Bayer (BAYRY) announced its third quarter results yesterday. Revenues of the group recorded a 7% decline to €7.39 billion from €7.94 billion. The company’s earnings per share from continued operations were €0.78, compared to €0.85 in year-ago period.
Bayer operates through three major segments: Healthcare, accounting for 53.24% of total revenues in the third quarter of 2009; CropScience (15.4%), and Material Science (27.5%) with the remaining 4% coming from other items. While Healthcare segment revenues improved marginally by 3.5%, both cropscience and Material Science fell 8.6% and 20%, respectively.
The Healthcare segment recorded revenues of €3.9 billion compared to €3.8 billion in the corresponding period last year. Both the divisions of Healthcare – pharmaceuticals and consumer health contributed to the growth of the Healthcare segment. Bayer’s primary market, Europe – accounting for 39% of its Healthcare revenues – declined 3%, compared to the year-ago period. The other markets of North America, Asia Pacific and Latin America, Africa and Middle East grew 4.8%, 21.2% and 1.6%, respectively.
The 3% increase in pharmaceutical sales was driven primarily by general medicine, specialty medicine and diagnostic imaging partially offset by women’s healthcare. Other than Betaferon, Bayer’s other best selling drugs including Yasmin, Kogenate, Adalat and Nexavar recorded an improvement in sales.
Moreover, the consumer health subgroup grew 4.5% to €1.4 billion driven by increased sales of its three divisions – consumer care (3.2%), medical care (6.8%) and animal health (5.5%).
Although we are pleased to see the strong performance of the Healthcare segment, we remain concerned about the disappointing performance of CropScience and Material Science. Revenues from both the divisions of crop science – crop protection and environmental science and bio science declined 8.8% and 7.7% respectively due to lower prices of key crop commodities, adverse weather patterns and higher trade inventories of crop protection products.
Among the three segments of Bayer, Material Science was the worst performing segment during the quarter. Revenues from this segment recorded revenues of €2 billion, down 20% from €2.5 billion in the year-ago period due to a decline in selling price of the products as well as lower overall volume. All the four regions recorded a drop in sales.
Bayer had cash and cash equivalents of €2.6 billion at the end of third quarter, up from last year’s €2.3 billion. Gross cash flow was unchanged from the prior year period to €1.2 billion, while net cash flow rose 22.9 % to €1.5 billion because of improvements in working capital at Healthcare and crop science. The company reduced its net financial debt to €10.7 billion at the end of the reported quarter, from €11.7 billion at the end of June 2009.
Based on the third quarter results, Bayer still predicts a wide variation among the subgroups in terms of performance for 2009. For Healthcare the company continues to expect a positive trend in the current year, with growth in sales and EBITDA before special items. Despite the deterioration in the market environment for CropScience, the company expects this segment to increase compared with 2008. The company anticipates a decline in Material Science revenues in the fourth quarter.
In this backdrop, Bayer expects to post total sales in the range of €31–32 billion. We believe growth in the Healthcare business is particularly important for Bayer as the company has shifted its focus to this area, which accounts for more than 50% of total revenues. We expect Material Science business to pick up in 2010 when the world economy recovers from current recession.
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