February 22, 2017 / 1:44 PM / 5 months ago

Bayer sees pesticides profits stagnating before Monsanto takeover

3 Min Read

The logo of German drugmaker Bayer is seen in Leverkusen April 26, 2014.Ina Fassbender/Files

LEVERKUSEN, Germany (Reuters) - German drugs and pesticides maker Bayer forecast a year without earnings growth for its agricultural products business on Wednesday, as it seeks to complete its $66 billion deal to take over U.S. seeds giant Monsanto.

Bayer has said the deal, which would put the size of its agricultural business on a par with its health care unit in terms of revenues, would enable it to develop new combinations of seeds and pesticides to compete against big rivals such as Dow and Dupont, which plan to merge their agricultural businesses.

However, in 2017 Bayer's Crop Science division is expected to produce underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) unchanged from last year, the group said on Wednesday in reporting fourth-quarter group earnings that slightly beat market expectations.

The shares were down 1.8 percent at 106.95 euros at 1319 GMT, reversing gains made over the last three trading sessions to leave the price up 7.9 percent so far this year.

"We've had outstanding harvests over the last three years, resulting in a certain oversupply in crops and a cyclical dent in our business," said Liam Condon, the head of Bayer's Crop Science unit, adding that the trend could soon change.

"Given the likelihood of extreme weather phenomena, it doesn't take much for the cycle to turn," he said.

A recovery in demand was likely to be seen first in Asia, eastern Europe and Latin America towards the end of 2017, while markets in North America and Europe would not see a return to more robust growth before 2018.

Bayer said in its annual report it expected seed and crop protection market growth of 1 percent this year compared with a 1 percent decline in 2016.

Prices of agricultural commodities such as corn, soy and wheat have recovered somewhat from multi-year lows hit in September last year.

The group also said that it was on track to gain all regulatory approvals for the takeover by year-end, with Condon saying that this forecast anticipated a likely in-depth investigation by the European Union's competition regulators.

Last month Bayer said its chief executive Werner Baumann and his counterpart at Monsanto had had a "productive" meeting with Donald Trump, before Trump took office as president, to discuss the proposed merger.

For the group overall, Bayer predicted a medium single-digit percentage increase in adjusted EBITDA for 2017, helped by fast-growing revenues from stroke prevention pill Xarelto.

In the fourth quarter, adjusted group EBITDA rose 13.7 percent to 2.18 billion euros ($2.30 billion), above the average estimate of 2.09 billion euros in a Reuters poll of analysts.

Growth in prescription drugs sales were partly offset by weaker than expected earnings at its consumer care products division, with sales of allergy treatment Claritin falling 9 percent, coming under pressure from rival products.

($1 = 0.9493 euros)

Editing by Maria Sheahan, Greg Mahlich

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