Bayer profit soars on strong plastics, chemicals
Fri Apr 29, 2005 10:26 AM ET
By Sitaraman Shankar, European Chemicals Correspondent
COLOGNE, Germany, April 29 (Reuters) - First-quarter operating profit at Germany's Bayer soared by over 50 percent, it said on Friday, beating even the most optimistic forecasts and underscoring an upswing in commodity chemicals.
A day after sector leaders BASF and Dow Chemical reported buoyant results, the German chemicals and drugs group said operating profit before special items came at 1.142 billion euros ($1.48 billion), well above the highest forecast of 959 million euros from a Reuters poll of 18 analysts.
Bayer shares traded 1.5 percent higher at 25.25 euros at 1420 GMT, compared to a 0.2 percent fall in the DJ Stoxx European chemicals index .
"I was predicting a good result, but these numbers are clearly better," said HVB analyst Andreas Heine. "They show the company is on track to higher profitability, and material science earnings are skyrocketing, showing there are no signs of a downturn in commodity chemicals."
Bayer said in a preliminary earnings statement ahead of its annual shareholder meeting that sales from continuing operations rose nearly 16 percent to 6.7 billion euros, boosted in particular by its material science unit, which makes plastics and chemicals, and roughly in line with the poll average.
Bayer reiterated it expected earnings before interest and tax (EBIT) from continuing operations before special items to rise by around 20 percent in 2005, despite high raw material costs.
Sales, adjusted for currency and portfolio effects are expected to hit 25 billion euros, the group reiterated.
"We have therefore gotten off to a very good start in 2005, and that confirms our optimistic forecast for the full year," Chief Executive Werner Wenning said in a statement.
Analysts expect 2005 to be a year of consolidation for Bayer after a period of frantic activity that featured the spin-off of most of its chemicals unit into Lanxess, the acquisition of a prescription-free drugs business from Roche, and the sale of its blood products arm.
The company is due to release detailed quarterly results on May 10, and analysts said some investors would wait for more clarity on the numbers.
"These are very strong numbers but there's a lot of uncertainty over IFRS restatements and the Roche consolidation, and Bayer earnings are traditionally volatile," said Commerzbank analyst Peter Mackey.
PLASTICS, CHEMICALS SOAR
Also on Friday, Belgium's Solvay said that first quarter underlying operating profit rose 20 percent driven by chemicals, where earnings more than doubled, and plastics, where they rose 56 percent.
Its shares were up 0.8 percent at 88.45 euros.
Commodity chemicals, which include plastic inputs and bulk chemicals like caustic soda, have enjoyed an upswing since the end of 2003 as demand was strong enough to charge customers more to offset high oil prices.
Analysts expect commodity players like BASF and Bayer to continue to perform better this year than specialty firms like Ciba, which are having difficulty raising prices due to cheaper Asian competition and weaker demand.
Underlying EBIT at Bayer's material science unit roughly tripled year on year, with sales rising by a third, confirming a global trend of good demand for plastics and chemicals.
Underlying earnings at the healthcare unit also rose despite generic competition to its Cipro antibiotic and special charges related to the acquisition of the Roche unit.
Wenning told an annual shareholder meeting that in principle, Bayer was prepared to look at more acquisitions for its prescription-free drugs unit, and at buying drug licences.
He said the company would cut some 750 jobs in Germany this year. This is around 950 jobs fewer than planned because of higher capacity utilisation at its manufacturing plants.
Earnings at crop science, one of the key drivers in 2004, also improved from the high level of the previous year. Bayer did not give more detail on the divisions.
According to Reuters Estimates, Bayer shares trade at nearly 19 times projected 2005 earnings, making them much costlier than BASF and U.S. rival Dow Chemical. (Additional reporting by Bart Crols in Brussels)
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