Bayer AG (BAYN) shares rose to a record as stronger-than-predicted demand for new drugs outweighed a drop in plastics revenue that the German manufacturer said makes its full-year sales forecast “ambitious.”
Revenue from products including the Xarelto blood thinner and Eylea eye medicine “are progressing considerably better than expected,” Leverkusen-based Bayer said in a statement today. The company raised its forecast for sales from new drugs to 1.4 billion euros ($1.9 billion euros) from a previous estimate of 1 billion euros.
The MaterialScience plastics division, which makes chemicals for products from mascara to car bumpers, posted a 2.7 percent decline in second-quarter sales, an “unexpectedly weak development,” Bayer said. Investors were more surprised by the strength of Xarelto and Eylea than by the plastics business’s performance, said Michael Leuchten, an analyst at Barclays Plc in London.
“It was a little worse than expected, but in essence the trend was clear” for the MaterialScience unit, Leuchten said in a telephone interview. “So they’re focusing on the stuff they didn’t expect, which is the new products.”
Bayer rose 3.6 percent to 87.35 euros in Frankfurt trading today. The shares have returned 24 percent this year, compared with a 19 percent return for the Bloomberg Europe Pharmaceutical Index. Bayer was the best stock-market performer among the world’s 10 biggest drugmakers last year.
Group sales will probably increase 4 percent to 5 percent this year, adjusted for currencies, acquisitions and divestments, Bayer reiterated today. Revenue will reach 40 billion euros to 41 billion euros, the company said, compared with a previous forecast of about 41 billion euros. Second-quarter sales rose 1.9 percent to 10.4 billion euros, in line with analyst estimates.
“We are seeing somewhat less demand than we had expected, particularly in China, for our polymer products,” Chief Executive Officer Marijn Dekkers said in an interview on Bloomberg Television today. “It’s hard to say how in the second half of the year particularly the China demand for our products will develop. Overall it looks probably increasingly ambitious but we are maintaining our guidance.”
Second-quarter earnings before interest, taxes, depreciation, amortization and special items rose 1.2 percent from a year earlier to 2.2 billion euros, Bayer said today. That beat the 2.16 billion-euro estimate of 14 analysts surveyed by Bloomberg.
The MaterialScience unit’s earnings on that basis fell 29 percent. Bayer scaled back its April forecast for the plastics unit, saying profit won’t quite reach the prior year’s figure instead of an earlier prediction of a “slight increase.”
The woes at MaterialScience are fueling speculation the division will be sold, said Andrew Baum, an analyst at Citigroup Inc. in London.
“Longer term, we believe the much-speculated separation of the MaterialScience group is a high probability event,” Baum wrote in a note today.
Speculation about a sale started after Dekkers was named CEO in 2009. He has said he sees no pressing need for such a transaction.
“MaterialScience is a more cyclical business, where we know you can have very, very good years but then weaker years as a result of economic cyclicality,” he said today. “That doesn’t make it a bad business, it just makes it a different business than the other two.”
Revenue at Bayer’s health-care unit climbed 3.8 percent to 4.8 billion euros. Bayer said it expects pharmaceutical sales to increase by a high single-digit percentage compared with a previous forecast for mid-single-digit percentage growth.
The crop chemicals division boosted sales by 5.1 percent to 2.39 billion euros as growth in Latin America, Africa and the Middle East helped counter the effect of a late start to the growing season and declining acreages in North America. Bayer repeated its forecast for the division of high-single-digit sales growth, excluding the effect of currencies, acquisitions and divestments.
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