Bayer Q2 misses forecasts as costs, forex effects bite

The logo of Bayer AG is seen in a showroom of the German drugmaker where the annual results news conference takes place in Leverkusen, Germany

Bayer (BAYGn.DE) shares fell to their lowest levels in more than seven months after the German agricultural and pharmaceuticals group reported lower-than-expected second-quarter core earnings due to higher production costs and currency headwinds.

Second-quarter earnings before interest, tax, depreciation and amortisation (EBITDA) before special items fell 10.6% to 2.58 billion euros ($3.05 billion), missing the 2.79 billion forecast analysts had expected on average.

Shares in the group fell by as much as 6.1% to the bottom of the DAX, hitting their lowest since Dec. 21, 2020, after second-quarter adjusted EBITDA at Bayer’s Crop Science division declined by more than a quarter.

“Higher prices and volumes, along with contributions from ongoing efficiency programmes only partly offset an increase in costs,” Bayer said in a statement.

Barclays analysts said investors might be concerned by the impact of cost inflation at the Crop Science division, which includes the Roundup weedkiller brand Bayer acquired as part of the $63 billion takeover of Monsanto.

The decline in core earnings overshadowed Bayer’s lifted full-year outlook, following stronger sales of prescription medicines that recovered from restrictions related to the COVID-19 pandemic.

Bayer expects sales of 43 billion euros this year, up from 41 billion earlier. EBITDA before special items is seen at 10.6 billion to 10.9 billion euros, compared with 10.5 billion to 10.8 billion previously.

The more optimistic outlook was partly driven by Bayer’s pharmaceuticals division, where second-quarter sales rose 16.2% and which is being strengthened by the acquisition of Vividion Therapeutics (VVID.O) for up to $2 billion.

“Vividion’s unique technologies and special expertise will significantly strengthen our drug discovery capabilities,” Bayer Chief Executive Werner Baumann said in a statement.

Bayer last week said it would book additional provisions of $4.5 billion related to litigation, which alleges that Roundup can cause cancer, bringing the total to $16.1 billion.

Bayer said it would file in August a petition with the U.S. Supreme Court seeking a review of a lower court ruling that went in favour of Roundup user Edwin Hardeman.

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