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Bayer (BAYRY) Beats on Q3 Earnings, Lifts 2016 Guidance

Bayer AG 's BAYRY third-quarter 2016 core earnings increased 2.4% year over year to €1.73 per share (approximately $1.93). Reported earnings were able to beat the Zacks Consensus Estimate of $1.80.

Total sales in the third quarter improved 2.3% to €11.3 billion (approximately $13 billion) on a reported basis. Adjusted for currency and portfolio effects related to the Pharmaceuticals business, the figure was up 3.5%. Quarterly sales also beat the Zacks Consensus Estimate of $12.4 billion.

All growth rates mentioned below are on a year-over-year basis and after adjusting for currency and portfolio changes.

Quarterly Highlights

Effective from the first quarter, Bayer reports results under five divisions - Pharmaceuticals, Consumer Health, Crop Science, Animal Health and Covestro.

Revenues at the Pharmaceuticals segment increased 7.6% backed by a persistently strong performance of the recently launched products Xarelto, Eylea, Xofigo, Stivarga and Adempas. Performance of the established product portfolio was mixed in the third quarter of 2016. While Mirena, Glucobay and Avalox/Avelox witnessed an impressive upside, sales of Kogenate/Kovaltry, Nexavar and Betaferon/Betaseron declined. Overall, the company successfully expanded the Pharmaceuticals business in all the regions.

Consumer Health sales were up 3.6% to €1.4 billion driven by improvement across all regions including Latin America/Africa/Middle East, Asia/Pacific regions and North America, except Europe. Products like Aleve, Alka-Seltzer and Elevit recorded encouraging sales growth. However, Coppertone witnessed a decline in the U.S. due to lower sales.

Crop Science sales were flat at €2.1 billion in the third quarter of 2016 due to the ongoing market weakness. While fungicides registered growth, insecticides and herbicides were down.

Sales of the Animal Health business came in at €360 million, up 2.5%. Sales in the Asia/Pacific region and Europe reflected growth, while the North American business declined slightly.

Covestro garnered sales of approximately €3 billion in the quarter, up 1%. Overall, volumes were up, particularly at the Polycarbonates and Polyurethanes units.

2016 Earnings Outlook Raised

Although Bayer reiterated its sales outlook, the company has raised its expectations for core earnings per share.

The company continues to expect sales of €46 billion to €47 billion, including contribution from Covestro. This represents growth in the low-single-digit percentage range.

The Life Science businesses are still anticipated to rake in sales of approximately €35 billion, excluding the contribution from Covestro. This corresponds to growth in the mid single-digit percentage range.

At Pharmaceuticals, Bayer continues to projects sales to be above €16 billion, reflecting a high single-digit improvement. Bayer plans to make efforts to ramp up sales of recently launched products to around €5.5 billion.

In the Consumer Health Division, sales are still anticipated to be approximately €6 billion, indicating low-to-mid single-digit growth.

Bayer continues to expect Crop Science sales are estimated to be about €10 billion, flat year over year, thanks to the persistently challenging market environment.

At Animal Health, Bayer continues to expect sales to increase in the low-to-mid single-digit percentage range. For 2016, Bayer continues to expect a sales decline for Covestro.

Bayer now projects core earnings, which include the company's remaining stake in Covestro, to improve in the high-single-digit percentage range (previous expectations: mid-to-high single-digit percentage range).

BAYER A G -ADR Price, Consensus and EPS Surprise

BAYER A G -ADR Price, Consensus and EPS Surprise | BAYER A G -ADR Quote

Our Take

Bayer delivered better-than-expected third-quarter 2016 results, wherein both the top and the bottom line surpassed expectations. The Life Science businesses generated impressive sales growth, particularly Pharmaceuticals. Moreover, newly launched products at the Pharmaceuticals segment performed impressively during the quarter and should continue to do so in the upcoming quarters. The company's raised outlook for core earnings for 2016 is also encouraging.

Meanwhile, Bayer is looking to acquire Monsanto Company MON in a deal worth approximately $66 billion. We note that by this acquisition, Bayer is aiming to become a global leader in agriculture. If all goes well on the regulatory front, the deal is expected to close by the end of 2017.

Bayer currently carries a Zacks Rank #2 (Buy). A couple of other favorably ranked stocks in the health care sector include BioMarin Pharmaceutical Inc. BMRN and Innoviva, Inc. INVA . Both the stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .

BioMarin's loss estimates have narrowed from 28 cents to 25 cents for 2016 and from $1.16 to $1.11 for 2017 over the last 60 days.

Innoviva's estimates have increased from 60 cents to 62 cents for 2016 and from $1.14 to $1.15 for 2017 over the last 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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