Bayer warns on profits

June 27, 2001 Posted: 0959 GMT

LONDON (CNN) -- Europe's No. 2 drugs and chemicals company Bayer issued a profits warning on Wednesday, citing the slowdown in the world economy.

The move by Bayer, which makes products ranging from the drug Aspirin to chemicals for industry and fragrances for perfumes, follows a profits warning last Thursday from BASF, Europe's largest chemicals company.

Bayer said it expected second-quarter and full-year profits to decline, with 2001 operating profit before one-time items coming in at about 3 billion ($2.6 billion) compared with 3.3 billion last year.

"Second-quarter profits are now likely to be well below the same period of 2000, and a decline in earnings is predicted for the full year," Bayer said.

As recently as April 27, Chairman Manfred Schneider was telling the annual shareholders' meeting that 2001 earnings would beat the previous year's.

The German company said second-quarter profits would be significantly lower because of falling demand and the effects of the economic slowdown, particularly in the U.S.

The company also said shipments of its haemophilia drug Kogenate would continue to slow and operating profit would fall, exceeding earlier forecasts of a 300 million shortfall.

The U.S. Food and Drug Administration found bacteria present in some of the manufacturing stages of the drug in November, forcing the company to halt shipments in January.

Bayer also said a U.S.-led global economic slowdown has "harmed" its polymer business, where "weak demand has prevented the company from raising selling prices enough to offset high raw material prices."

In making its profits warning last week, BASF also said it planned to shut down 24 plants. BASF, which employs 103,000 people worldwide, declined to comment on the number of job losses expected from the closures.

BASF blamed "continuing high raw material prices, weaker signs of growth in Europe, and no indication of an economic upturn in the United States."

U.S. drug maker Merck & Co (MRK: Research, Estimates) and Swiss healthcare company Novartis have also lowered their earnings forecasts.

Bayer (FBAY) shares fell 1.5 percent in Frankfurt to 42.70 after the profits warning was announced.

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