© Reuters. FILE PHOTO: An image of the Bayer AG logo is seen on the facade of the German pharmaceutical and chemical company’s historic headquarters in Leverkusen, Germany, April 27, 2020.
Written by Ludwig Berger and Thomas Escrit
(Reuters) – A growing deterioration in demand for glyphosate-based herbicides has led Bayer (OTC:) to cut its full-year profit forecast and announce a €2.5 billion ($2.8 billion) writedown on glyphosate-related assets.
In an unscheduled statement late Monday, the German drug and pesticide maker said it expects 2023 earnings before interest, tax, depreciation and amortization (EBITDA), adjusted for one-time, to be in the range of 11.3 billion euros ($12.5 billion) and 11.8 billion euros on a currency-adjusted basis, down from 13.5 billion euros in 2022.
This was lower than the previous forecast for 2023 of €12.5 billion, or slightly higher.
The company said free cash flow would come in at zero, down from a previous forecast of three billion euros.
“Based on expected market development, particularly in relation to the glyphosate business, Bayer also expects to record a reputable impairment of approximately €2.5 billion,” the company said.
This would result in a net loss in the second quarter of €2 billion.
The tougher environment adds to the challenges for new CEO Bill Anderson, a former Roche executive who took over the top job in June.
“This is not a good start for the new CEO,” Markus Manz, a portfolio manager at German mutual fund firm Union Investment, said on Tuesday.
“Bayer could have used the money for debt reduction or drug licensing deals,” he added.
Analysts in Barclays (LON:) said the dwindling cash flow was a particular surprise, and that Anderson was likely eager to get the bad news out quickly to allow for a fresh start.
They said, “This looks like a kitchen sink to us.”
Weak agricultural markets also weighed on competitors, so analysts largely expected Bayer’s earnings warning. Crop protection company FMC (NYSE::) this month lowered its full-year guidance after wholesale distributors slashed orders to lower inventory levels, and industrial chemicals group BASF, which competes with Bayer in seeds and pesticides, lowered its earnings guidance this month, though it did not provide details on its agricultural business.
Bayer had already warned in May that its 2023 results would likely come in at the lower end of its target range, hurt by cost inflation and a fall in glyphosate-based herbicide prices from last year’s highs.
Bayer saw herbicide sales rise 44% in 2022 after Hurricane Ida damaged rival producers and Chinese suppliers failed to fill the gap. Prices have fallen sharply as competitors have returned to the market this year.
Bayer, which has paid billions in litigation over glyphosate weedkillers, replaced its former CEO Werner Baumann early amid demands from some investors that the German industrial giant streamline its diversified structure and split into separate groups.
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