Bayer Gains on Q1 Earnings - Analyst Blog

Bayer's (BAYRY) earnings during the first quarter of 2014 came in at €1.95 per share (roughly $2.67 per share) compared with €1.70 per share (approximately $2.25 per share) in the year-ago period. Earnings benefited from higher revenues. Bayer's shares gained around 3.4% following the first-quarter results.

Bayer's first-quarter revenues of €10.6 billion were up 2.8% year over year. Revenues during the quarter were boosted by recently launched pharmaceutical products. Revenues from all the three major segments at Bayer – Crop Science, HealthCare and Material Science – improved during the quarter. Revenues from these segments increased a respective 4.9%, 2.9% and 1.0% year over year.

Segmental Performance in the Quarter

HealthCare, Crop Science and Material Science  accounted for approximately 43.3%, 27.5% and 26.6% of total revenues, respectively, during the first quarter of 2014.

The HealthCare segment recorded revenues of €4.6 billion in the reported quarter. Revenues from the Pharmaceuticals (adjusted growth of 14.9%) sub-segment saw year-over-year improvement, however, the Consumer Health sub-segment remained flat year over year.

Sales of new products like Xarelto (anticoagulant), Eylea (eye drug), Xofigo (oncology), Adempas (pulmonary hypertension) and Stivarga (oncology) boosted the Pharmaceuticals segment. These recently launched products contributed around €600 million to segmental sales.

The Crop Science division, which is engaged in developing and marketing chemical crop protection products (insecticides, herbicides, and fungicides), seeds and integrated plant biotechnology solutions for agricultural and non-agricultural uses, recorded sales of €2.9 billion in the first quarter of 2014. The segment exhibited solid growth particularly in Latin America, Africa and the Middle East, along with Asia/Pacific.

The Material Science segment, one of the world's largest polymer manufacturers, posted sales of €2.8 billion in the reported quarter. The segment exhibited growth in all of its business units apart from regions like Latin America, Africa and the Middle East.

Bayer Reaffirms 2014 Outlook

Bayer expects 2014 sales to be around €41−€42 billion, an increase of 5% on an adjusted basis from the 2013 figure. The company's core earnings are expected to grow in the mid-single-digit percentage range.

Revenues from the HealthCare segment are expected to come in around €19.5−€20 billion (mid-single-digit percentage growth). Bayer still expects the Pharmaceuticals sub-segment to exhibit high-single-digit sales growth in 2014, primarily due to its recent encouraging performance. The newly launched products at Bayer are expected to contribute around €2.8 billion to segmental sales in 2014.

The company still expects Consumer Health sales to exhibit low-to-mid, single-digit sales growth in 2014. Sales from the Crop Science segment are expected to grow in the mid- to high-single-digit percentage range. The company still believes that its Material Science segment will make a turnaround this year with sales growing in the mid-single-digit percentage range.

Our Take

Bayer's results in the first quarter were encouraging. We are impressed by the performance of the newly launched products at Bayer during the quarter. These products are expected to perform well in the coming quarters as well. The company made significant progress on its pipeline as well. Moreover, the company's 2014 outlook looks promising.

Bayer presently carries a Zacks Rank #4 (Sell). Some better-ranked stocks include Alexion Pharmaceuticals, Inc. ALXN, Allergan Inc. AGN and Johnson & Johnson JNJ. While Alexion carries a Zacks Rank #1 (Strong Buy), Allergan and Johnson & Johnson carry a Zacks Rank #2 (Buy).