By Ludwig Burger and Patricia Weiss
FRANKFURT (Reuters) -Bayer said on Tuesday that weak agricultural markets mean its earnings are likely to fall further next year, sparking a sharp fall in the German company's shares and piling pressure on its CEO to deliver on his turnaround efforts.
Chief Executive Bill Anderson has started cutting jobs, speeding up decision-making and slashing red tape in a bid to turn around the embattled industrial group, while putting plans to break up its diversified businesses on hold.
Shares in Bayer (OTC:BAYRY) were down 11.6% to 21.57 euros at 1004 GMT, their lowest level in 20 years following its update.
"We're in the midst of a big agriculture downturn. And that's very frustrating for people ... We understand the investor sentiment, but we remain very optimistic that we've got a strong future," Anderson said in the statement.
He also pointed to strong launches for Bayer's new drugs Nubeqa for prostate cancer and Kerendia for kidney disease.
However, Markus Manns, a portfolio manager at Bayer shareholder Union Investment in Germany, criticised the CEO for not having publishing medium-term financial targets, which need to be addressed to win back trust.
"Bayer's transformation needs to be urgently accelerated and management needs to finally communicate a sustainable growth strategy with specific mid-term targets for sales, earnings and debt reduction," said Manns.
Chief Financial Officer Wolfgang Nickl said in Bayer's quarterly earnings statement it expected "a muted outlook on top and bottom line next year with likely declining earnings".
Based on earnings before interest, tax, depreciation and amortisation (EBITDA), and adjusted for special items, the 2025 forecast would mean a third consecutive annual decline, after the group on Tuesday also lowered its projection for 2024.
Bayer said that the earnings measure, when adjusted for currency impacts, would likely be between 10.4 billion euros ($11.1 billion) and 10.7 billion euros, down from a previous 10.7-11.3 billion euro forecast and last year's 11.7 billion.
Its July-to-September EBITDA, adjusted for one-offs, fell almost 26% to 1.25 billion euros, missing the average analyst estimate of 1.31 billion euros posted on Bayer's website, with Bayer citing weak Latin American agricultural markets.
REGULATION
Bayer's $63 billion purchase in 2018 of seeds and pesticides maker Monsanto (NYSE:MON) under Anderson's predecessor was a long-term bet on robust growth in farming supplies which has so far misfired.
Debt and costly U.S. product liability litigation over disputed claims that Monsanto weedkiller Roundup causes cancer are further burdens which Anderson is struggling to shake off.
Bayer shares have lost close to 80% since the Monsanto deal was closed in 2018 and about 70% since it was agreed in 2016.
U.S. agrichemicals competitor Corteva (NYSE:CTVA) and the agriculture unit of Germany's BASF have also been hit by lower prices as weak produce prices weighed on demand.
Bayer's shares trade at 4.6 times forward earnings over the next 12 months, well below BASF at 12 and 18.8 for Corteva. The ratio is widely used to gauge the relative value of stocks.
Bayer said its business is set to suffer more because U.S. approval for new soy seeds to be used with weedkiller dicamba will not be in time for the 2025 sowing season and EU regulators will pull insecticide Movento from the market under the bloc's environmental agenda known as the Green Deal.
In addition, cost-conscious U.S. farmers are turning to cheap generic copies of Bayer's pesticides, it said.
Bayer said that special charges of 4.1 billion euros, mainly from write-downs on intangible assets in its Crop Science division, resulted in a quarterly net loss of 4.18 billion euros, compared with a 4.57 billion euro loss a year earlier.
It confirmed its previous currency-adjusted guidance for 2024 sales and earnings per share before certain items.
($1 = 0.9401 euros)