BAYZF - Bayer's Q2 sales soar on crop/consumer health business raises outlook; Euro694M set aside for Monsanto Oregon settlement

Bayer's ( OTCPK:BAYRY ) ( OTCPK:BAYZF ) Q2 sales grew on the back of Crop Science and Consumer Health businesses, while the company also raised its FY22 outlook.

The German conglomerate's core EPS grew +19.9% Y/Y to €1.93. EBITDA before special items increased 30% Y/Y to $3.35B.

Group sales grew +18.1% Y/Y (or +9.6% on a currency and portfolio-adjusted basis, or Fx & portfolio adj.) to ~€12.82B.

"We delivered strong operational performance. In terms of sales, we posted significant gains at Crop Science and strong growth at Consumer Health, as well as a slight increase at Pharmaceuticals, too," said Werner Baumann, chairman of the board of management.

Sales from Agricultural business (Crop Science) increased +28.7% Y/Y (+17.2% on Fx & portfolio adj.) to ~€6.47B due to substantial price and volume growth.

Herbicides grew  +51.3% Y/Y (on Fx & portfolio adj. basis), with sales rising mainly in Latin and North America, and Europe/Middle East/Africa due to prices for glyphosate-based products remaining high.

Sales at Corn Seed & Traits advanced by +9.5% (Fx & portfolio adj. basis). The company noted that volumes expanded in all regions except North America. Meanwhile,

Soybean Seed & Traits sales declined -16.1% Y/Y (Fx & portfolio adj.) largely due to significant reduction in sales from overproduction in North America and the unit's withdrawal from the Argentinian market.

EBITDA before special items at Crop Science grew by +71.8% to ~€1.75B.

Sales from the Pharmaceuticals division grew +7.2% Y/Y (+2.1% on Fx & portfolio adj.) to ~€4.82B.

Bayer said overall sales growth in pharma division was held back by additional tender procedures in China, particularly for cancer drug Nexavar and oral anticoagulant Xarelto, which saw their global sales fall by 29.5% and 6.4% Y/Y ( both on Fx & portfolio adj. basis). Xarelto sales were also impacted by the expiration of patent in Brazil.

The division's new products, especially Nubeqa and Kerendia, continued their successful market launch, with sales of the cancer drug Nubeqa doubling Y/Y.

Sales of wet-AMD drug Eylea, developed with Regeneron, grew 11.7% Y/Y (Fx & portfolio adj.). X-ray imaging drug s Heart disease treatment Adalat grew +11.2% Y/Y; while Aspirin Cardio, for secondary prevention of heart attacks. saw sales increase by 18.9% Y/Y;( both on Fx & portfolio adj. basis).

EBITDA before special items at Pharmaceuticals increaased by 4.9% to ~€1.48B.

Sales from Consumer Health segment grew +16% Y/Y (+6.8% Fx & portfolio adj.) to ~€1.5B. .Sales in the Allergy & Cold category rose by 16.9% (Fx & portfolio adj. basis) mainly due to continuously high cold incidence rates in Europe and North America. In June, the division also started selling Astepro, a product that it switched from Rx to OTC status.

EBITDA before special items at Consumer Health advanced by 18.7% Y/Y to ~€330M.

Monsanto litigation : The German conglomerate took an additional provision of €694M in Q2 mainly due to an ongoing settlement with the State of Oregon related to an environmental damage case, involving legacy Monsanto PCB products.

Bayer said it decided to pursue settlement, even though Monsanto voluntarily ceased production of PCBs in 1977 and never disposed of the chemical in this state.

The company noted that it remained committed to defend future cases through the litigation.

Outlook :

Bayer said it raised its guidance for the Crop Science and Consumer Health divisions, and thus also for the Group as a whole.

On a currency-adjusted basis: For 2022 Bayer now expects to generate sales of €47B to €48B (previously: ~€46B).

Core EPS now expected ~€7.30, (previously: €7).

Free cash flow expected around €2.5B (previously: ~€2B to €2.5B). In addition, the company continues to expect year-end net financial debt of ~€33B to €34B.

Based on closing exchange rates as of June 30, 2022: Bayer now expects to generate sales of €50B to €51B (previously: ~€47B). Core EPS now expected ~€7.70, (previously: €7.10).

Global Supply Woes : Baumann added that the Bayer does not currently see any material financial impact in 2022 from any potential gas supply bottlenecks due to the war in Ukraine. He added that the company was prepared to significantly reduce its reliance on natural gas by switching to alternative and renewable sources of energy.

However, Baumann noted that "A higher degree of uncertainty stems from the company’s indirect exposure via its global supplier network." To mitigate this, Bayer was expanding its network of suppliers and building inventory of key raw materials and packaging materials, according to Baumann.

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