The prospect of less sales and profits at the chemical and pharmaceutical group Bayer frightened investors on Friday. The stock slipped temporarily by more than 5 per cent to 111.55 Euro and thus to the lowest level since the beginning of May. By midday, however, they recovered somewhat and were still at 3.56 percent in the minus at 113.90 euros.
Due to unexpectedly high inventories in the Brazilian crop protection business (CropScience) and a weaker performance of the Consumer Health segment, Bayer is now reckoning with negative effects on the annual turnover and profit.
The forecast adjustments are to be published at the end of July with the second quarter report. According to Bayer, the annual result (Ebitda before special items) in the Crop Science division will have a one-time charge of between 300 and 400 million euros.
The initial selloff after this announcement were somewhat exaggerated, according to several market participants, referring to the analysts’ consensus estimate for the company’s total EBITDA of 12.3 billion euros. However, the uncertainty factor remains the magnitude of disappointment in the health sector and the impact of currency effects.
ESTIMATES FOR THE EARNINGS BETWEEN 4 TO 5%
“We estimate the negative impact on the annual target for Group EBITDA to be around 4 percent and somewhat lower for consensus maintenance,” wrote Bernstein analyst Jeremy Redenius. The impact of the unfavorable exchange rate effects on the Group’s operating result was at the same time “below 1 percent”.
Keyur Parekh, Wall Street Analyst at Goldman Sachs, expects the new forecast to be around 500 million euros, which is about 4 to 5 percent below consensus. He also recalled that Bayer had previously pointed to excessive stockpiling in Brazil.
However, the volume of the load now suggests that the inventory structure was significantly higher than previously assumed. In addition, he also sees uncertainty due to Bayer’s statements about a weaker than expected business development in the health care sector without quantifying the extent.
“In order to find out more, we must wait for the next quarterly report”, said another market participant. “However, since a profit warning is fundamentally negative, new pressure could come into the stock in the afternoon, when the Americans enter the market.”
