Continued trials and tribulations in Europe and the US saw Bayer AG post Consumer Health sales down by 1.4% – adjusted for currency and portfolio effects – to €1.40bn ($1.56bn) in the first quarter of 2019. Despite the negative growth, the German firm insisted Consumer Health’s performance in the three months was in line with expectations, and confirmed the division’s guidance for the full year.
Reviewing Consumer Health’s first quarter by reporting region, Europe/Middle East/Africa struggled most in the three months, posting sales down by 5.5% to €460m, as supply disruptions linked to a production issue first identified at the start of 2018 continued to hold back growth. Aspirin analgesics had been worst hit by the ongoing issues, Bayer noted.
The supply problems related specifically to “ongoing remediation and modernization measures” at Bayer’s Leverkusen manufacturing facility, a spokesperson for the company told HBW Insight last year.
While Bayer did not comment further on the issue in its latest report, the firm revealed earlier this year that it had begun to “ramp up” certain production lines to get the facility back up to full capacity. (Also see "Bayer Bullish On Consumer Health’s Prospects Despite ‘Challenging’ 2018" - HBW Insight, 28 Feb, 2019.)
Supply problems in the EMEA region had been compounded in the first quarter by lower sales in Bayer’s Digestive Health category, the firm noted, which includes brands such as MiraLAX and Alka-Seltzer.
Bayer’s troubles in the three months were not just limited to Europe, with its North America region posting sales down by 3.3% to €603m. “Persistent intense competition” for the brands in its Nutritionals and Pain & Cardio categories was the primary reason given by Bayer for the single-digit sales slide.
A poor performance from its Allergy & Cold brands in the US had also compounded Consumer Health’s North American struggles in the first quarter, Bayer noted.
Better News From APAC and LATAM
On a more positive note, Bayer reported sales rises for Consumer Health in its two remaining regions, Asia-Pacific and Latin America.
Asia-Pacific was the stand-out performer in the three months, posting turnover up by 14.2% to €206m, thanks to increased demand for brands in Bayer’s Dermatology and Nutritionals categories, such as Bepanthen and Elevit.
Sales in Latin America advanced by 1.7% to €126m, as growth in the Pain & Cardio category “more than offset” declines for its Allergy & Cold brands in the region.
Looking at Consumer Health’s first-quarter performance by category, Dermatology was the only portfolio to register growth, posting sales up by 8.6% to €266m, thanks to gains in North America and Asia-Pacific.
The five remaining categories all recorded declines in sales, with Digestive Health registering the worst performance, posting turnover down by 6.0% to €169m. Allergy & Cold didn’t fare much better, with sales in the category slipping back by 4.8% to €310m. This category breakdown has replaced Bayer's listing of its top-10 best-selling brands. The firm said this change in its reporting was "inline with internal financial management."
Earnings Go The Same Way As Sales
Turning to earnings, Consumer Health’s EBITDA in the first quarter slumped by 10.9% to €279m, reflecting a decline in volumes, an increase in the cost of goods sold and the absence of the earnings contribution from the divested US prescription dermatology business. These factors had been only partially offset, Bayer noted, by lower selling and administration expenses resulting from the first effects of the efficiency program under way at Consumer Health.
Despite a difficult opening three months to 2019, Werner Baumann, Bayer’s CEO, said he expected Consumer Health’s performance to “gradually strengthen” over the coming quarters of 2019 and for the firm to deliver around a 1% rise in both sales and EBITDA margin for the 12 months. Consumer Health growth in 2019 would be “back-end loaded,” he insisted.
Driving this improvement would be Bayer’s “Fit to Win” efficiency program for Consumer Health, Baumann said, noting that the company was already seeing positive results from its implementation.
The wide-ranging turnaround program is being led by Consumer Health chief Heiko Schipper, and is designed to return the troubled business to growth. In December, he explained how a focus on innovation and a leaner portfolio would help Consumer Health achieve mid-single-digit sales growth by 2022. (Also see "Bayer's Consumer Chief Initiates Turnaround Plan In Bid To Return Troubled Business To Growth" - HBW Insight, 17 Dec, 2018.)