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Strong Quarter at Bayer, View Upped

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Bayer’s (BAYRY - Free Report) earnings per share during the first quarter of 2011 came in at €1.45 (approx $1.99) compared to €1.13 (approx. $1.64) in the year-ago period. Strong revenues boosted earnings.

The company recorded a 13.2% growth in revenues to €9,415 million. Growth was witnessed across all divisions at Bayer. Growth was driven primarily by higher volumes. Higher selling prices contributed 3% to the increase reported in the first quarter of 2011.

The three major segments: Healthcare, Material Science and Crop Science accounted for approximately 44.2%, 28.3% and 24%, respectively, of total revenues during the reported quarter. Revenues from the Material Science, Crop Science and the Healthcare segments improved by 21.2%, 15.6% and 7.7%, respectively.

The Healthcare segment recorded revenues of €4,166 million in the first quarter of 2011. The improvement in this segment is a result of a 13.4% growth in Consumer Health and a 4.7% growth in revenues from Pharmaceuticals.

Robust sales of products such as Kogenate and Aspirin Cardio contributed mainly to the rise in sales of the Pharmaceuticals segment. The Pharmaceuticals segment witnessed strong growth in China and Japan. US sales in the quarter were hurt by the disappointing performance of the Yaz family of oral contraceptives.

This was mainly due to low US demand resulting from increased generic competition. Healthcare reforms in various countries also negatively impacted the performance of the segment.

Growth in the Consumer Health subgroup, comprising Bayer’s over-the-counter (OTC) drug business for human beings and animals, was driven by impressive performances across all regions. Sales in the Consumer Care unit benefited from strong performances of key drugs in the segment.

The Medical Care unit also performed well driven by the diabetes care business at Bayer.  The Animal Health unit performed impressively in the quarter driven by the strong performance of Bayer’s advantage product lines, primarily in the US market.

Sales in the Material Science segment climbed 21.2% to €2,216 million in the reported quarter. Results were helped by increased demand in the company’s primary customer industries.

Sales in the Crop Science division improved 15.6% to €2,257 million in the first quarter of 2011, mainly because of the impressive performance of the Environmental Science/BioScience subgroup (up 22.1%). Sales at the Crop Protection unit improved 13.6%. Impressive performances by new products contributed to the rise in sales of the sub-group.

2011 view upped

Following the release of first quarter results, Bayer upped its guidance for 2011. Bayer projects currency- and portfolio-adjusted sales growth in the range of 5% - 7% in 2011. Previously, Bayer had projected currency- and portfolio-adjusted sales growth in the range of 4% - 6% in 2011.

Bayer now expects 2011 revenues in the range of €36 billion-€37 billion as opposed to the earlier forecasted range of €35 billion-€36 billion. Earnings are expected to increase by 15% as opposed to the earlier expectation of a growth of 10%.

Our Recommendation

Even though the company carries a Zacks #2 Rank (Buy rating) in the short-run, we are more cautious in the long-run and have a Neutral stance on Bayer.

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