and pesticides, almost doubled to a better-than-expected €631m, helped by a recovery in Brazil and as Monsanto, part of Bayer since June 7, contributed €70m.
However, its consumer health business, which makes antihistamine Claritin, Coppertone sun screen and Dr Scholl’s foot-care products, saw earnings fall by 18.5% as a weak dollar weighed on the value of overseas sales and as customers continue to shop elsewhere for cheaper products. Berenberg’s Campbell said the "division remains highly problematic".
Bayer said it will still pay out a dividend per share for 2018 that was at least at the year-earlier level, more than its dividend payout policy of 30% to 40% of core earnings per share would command.