Bayer AG (BAYRY - Free Report) announced a restructuring plan to streamline business and improve efficiency.
The company plans to exit its Animal Health business, and management is currently assessing various options for this business. The decision to exit this business comes as part of the company’s plan to focus on its core businesses of Pharmaceuticals, Consumer Health and Crop Science.
The company is making efforts to revive its Consumer Health division to target market growth in the coming years and improve profitability. The measures include a planned exit from product categories, which were not suiting the company’s business model. In addition to the previously announced divestment of prescription dermatology products, Bayer will review its strategic options in the coming months and most likely exit its sun care (Coppertone) and foot care (Dr. Scholl's) product lines. The company intends to focus on driving growth in its core Consumer Health categories.
Bayer is also planning to divest its 60% interest in German site services provider Currenta, as this business does not align with its existing model anymore, given the carve-out of Covestro.
Bayer expects annual savings of €2.6 billion from 2022 as a result of its planned efficiency and structural measures, including the synergies expected from the acquisition of Monsanto. We remind investors that in June 2018, Bayer acquired Monsanto for $63 million. The combined business is expected to boost Bayer’s Crop Science business.
Concurrently, the company plans to reduce its headcount by 12,000-118,200 by 2021. Majority of these job cuts will be in Germany.
Of these, approximately 900 jobs in R&D will be cut in the Pharmaceuticals business along with 350 positions in the factor VIII facility in Wuppertal. 1,100 jobs associated with the reorganization at Consumer Health, around 4,100 positions at Crop Science as the result of integrating the acquired agriculture business and 5,500 to 6,000 jobs at Corporate Functions, supporting functions, Business Services and country platforms are likely to be cut. Bayer has decided not to utilize the factor VIII facility in Wuppertal, Germany, and to focus on all recombinant factor VIII production in Berkeley, United States.
Total one-time costs related to these measures are expected at a factor of 1.7 times the annual contributions. The company plans to invest a total of around €35 billion in the long run, with research and development (R&D) accounting for over two thirds of this figure and capital expenditures for just below one third.
As a result of the above-mentioned factors, the company expects core earnings per share of €6.80 in 2019 (2018: €5.70 to €5.90), with a target of around €10 in 2022.
Bayer’s stock has declined 40.4% year to date, against the industry's growth of 13.3%.
The company is currently facing generic competition for many of its products, including the Yaz franchise (oral contraceptives). Hence, investors will focus on the execution of the restructuring plan, which should boost the top and bottom lines.
Zacks Rank & Stocks to Consider
Bayer is a Zacks Rank #5 (Strong Sell) stock.
Some better-ranked stocks worth considering are Bristol-Myers Squibb Company (BMY - Free Report) , Gilead Sciences (GILD - Free Report) and Merck & Co. (MRK - Free Report) . While Bristol-Myers and Gilead Sciences sport a Zacks Rank #1 (Strong Buy), Merck carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here..
Bristol-Myers’ earnings per share estimates have increased from $3.62 to $3.87 for 2018 and from $3.82 to $4.08 for 2019 over the past 60 days.
Gilead’s earnings per share estimates increased from $6.60 to $6.93 for 2018 over the past 60 days. Estimates for 2019 are also up by 30 cents.
Merck’s earnings per share estimates have increased from $4.27 to $4.34 for 2018 and from $4.63 to $4.71 for 2019 over the past 60 days.
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