Bayer’s (BAYRY) earnings per share during the second quarter of 2011 came in at €1.29 (approx. $1.86) compared to €1.16 (approx. $1.67) in the year-ago period. Higher revenues boosted earnings. The emerging markets performed well during the quarter.
The company recorded a 0.8% growth in revenues, amounting to €9,252 million. Growth was approximately 5.4% on an adjusted basis. Growth was witnessed across the Material Science and Crop Science divisions at Bayer, driven primarily by increased volumes and selling prices.
The three major segments: Healthcare, Material Science and Crop Science accounted for approximately 45.5%, 30.1% and 21%, respectively, of total revenue during the reported quarter. While revenues from the Material Science, Crop Science and the Healthcare segments improved by 3.5%, 3.1% respectively, revenues from the Healthcare segment declined 2.3%.
However, after considering portfolio and foreign exchange related adjustments revenues from the Healthcare, Material Science and Crop Science divisions improved by 1.8%, 8.3% and 9.2% respectively.
The Healthcare segment recorded revenues of €4,208 million in the second quarter of 2011. The segment witnessed strong sales in the Asia/Pacific and Latin America/Africa/Middle East markets.
However, the segment performed disappointingly in the North American and European markets. Sales in the Pharmaceuticals sub-segment improved to €2,666 million, up 0.5% on an adjusted basis. The Pharmaceuticals segment witnessed strong growth in China.
While products such as Kogenate, Mirena and Aspirin Cardio performed well during the quarter, Nexavar and Betaferon’s performance were disappointing. Moreover, US sales in the quarter were hurt by the disappointing performance of the Yaz family of oral contraceptives. This was mainly due to low US demand resulting from increased generic competition. Healthcare reforms in various countries also negatively impacted the performance of the segment.
Growth (4.1% on an adjusted basis) in the Consumer Health subgroup, comprising Bayer’s over-the-counter (OTC) drug business for human beings and animals, was driven by impressive performances across all regions. Sales in the Consumer Care unit benefited from strong performances of key drugs in the segment.
Sales in the Medical Care unit came in flat year over year due to the weak performance of the diabetes care business in the US. The Animal Health unit performed impressively in the quarter driven by the strong performance of Bayer’s advantage product lines.
Sales in the Material Science segment climbed 3.5% (8.3% on an adjusted basis) to €2,782 million in the reported quarter. Results were driven by increased selling prices.
Sales in the Crop Science division improved 3.1% (9.2% on an adjusted basis) to €1,943 million, mainly because of the impressive performance of the BioScience subgroup. Moreover, high prices of agricultural raw materials also impacted the performance of the unit positively. The Crop Protection unit performed impressively during the quarter driven by the seed treatments and fungicides.
2011 view backed
Following the release of second quarter results, Bayer maintained its guidance for 2011. Bayer projects currency- and portfolio-adjusted sales growth in the range of 5-7% in 2011. The company continues to expect 2011 revenues in the range of €36 – €37 billion. Earnings are expected to increase by 15%.
Our Recommendation
Currently, we have a Neutral stance on Bayer in the long run. The company carries a Zacks #3 Rank (Hold rating) in the short run.
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