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Bayer shares fall again, as Brazil ag woes cut profit hopes

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Shares in Bayer hit a three-month low after the chemicals conglomerate cut to below 10% its forecast for profits growth this year, thanks to a Brazilian agrichemicals slump which left the group with negative Latin American sales.

German-based Bayer, which is buying US seeds giant Monsanto, cut to "more than E49bn", from "around E51bn", its forecast for sales this year.

And it lowered its estimate for expansion in earnings before interest, taxation, depreciation and amortisation (ebitda) this year to "a high-single-digit percentage", from a previous forecast of "low-teens percentage" growth.

The downgrade factored in in part weaker expectations for results from the group's consumer health and life science divisions.

However, it was down in the main to a setback to Bayer's agrichemicals and seeds unit from a demand downturn in Brazil, which prompted the group late last month to caution of a E300m-400m hit to full-year ebitda.

The ag division was now forecast to see a drop in sales to below E10bn, rather than the small increase previously expected, while ebitda was seen declining "by a mid-teens percentage" rather than staying around the underlying level of E2.4bn reported for 2016, as had been forecast.

Bayer vs BASF

Bayer shares dropped 4.1% in early deals in Frankfurt to E107.20, their lowest level since April, before recovering some ground to stand at E108.20, a drop of 3.2% on the day.

Even so, they remain down 11% since before the late-June profit warning

Shares in rival BASF, by contrast, have shed only 2.4% over the same timescale, including a 1.3% drop on Thursday.

BASF on Thursday raised its profits guidance, foreseeing "considerable" underlying operating profits growth this year, of at least 11%, compared with a previous estimate of 10%, on a rise of at least 6% in sales.

The upgrade reflected increased expectations for industrial production.

Brazilian setback

Bayer downgraded its guidance as it unveiled earnings down 2.0% to E1.45bn for the April-to-June quarter, on sales down 3.0% at E11.83bn.

Underlying ebitda for the quarter, at E3.06m, came in narrowly ahead of market expectations of a E3.0bn result.

The crop science division reported a 63% slump to E233m in ebitda, on sales down 14.1% at E2.16bn, dragged lower by "significantly higher provisions" for agrichemicals product returns in Brazil.

Indeed, the group reported a E428m tumble in the sales result from Brazil, which dragged the overall Latin American sales figure to a negative E69m from a positive E354m a year before.

Sales in other regions showed small gains, including a 6.5% rise in North American revenues.

'Substantial negative impact'

Bayer said the extent of its Brazilian troubles had been revealed by "regular stocktaking" at the end of the harvest season which "revealed high channel inventories in the Brazilian market, requiring measures to be taken to normalise the situation".

The group flagged "weaker demand" in Brazil for its sprays "due to significantly lower insect and fungal infestation levels, while the level of inventory-building among distributors was high", curtailing orders from wholesalers.

At the ebitda level, Bayer noted a "substantial negative impact" from the Brazilian hiccups amounting to E355m – comprising E173m in provisions for product returns, E53m in losses from unpaid bills, E56m in inventory writedowns and E73m from "other effects".

'Challenging environment'

Separately, BASF also flagged a "considerable sales decline" in South America, "primarily for fungicides", and noting a squeeze on farmer finances.

"In Brazil, the liquidity bottlenecks for farmers persisted in a challenging environment," the group said.

Nonetheless, BASF reported a rise of 4.6% to E1.53bn in ag sector sales in the April-to-June quarter, lifted by a "considerable" rise in North American revenues, although operating profits eased by 6.2% to E270m.

On Wednesday, Syngenta unveiled a 4.2% drop in sales for the quarter, led by a 25% tumble in Latin America – a decline the group blamed on the impact of "low commodity prices" on farmer spending, and on "high inventories" of agrichemicals in supply chains.

By Mike Verdin

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