Bayer slashes outlook as glyphosate demand weakens further

By Ludwig Burger and Thomas Escritt

(Reuters) -Further deterioration in demand for glyphosate-based weed killers led Bayer to cut its full-year earnings outlook and announce a 2.5 billion euro ($2.8 billion) write-down on glyphosate-related assets.

In an unscheduled statement late on Monday, the German drugs and pesticides maker said it was projecting 2023 earnings before interest, taxes, depreciation and amortisation (EBITDA), adjusted for one-offs, to be in a 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 reported for 2022.

That was lower than a previous 2023 outlook of 12.5 billion euros, or slightly higher.

Free cash flow would come in at zero, down from a previous prediction of 3 billion euros, said the company, which is due to release detailed second-quarter results on Aug. 8.

"Based on the anticipated market development, in particular with respect to the glyphosate business, Bayer also expects to record a goodwill impairment of approximately 2.5 billion euros," it said.

That would result in a second-quarter net loss of 2 billion euros.

Analysts at Deutsche Bank said dry weather conditions in particular had hurt farmers' demand for seeds and pesticides.

The tougher environment adds to challenges faced by new CEO Bill Anderson, the former Roche executive who took over the top job in June.

"This is an anything but a good start for the new CEO," Markus Manns, portfolio manager at German mutual fund firm Union Investment, said on Tuesday.

"Bayer could have used the money for debt reduction or for pharmaceutical licensing deals," he added.

Analysts at Barclays said the dwindling cash flow was a particular surprise, and that Anderson was likely keen to get the bad news out quickly to allow for a fresh start.

"This feels like a kitchen sink to us," they said.

Bayer shares dropped as much as 3.2% in early trading but were up 1.6% by 0854 GMT.

Weak agriculture markets have also hit rivals, so that Bayer's profit warning was largely foreseen by analysts. Crop protection company FMC this month cut its full-year guidance after wholesale distributors slashed orders to reduce inventory levels.Industrial chemicals group BASF, which competes with Bayer in seeds and pesticides, this month cut its earnings guidance, though it did not provide details on its agriculture business.

Bayer had already warned in May that its 2023 results would likely come in at the lower end of its targeted range, hurt by cost inflation and a slump in prices of glyphosate-based weedkillers from last year's highs.

Bayer saw herbicide sales jump 44% in 2022 after Hurricane Ida damaged rival producers and constrained Chinese suppliers failed to plug the gap. Prices have been dropping sharply as competitors have returned to the market this year.

Bayer, which has paid billions for litigation over its glyphosate weedkillers, replaced its previous CEO Werner Baumann early amid demands from some investors that the German industrial giant simplify its diversified structure and split into separate groups.

($1 = 0.9032 euro)

(Reporting by Thomas Escritt and Ludwig Burger; editing by Jonathan Oatis, Susan Fenton, Kirsten Donovan)