Bayer’s BAYRY net income during second quarter of 2015 came in at €1.15 billion (approximately $1.27 billion) compared with €953 million (approximately $1.31 billion) in the year-ago period.
Bayer’s core earnings during the second quarter of 2015 were up 33.8% year over year to €1.98 per share.
Bayer’s second-quarter revenues of €12.1 billion were up 18.2% year over year. All the three major divisions performed well in the reported quarter.
Segmental Performance
Bayer’s three major divisions — HealthCare, CropScience and MaterialScience — accounted for approximately 48.9%, 22.5% and 26.3% of total revenues, respectively, during the second quarter of 2015.
The HealthCare segment recorded revenues of approximately €5.9 billion in the reported quarter, up 28% from the year-ago figure. Revenues from the Pharmaceuticals (adjusted growth of 10.7%) sub-segment saw a year-over-year improvement driven by impressive sales of recently launched products like Xarelto (anticoagulant), Eylea (eye drug), Xofigo (oncology), Adempas (pulmonary hypertension) and Stivarga (oncology).
The Consumer Health sub-segment registered a year-over-year increase of 4%. Revenues benefited from the acquisition of Merck & Co. Inc.’s MRK consumer care business.
The CropScience division, which is engaged in developing and marketing chemical crop protection products (insecticides, herbicides and fungicides), seeds and integrated plant biotechnology solutions for agricultural and non-agricultural uses, recorded sales of €2.7 billion in the second quarter of 2015, up 10.2%.
The MaterialScience segment, a polymer manufacturer and supplier, posted sales of approximately €3.2 billion in the reported quarter, up 11.2% year over year. Bayer is on track to list its MaterialScience business on the stock market as an independent company, Covestro, by mid-2016. Bayer will focus on HealthCare and CropScience.
2015 Outlook Revised
Bayer has lowered its 2015 revenue guidance due to discontinued operations. Last month, Bayer entered into a definitive agreement to sell its diabetes care business to Panasonic Healthcare Holdings Co., Ltd., a company which is backed by KKR (a leading global investment firm) and the Panasonic Corporation. The company now expects sales of €47 billion in 2015 (previous guidance: between €48 billion and €49 billion). Foreign exchange movements are expected to have a positive impact on 2015 total sales by 7% (previous guidance: 9%).
The company expects core earnings to grow in the high teens as against the previous guidance of low teens. 2015 core earnings are expected to reflect a positive currency impact of 5% (previous guidance: 9%).
Revenues from the HealthCare segment are expected to display mid-single-digit percentage growth to reach around €23 billion in 2015 (previous guidance: €24 billion).
Bayer expects the Pharmaceuticals sub-segment to exhibit mid- to- high single-digit percentage sales growth to around €14 billion. The recently launched products are expected to rake in over €4 billion. The company now expects Consumer Health sales to be more than €9 billion in 2015 (previous guidance: more than €10 billion).
Sales from the CropScience segment are now expected to increase in the low single-digit percentage range to around €10.5 billion (previous guidance: €11 billion). The MaterialScience segment is expected to record lower sales in 2015.
Our Take
The newly launched products at Bayer performed impressively during the quarter. These products are expected to continue their strong run in the coming quarters as well. We are pleased with Bayer’s strategy of divesting its underperforming assets. The successful completion of the divestment of the diabetes care business as well as the MaterialScience spin-off will allow Bayer to completely focus on its best performing segments – HealthCare and CropScience.
Bayer currently carries a Zacks Rank #2 (Buy). Other well-ranked stocks in the health care sector are Ligand Pharmaceuticals Incorporated LGND and Anacor Pharmaceuticals, Inc. ANAC. While Ligand carries a Zacks Rank #1 (Strong Buy), Anacor holds a Zacks Rank #2 (Buy).
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