Bayer Cuts Full-Year Forecasts at Two of Three Units as Profit Declines

Bayer AG cut this year’s forecast for two of its three units as second-quarter profit missed analyst estimates because of legal charges and costs to write down the value of the Zevalin cancer medicine.

Net income dropped to 525 million euros ($683.2 million) from 532 million euros a year ago, the Leverkusen, Germany-based company said today. The result fell short of the 776 million- euro average estimate of 10 analysts surveyed by Bloomberg.

Bayer lowered its forecast for its drug and crop-chemical units, though it maintained its full-year group estimate. Poor weather and price pressure is hurting the crop-chemical unit and generic competition for its top-selling medicines, including Yaz contraceptives, are weighing on drug revenue. Sales of medicines will see a “slight increase,” while revenue from CropScience is likely to fall this year, Bayer said.

“It’s not entirely unexpected,” said Sebastian Frericks, a Frankfurt-based analyst for Bankhaus Metzler, in a telephone interview, adding that investors may be pleased Bayer confirmed its group forecast. Frericks has a “sell” rating on Bayer’s shares. “They’re challenging numbers. Health care and crop science were disappointing.”

The shares fell 6 cents, or 0.1 percent, to 44.14 euros at the 5:30 p.m. close of Frankfurt trading. Bayer has dropped 21 percent this year, making it the second-worst performer in Germany’s DAX index.

Plastics

The MaterialScience plastics unit may drive growth in the near term, Jeffrey Holford, a London-based analyst for Jefferies International Ltd., said in a note before the results. Bayer said its forecast for the unit is “conservative.”

Bayer repeated that group earnings per share will rise more than 15 percent this year as Ebitda before special items rises to more than 7 billion euros. The company said it expects to exceed its previous MaterialScience target of a sales increase of 20 percent and more than doubling earnings before interest, taxes, depreciation and amortization, also before items.

The company had previously expected a 3 percent rise in sales at the drug unit. Ebitda before special items for the unit will at least reach last year’s level, instead of increasing, Bayer said today.

Yaz Sales Fall

Revenue from the drug unit gained 6.4 percent to 4.31 billion euros, boosted by a 10 percent increase in Bayer’s consumer-health division. Sales of Yaz contraceptives dropped 15 percent, after Teva Pharmaceutical Industries Ltd. began marketing a generic copy in the U.S. in June. Bayer sued Teva on June 1, claiming the generic-drug maker’s low-cost version of the pill infringes three patents that expire in 2014.

Bayer is facing lawsuits in the U.S. and Canada claiming it ignored the health risks of the contraceptive, last year agreeing to produce “corrective advertising” as part of a 27- state settlement of claims it misled consumers.

Sales of crop chemicals rose 1.7 percent to 1.88 billion euros as increases at Bayer’s environmental and bioscience businesses offset revenue lost to bad weather and pricing pressure, the company said.

Bayer said that 2010 sales at the crop-chemical unit won’t reach last year’s level. The company had previously forecast an increase of 2 percent to 3 percent. Ebitda before special items will “decline significantly” instead of remaining at last year’s level, the company said.

Sales at the MaterialScience plastics unit soared 47 percent to 2.69 billion euros as sales to the automotive and manufacturing industries picked up.

To contact the reporter on this story: Naomi Kresge in Zurich at nkresge@bloomberg.net

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