Bayer to Cut 1,500 Plastics Jobs Despite Good Earnings
Germany's Bayer will cut 1,500 jobs at its plastics unit -- 10 percent of the division's workforce -- despite a higher-than-expected rise in group quarterly operating profit, it said on Tuesday.
Strong sales of drugs and farm products helped third-quarter group earnings before interest, taxes and special items rise 24 percent to 953 million euros ($1.4 billion), beating the average estimate of 911 million euros in a Reuters poll.
Bayer said steps to streamline its MaterialScience unit, which makes plastics, would help save 300 million euros annually by the end of 2009.
The unit, though profitable, faces mounting threats from rising competition amid increasing global capacity, a weak dollar and high energy costs.
"We do not expect any forced redundancies," Chief Executive Werner Wenning told reporters, adding that around 400 to 500 jobs would be cut in Germany as part of the 1,500 job cuts worldwide.
Bayer said job cuts would be done through attrition. The company expected total special charges of 150 million to 200 million euros through 2009.
The unit, which competes with BASF, Dow Chemicals and Saudi Basic Industries, focuses largely on polycarbonates and polyurethanes.
Polycarbonates are plastics used in optical storage media, the construction industry, safety materials like helmets and automobile headlights.
Bayer is the world leader in polyurethanes, which include flexible foams and resin, with some 20 percent market share.
The unit boosted operating profit before special items 11.7 percent as higher selling prices more than offset rising input costs. Core margin before special items at the unit improved to 16 percent from 14.7 percent a year ago.
Bayer shares rose as much as 1.7 percent before retracing to 56.89 euros, down 0.2 percent and lagging a 0.4 percent gain in the German DAX index.
Bayer, which invented Aspirin more than a century ago, boosted its healthcare business with its 17 billion-euro acquisition of Schering last year.
Bayer also posted a strong quarterly showing at its healthcare and agrichemicals divisions. Both are major players in their fields.
"All in all very solid figures and an improved outlook for 2007," said Martin Possienke, an analyst at Equinet. He repeated his "buy" rating with a share price target of 66 euros.
Bayer said it now expected an increase in group sales to more than 32 billion euros in 2007, an increase of about 6 percent after adjusting for portfolio and currency effects.
It had previously forecast sales growth of about 5 percent.
Sales of Bayer's contraceptive drug Yasmin increased 35 percent, while sales of cancer drug Nexavar doubled, helping lift the healthcare unit operating profit up 29 percent.
Separately, its herbicides, fungicides and insecticides products that compete with BASF and Swiss Syngenta got a boost from a strong season in Latin America.
The healthcare unit accounted for almost half of group profit, with about a third coming from MaterialScience and the rest from agrichemicals.
The stock has risen about 40 percent this year, partly because of its promising drug pipeline, outperforming a 19 percent gain in the DJ Stoxx European chemicals index and an 11 percent fall in the healthcare index.