When one thinks of Bayer (NYSE:BAY), it's that trusty bottle of aspirin in the medicine cabinet that usually comes to mind. For Bayer shareholders, however, it's the company's crop business that has them reaching for that very bottle.
Early this morning, the company reported a relatively healthy 11.3% increase in second-quarter profits, a figure below some analysts' expectations. However, operating profit came in above expectations, and sales increased, as health care posted the strongest results. The company also forecast a higher operating profit for 2006 and raised guidance for its prescription drugs unit.
Bayer also operates one of the world's largest crop protection businesses, and that's where the company is feeling some pain. Sales in that business fell 1.6%, blamed in part on dry weather in Europe that decreased the demand for fungicides. Perhaps Bayer sees continued dry weather, because it forecast continuing declines in sales and operating margin. The company used its earnings release as a platform to announce a restructuring program in its crop business, whereby 1,500 jobs will be cut globally, aimed at saving approximately $384 million per year.
As for Bayer's overall restructuring plan, which the company has been executing over the past few years, results have been encouraging. Bayer expects the business of Schering AG, which the company acquired in June, to boost its drug business even more in the second half of this year.
So, for now, it's the crops causing the company headaches. Adding to the woes are headlines reporting that traces of genetically altered rice developed by Bayer CropScience have contaminated U.S. commercial rice. While the USDA and FDA have said that the rice doesn't pose health or environmental concerns, don't be surprised if this mutant rice also drags on Bayer shares.
Fool contributor S.J. Caplan does not own shares of the company. The Fool has a disclosure policy.
