Bayer Just Delivered Its Best Earnings Surprise in Years

THE GIST

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Bayer crushed earnings expectations in Q1 and its shares surged even as European markets fell. The turnaround story is gaining traction. But the next few weeks could define whether that momentum holds or gets derailed by a U.S. Supreme Court decision years in the making.

WHAT HAPPENED

Bayer reported first-quarter EBITDA before special items of €4.45 billion (about $5.2 billion), up 9% year on year and well ahead of the €3.93 billion consensus estimate. Net income came in at €2.76 billion, more than double the prior year’s €1.30 billion, though the comparison is flattered by litigation provisions that hit the year-earlier figure. Sales were broadly flat at €13.41 billion on a reported basis but rose 4.1% on a currency and portfolio-adjusted basis.

The standout was crop science. The division posted a 17.9% jump in underlying earnings to €3.01 billion, with its margin expanding more than 6 percentage points to 39.9%. A significant portion of that came from a one-off: a €448 million licensing payment from a resolved dispute with US rival Corteva over soybean seed and traits technology. Strip that out and the underlying performance was still solid, supported by recovering Dicamba prices in the US and improving efficiency from Bayer’s ongoing restructuring program.

Pharmaceuticals were weaker. Sales fell slightly and underlying earnings dropped 7.5%, as patent expiry continued to hammer Xarelto, the blood thinner whose sales fell 40%. Eye medicine Eylea was also under pressure. Newer drugs Nubeqa and Kerendia are growing strongly, up 57% and 84% respectively, but they are not yet large enough to fully offset the legacy losses.

Bayer confirmed its full-year guidance on a currency-adjusted basis, targeting sales of €44.5 to €46.5 billion and underlying EBITDA of €9.4 to €9.9 billion.

Shares rose as much as 6.9% in Frankfurt, an unusually strong move on a day when the broader DAX fell more than 1% on renewed Middle East tensions.

WHY IT MATTERS

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Bayer’s CEO Bill Anderson has been running what amounts to a slow-motion corporate rescue since taking over in mid-2023. The diagnosis on arrival was not subtle: a pharmaceutical division losing patent protection on its biggest drugs, a crop science business that had absorbed an enormous acquisition in Monsanto and spent years digesting the consequences, and a legal liability in the form of Roundup glyphosate litigation that had already cost billions and showed no clear endpoint. Anderson’s response has been to cut management layers, reduce headcount, exit lower-margin products, and try to rebuild investor confidence in the pipeline.

Tuesday’s results suggest that program is producing real numbers. The crop science margin at 39.9% is a meaningful step up, and even setting aside the Corteva windfall, the structural improvements in that division are becoming visible. The pharmaceutical pipeline is not yet generating enough to replace Xarelto, but Nubeqa and Kerendia growing at those rates on a smaller base provides a credible runway toward the growth return the company is targeting by 2027.

The bigger story, though, is what happens in the next few weeks on the legal front. Bayer is simultaneously pursuing two paths to resolve the Roundup litigation. The first is a proposed $7.25 billion settlement with plaintiffs, which has an opt-in or opt-out deadline of June 4. The second is a case currently before the US Supreme Court, where a favorable ruling could undercut the failure-to-warn argument that underlies most of the remaining claims against the company. A ruling is expected by the end of June.

The stakes of that Supreme Court decision are hard to overstate. Bayer has been living with the Monsanto litigation overhang since 2018. It has consumed management time, capital, and investor confidence in roughly equal measure. A ruling that limits the failure-to-warn theory would not eliminate all liability, but it would dramatically reduce the tail risk that has kept a cloud over the stock even as the operating business has improved. Conversely, a ruling that goes against Bayer would revive that tail risk at precisely the moment the company needs investors to focus on its recovery narrative.

Anderson told reporters the company is ready to handle any outcome, which is the only thing a CEO can say in that position. The market appears to be giving him the benefit of the doubt for now.

WHAT’S NEXT

June is the month that matters most for Bayer. The Supreme Court ruling and the settlement opt-in deadline land within weeks of each other, and together they will go a long way toward answering the question that has shadowed the company for seven years. The operating business is in better shape than it has been for some time. Whether that matters more than what happens in U.S. courts is the question investors will be living with until the end of the month.