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Bayer (BAYRY) Q3 Earnings Beat Estimates, Sales Down Y/Y

Bayer AG’s BAYRY third-quarter 2017 core earnings per share from continuing operations were 43 cents per American Depository Receipt (ADR), which topped the Zacks Consensus Estimate of 29 cents.

On Sep 20, 2017, Bayer performed an ADR ratio change. With the new ratio, four Bayer ADRs correspond to one Bayer ordinary share. The third quarter 2017 core earnings per share incorporate the effect of ADR ratio change. Earnings were down 10.4% year over year from 48 cents per ADR.

Total sales in the quarter were approximately $9.47 billion, down 27.2% year over year. While the company registered growth in sales and earnings at Pharmaceuticals, business declined at Consumer Health. Sales at Crop Science and Animal Health improved as well.

Bayer’s share price has increased 25.6% year to date, outperforming the Zacks classified industry’s growth of 16.1%.

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

Third-Quarter Highlights

The Bayer Group lost de facto control over the Covestro Group at the end of the third quarter of 2017. As of Sep 30, there are four reporting segments - Pharmaceuticals, Consumer Health, Crop Science and Animal Health. As such, total figures for the four Life Science segments will no longer be presented separately.

Revenues at the Pharmaceuticals segment increased 2.3% to €4,065 million backed by a persistently strong performance of the key products like Xarelto, Eylea, Xofigo, Stivarga and Adempas. However, this division experienced a considerable decline in Kogenate’s sales, mainly because of a distribution partner placing a lower volume of orders for the active ingredient.

However, Consumer Health sales were down 2.9% to €1,320 million, due to decline in revenues in North America, particularly in the United States, owing to the challenging market environment. Markedly, the unfavorable environment in Europe was due to the result of weaker business in Russia, after a strong previous quarter. In Latin America, Bayer’s sales improved on a currency-adjusted basis, especially in Argentina, and attained the prior-year level in Asia/Pacific.

In the reported quarter, Crop Science sales were €2,031 million, up 2.7% year over year. Crop

Protection / Seeds registered gains mainly owing to development in the Asia / Pacific and North America regions. Additionally, Environmental Science posted increased sales on the back of product deliveries to the acquirer the consumer business that was divested in the fourth quarter of 2016.

Sales of the Animal Health segment came in at €359 million, up 1.4%. In the third quarter, sales improved positively in the regions of North America, besides progressing well in Asia Pacific region. The development in North American region was on the back of the revenues generated by the Cydectin product portfolio, which the company acquired from Boehringer Ingelheim Vetmedica, Inc in January 2017.

Discontinued Operations

In September 2017, Bayer AG sold an additional 16.3% of Covestro shares, generating total proceeds of around €2.2 billion.

As a result of further reducing its interest in the company and concluding a control termination agreement, Bayer ceded de facto control over Covestro AG. In sync with this, Covestro ceased to be a reportable segment in the third quarter and is now presented as a discontinued operation. This, in turn, resulted in a gain of €2.8 billion that was presented as income from discontinued operations, after income taxes in the consolidated income statement.

While, Bayer holds 24.6% of the shares in the capital stock of Covestro AG, Bayer Pension Trust holds a further 8.9%.


On Oct 13, 2017, Bayer signed an agreement to sell selected Crop Science businesses to BASF for €5.9 billion, in light of the planned acquisition of Monsanto Company MON.

The transaction is subject to regulatory approval as well as the successful closing of Bayer’s acquisition of Monsanto. Meanwhile, Bayer will continue to own, operate and maintain these businesses until the closing of this divestiture.

2017 Outlook

Following the signing of the Covestro control termination agreement in September 2017 and the sale of additional shares, Covestro will be presented as a discontinued operation and is thus, treated only as an equity method investment in the forecast as of the fourth quarter of 2017.

For 2017, Bayer expects sales to be in the range of of €35 billion to €36 billion. This continues to correspond to a low-single-digit percentage increase on a currency- and portfolio-adjusted basis.

Moreover, the company anticipates core earnings per share from continuing operations to be in a low-single-digit percentage decrease on the basis of the values that were adjusted for Covestro effects in the current year and the previous year. This is primarily due to the difference in the number of shares, which grew significantly in 2017 as a result of the mandatory convertible notes issued in November 2016.

 Zacks Rank & Key Picks

Bayer sports a Zacks Rank #1 (Strong Buy). Other top-ranked health care stocks in the same space include Ligand Pharmaceuticals Incorporated LGND and Adaptimmune Therapeutics plc ADAP. While Ligand carries the same bullish rank as Bayer, Adaptimmune holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ligand’s earnings per share estimates have moved up $3.68 to $3.70 for 2018 over the last 30 days. The company pulled off positive earnings surprises in two of the trailing four quarters, with an average beat of 6.19%. The share price of the company has increased 40.9% year to date.

Adaptimmune’s loss per share estimates have narrowed from $1.03 to 95 cents for 2017 and from 95 cents to 90 cents for 2018 over the last 60 days. The company delivered positive earnings surprises in three of the trailing four quarters, with an average beat of 2.56%. The share price of the company has increased 80.2% year to date.

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