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Bayer Earnings Grow Marginally Y/Y, New Products Encourage

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Bayer’s (BAYRY - Free Report) earnings during the second quarter of 2014 came in at €1.54 per share (roughly $2.05 per share) compared with €1.53 per share (approximately $2.04 per share) in the year-ago period. Results were negatively impacted by foreign currency fluctuations.

Bayer’s second-quarter revenues of €10.5 billion were up 0.9% year over year. Revenues benefited from strong sales of the recently launched pharmaceutical products. Impressive performance of Bayer’s Crop Science segment (up 3.3%) aided the top line.

Segmental Performance in the Quarter

Bayer’s three major divisions — HealthCare, Crop Science and Material Science accounted for approximately 46.3%, 23.6% and 27.4% of total revenues, respectively, during the second quarter of 2014.

The HealthCare segment recorded revenues of €4.8 billion in the reported quarter, up marginally. Revenues from the Pharmaceuticals (adjusted growth of 10%) sub-segment saw year-over-year improvement driven by impressive sales of new products. However, the Consumer Health sub-segment registered marginal year-over-year improvement.

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 €702 million to segmental sales. The performance of Xarelto, co- marketed with Johnson & Johnson (JNJ - Free Report) , was very impressive. Sales of the drug were up 79.3% on an adjusted basis.

The EU approval of Stivarga in Jul 2014 for treating patients with gastrointestinal stromal tumors has further boosted the drug’s sales potential.

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 €2.5 billion in the second quarter of 2014. The segment exhibited solid growth particularly in Latin America, Africa and the Middle East, along with North America and Asia/Pacific.

The Material Science segment, one of the world’s largest polymer manufacturers, posted sales of €2.9 billion in the reported quarter, flat year over year. Results were adversely impacted by lower prices.

2014 Outlook

Bayer expects 2014 sales of approximately €41 billion (old guidance: €41−€42 billion). Foreign exchange movements are now expected to adversely impact sales by 4% compared with the previous projection of 2% unfavorable impact. The company’s core earnings are expected to grow in the mid-single-digit percentage range.

Revenues from the HealthCare segment are expected to display mid-single-digit percentage growth with segmental revenues around €19.5 billion (old guidance:  €19.5−€20 billion). Foreign exchange movements are expected to adversely impact sales by 4% compared with the previous projection of an unfavorable impact of 2%.

Bayer now expects the Pharmaceuticals sub-segment to exhibit 10% sales growth (old guidance: high-single-digit growth). 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 single-digit sales growth (old guidance: low-to-mid, single-digit growth) in 2014. Sales from the Crop Science segment are expected to outperform the broad market and are anticipated to display high single-digit growth (old guidance: 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 second quarter were impressive despite being hurt by negative foreign exchange movements. 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. We are impressed by the company’s efforts to develop its pipeline.

Bayer carries a Zacks Rank #3 (Hold). Better-ranked stocks in the healthcare sector include Celgene Corp. (CELG - Free Report) and Allergan (AGN - Free Report) . Both stocks sport a Zacks Rank #1 (Strong Buy).

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