August 06, 2024 08:31 GMT
Bayer’s Pharma Performance Not Enough To Offset Weak Crop Science; FCF Helps Insulate Credit
HEALTHCARE
Baa2[N]/BBB-/BBB
Strong top-line performance only carried through to a sharp but in-line EBITDA contraction which was driven sharply lower on continued weakness in the Crop Science segment which will also steer segment results to the lower end of guidance. Strong Pharma performance (including a guidance upgrade) helped to offset somewhat while EBITDA leverage saw only a slight increase due to a QoQ reduction in debt on the back of strong FCF.
- Revenue +3.1% YoY (+2.4% vs. BBG consensus) with beats across all three segments; Pharma was +4.5% YoY (+4.7% vs. consensus, helped by strong sales in eye/cancer/kidney lines), Crop Science +1.1% YoY (+2.2% vs. BBG consensus) and Consumer Health +5.3% YoY (+0.4% vs. consensus).
- EBITDA -16.5% YoY (in line with consensus) – main story here is a large 27.7% decline in the Crop Science segment attributed to an “unfavourable product mix and a reduction in allocations to provisions for the Group-wide short-term incentive program”.
- FCF looks strong at EUR 1.3bn from EUR -0.5bn in Q223 (on the back of lower short-term incentive program payments and inventory release) driving a 2.2% QoQ reduction in net debt. By our calculation the ratio of net debt to EBITDA before special items has risen from 3.22x at Q1 to 3.27x.
- Group outlooks confirmed though management see Crop Science sales and margins at the lower end of the guidance range while Pharma sales growth is seen at 0-3% (prior; 0-4% contraction).
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