Bayer Profit Hit By Weak Plastics Business
German chemicals and drugs group Bayer posted a 9% drop in fourth-quarter profit as price rises failed to offset soaring oil-derived raw materials costs at its plastics division.
Bayer's MaterialScience unit, the world's No. 1 maker of foam chemicals and transparent plastics for car lights and sports goggles, reported a 64% slump in adjusted earnings.
The result on Tuesday was in sharp contrast to rival BASF, with whom Bayer competes in insulation foam chemicals and pesticides, which surprised investors with its bullish outlook last week.
Unlike BASF, Bayer is reliant on polycarbonates, used for instance in DVDs and for the panoramic roof in Daimler's Mercedes SLK convertible.
The polycarbonates industry has seen a margins squeeze as new plants come on line, driven by Saudi Kayan Petrochemical's expansion.
"It always takes a while until a temporary imbalance is absorbed by market demand," Finance chief Werner Baumann said, adding that both the polycarbonates and foam chemicals markets were growing at a healthy 4-6% per year on average.
Baumann said the company would continue hiking prices to counter the impact of raw materials costs driven up by rising oil prices.
"In some markets and regions we're quite happy with the progress we are making. It's a mixed picture."
Bayer sees the MaterialScience unit's earnings recovering markedly in the first quarter from the previous three months, but without matching last year's level.
The company said it expected a slight increase in adjusted group EBITDA this year, with an increase in sales by about 3% when adjusted for currency swings and takeovers.
Drug Hopes
While its chemicals division struggles, Bayer, which is Germany's largest drugmaker, is pinning its hopes on new drug launches to lift earnings in coming years.
Bayer has said its four most promising drugs, led by newly launched anti-clotting pill Xarelto, have a combined annual peak sales potential of about €5 billion, but very little of that will be seen in 2012.
"We are still, just like in 2011, in a transition year where we are burdened with the cost of new products but without the sales benefits," Chief Executive Marijn Dekkers told a press briefing.
Market research has shown that Xarelto got off to a slow start compared with rival pill Pradaxa from Boehringer Ingelheim.
Both pills compete in the mass market for stroke prevention in patients with a common heart rhythm disorder and will likely face an even stronger rival in Eliquis by Bristol-Myers Squibb and Pfizer, in the frame to get U.S. approval in late March.
Xarelto was granted priority review from U.S. health regulators for use in patients suffering from the heart condition known as acute coronary syndrome (ACS.
Bayer's fourth-quarter adjusted earnings before interest, tax, depreciation and amortization (EBITDA) fell 8.8% to €1.54 billion ($2.06 billion), below the average estimate of €1.62 billion in a Reuters poll.
The company said it expects an increase in 2013 sales and adjusted earnings.
