Bayer shares fall after surprise profit warning

Bayer, which is taking over US seeds group Monsanto, said poor sales at crop protection distributors in Brazil and a weaker-than-expected consumer health business would hit earnings by at least €300 million.

Bayer shares were down 4.15 per cent to €113.20 after the unscheduled statement.

“At the end of the harvest season in Brazil, regular stock-taking revealed an unexpectedly high channel inventory level of crop protection products,” the company said.

The problems in Brazil would result in a one-time hit of €300-€400 million on full-year earnings before interest, taxes, depreciation and amortisation (Ebitda).

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Bayer, currently seeking regulatory approval for its $66 billion takeover of Monsanto, said it would adjust its business outlook when it publishes second quarter results, due on July 27th, without providing details.

Bayer has been trying to overcome a weaker than expected performance of key consumer care brands Coppertone sun screen and Dr Scholl's foot care products, acquired from Merck & Co . It did not specify the impact of that part of the business on earnings.

Suffering

The agricultural supplies industry has been suffering from three years of weak crop prices, weighing on farmers’ demand for seeds and pesticides.

Recession-hit Brazil, a major producer of soybeans, sugarcane and maize and one of the world’s largest pesticides market, has been a particular headache with the added burden of tight credit conditions for farmers.

Bernstein analyst Jeremy Redenius said while cuts to 2017 consensus estimates would be relatively small, "the bigger worry is this mis-step in the CropScience business before the integration of Monsanto kicks off".

“Such high inventories should have been recognized and managed sooner. Now we hope they reduce inventories while pricing responsibly,” he added. Bernstein rates Bayer as “Outperform”.

Bayer earlier this year said a recovery in global demand for crop protection products was likely to be seen first in Asia, eastern Europe and Latin America towards the end of 2017, while markets in North America and Europe would not see a return to more robust growth before 2018.

– (Reuters)