Bayer to Cut 2017 Forecasts as Crop Unit Struggles in Brazil

(Bloomberg) -- Bayer AG plans to cut its sales and profit forecasts for this year because of unexpectedly high stockpiling in Brazil of its crop-protection products.

Full-year earnings before interest, taxes, depreciation and amortization and other special costs will be reduced by 300 million euros ($342 million) to 400 million euros, the Leverkusen, Germany-based company said in a statement on Friday. Second-quarter results will also be eroded. The stock dropped by the most in almost eight months.

The dimmer outlook comes even as the conglomerate forges ahead with its proposed $66 billion acquisition of Monsanto Co., the world’s largest seed company. That deal, the largest ever in the agricultural industry, would see Bayer doubling down on its crops unit amid a slew of takeovers in the sector, while stoking speculation that Bayer’s prescription drugs business will be sidelined.

Agriculture traders have been suffering through a multi-year slump in crop prices, but Brazilian companies have had it particularly rough. A deep recession in the country has tightened credit conditions, while a severe drought in 2016 also reduced the nation’s corn harvest.

The consumer-health division also isn’t performing as well as had been anticipated, the company said, without providing details. The medicines unit and the Covestro plastics business that was publicly listed in October 2015 are continuing to “perform strongly.” Bayer has been paring its Covestro stake this year to bolster its balance sheet ahead of the Monsanto deal’s completion.

Shares of Bayer fell 4.1 percent to 113.25 euros at 11:25 a.m. in Frankfurt, after earlier dropping as much as 5.6 percent, the biggest intraday decline since Nov. 16. The stock has outpaced other large pharmaceutical and chemical companies for years, boosted by growth in the drug business and in crop chemicals. The shares returned about 120 percent including dividends over the past five years, compared with returns of less than 100 percent for the Bloomberg Europe Pharmaceutical Index and the Stoxx 600 Chemicals Index.

In April, Bayer had raised its outlook for the year, citing a rebound in chemicals and crop products. Earnings before special items will likely rise by a percentage in the low teens and sales will grow to a record 51 billion euros this year, it had said at that time.

Bayer plans to change its full-year sales and profit forecast for the crops and consumer health divisions, which will likely have an impact on the company’s overall growth measures. The new projections will be announced when the German conglomerate reports second-quarter results on July 27.

Bayer on Friday also asked the European Union to approve its takeover of Monsanto, which is the last of three mega-deals reshaping the sector. The filing kickstarts an initial review with an Aug. 7 deadline. Bayer said it’s still seeking to close the deal “before the end of 2017,” a sign that it’s hoping to sidestep a lengthy second phase probe that could add a further four months to the process.

To contact the reporter on this story: Chitra Somayaji in London at csomayaji@bloomberg.net.

To contact the editors responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net, Phil Serafino, Chad Thomas