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Bayer : Takes On Investor Worries

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12/06/2018 | 02:48am EDT

Shareholders have been spooked by operational problems, Monsanto acquisition

By Ruth Bender 

BERLIN -- Germany's Bayer AG Wednesday laid out ambitious sales and profit targets in its latest effort to convince the market it is serious about boosting profits, reducing debt and stopping a downward spiral in its stock price that has put management under heavy pressure.

The chemicals and pharmaceuticals company is dealing with a string of long-term challenges and the fallout from its recent acquisition of Monsanto Co., a deal that was designed to strengthen Bayer's strategic position but ended up spooking investors.

"We are not happy at all with the recent development of the company and the stock," Chief Executive Werner Baumann said in London at the company's first gathering with investors since taking over Monsanto this summer. "Your disappointment is our disappointment and all of us will do everything we can to bring the value of our company back into the stock."

Investors and analysts had been waiting for Wednesday's event to offer details about how Bayer planned to fix operational problems in its drugs businesses and reap the benefits of its $63 billion acquisition of Monsanto.

An August jury verdict granting a plaintiff high damages against Monsanto raised doubts in some investors about the appeal of the deal. Bayer shares have lost roughly 30% since the jury ruled Monsanto weedkillers containing the chemical glyphosate had caused the plaintiff's cancer. Investors fear a protracted legal battle with an uncertain outcome will consume time and resources and end up in costly payouts for Bayer.

Mr. Baumann, who brokered the Monsanto acquisition just days after becoming CEO in 2016, said Bayer would face roughly a dozen new trials in 2019 and reaffirmed the company's conviction that glyphosate was safe to use and that Bayer stood good chances of winning in court. But he was quick to move on to topics whose resolutions aren't in the hands of U.S. jurors.

Shares took some respite on Wednesday as analysts were positively surprised by some of Bayer's medium-term targets. In early afternoon trade, shares were trading 1.3% higher against a lower DAX index.

Bayer said it aimed to grow sales by 4% next year and between 4% and 5% in the following two years as it turns around its consumer-care business, overhauls research and development at its prescription drugs business and integrates Monsanto into its crop-science business. The target excludes currency shifts.

The company, based in Leverkusen, Germany, also wants to boost earnings before interest, taxes, depreciation and amortization, excluding one-off items, to EUR16 billion ($18.2 billion) in 2022 from a pro-forma of EUR11.5 billion this year and grow free-cash-flow generation by 18% on average each year to a total of about EUR23 billion between 2019 and 2022, two goals that beat consensus expectations.

Markus Mayer, analyst at Baader Bank AG, said the free-cash-flow target was a positive surprise.

Bayer's targets assume drastic cost-cutting measures the company announced last month. The company caught investors by surprise in late November with a plan to cut 10% of its global workforce, which Mr. Baumann said was the most comprehensive job-cutting plan in the company's 155-year history. Bayer also plans to sell its animal-health business and foot-care brand Dr. Scholl's and sunscreen products Coppertone as it wants to focus resources on its core drugs and agriculture operations.

Bayer said it would use the higher cash flow and some proceeds from asset sales to increase dividends in the future and would even consider share buybacks, independent of how the glyphosate cases turn out. The group also wants to bring down net debt, which is expected to reach EUR36 billion by the end of the year due to the Monsanto purchase.

Write to Ruth Bender at Ruth.Bender@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
BAYER AG -0.57% 53.9 Delayed Quote.-11.00%
DAX 0.49% 12011.04 Delayed Quote.13.75%
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Financials (€)
Sales 2019 46 546 M
EBIT 2019 8 215 M
Net income 2019 3 662 M
Debt 2019 37 837 M
Yield 2019 5,34%
P/E ratio 2019 14,09
P/E ratio 2020 11,55
EV / Sales 2019 1,89x
EV / Sales 2020 1,78x
Capitalization 50 265 M
Duration : Period :
Bayer AG Technical Analysis Chart | MarketScreener
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Technical analysis trends BAYER AG
Short TermMid-TermLong Term
Income Statement Evolution
Mean consensus OUTPERFORM
Number of Analysts 26
Average target price 77,7 €
Spread / Average Target 44%
EPS Revisions
Werner Baumann Chairman-Management Board
Werner Wenning Chairman-Supervisory Board
Wolfgang U. Nickl Chief Financial Officer
Katharina Jansen Head-Science & Research
Hartmut Klusik Head-Human Resources, Technology & Sustainability
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