By Dominic Chopping

Bayer guided for lower earnings this year as it continues to work through a turnaround plan, but said performance is expected to improve from 2026.

The pharmaceutical and agricultural conglomerate said all three of its business units have attractive long-term prospects, but that it must first steer them through a challenging period ahead before it can take advantage of any opportunities.

"It is the second year in Bayer's turnaround and will be the most difficult in terms of financial performance," the German company said Wednesday.

Bayer also launched a multi-year plan to improve earnings at its crop-science business.

Chief Executive Bill Anderson last year ruled out a breakup of the group into separate units, instead embarking on a 24 to 36 month plan to focus on building a strong pharmaceuticals pipeline, address U.S. legal cases over weedkiller Roundup, reduce debt, and implement a new operating model to improve performance. The crop-science plan announced Wednesday adds to those strategic priorities.

The rebuilding of its pharmaceuticals pipeline comes as Bayer faces fading earnings of blockbuster blood-thinning drug Xarelto, which is under pressure from generic competition following its patent expiry. However, it expects combined sales of prostate cancer drug Nubeqa and kidney-disease treatment Kerendia to grow by more than 500 million euros ($531.3 million) this year while heart drug Beyonttra and menopause symptom treatment Elinzanetant will both launch this year.

The pharmaceuticals division is expected to return to sales growth from 2027 onwards and expand margins beginning in 2028, the company said.

On the litigation side, Bayer remains embroiled in legal battles stemming from its Monsanto business, as plaintiffs blame its Roundup weedkiller for causing cancers--something the company denies. The $63 billion acquisition of Monsanto in 2018 was designed to turn the inventor of aspirin into the world's biggest crop-science business, but instead saddled it with debt and litigation.

CEO Anderson said Wednesday that he expects litigation risks will be significantly contained by the end of 2026.

As part of its turnaround, Bayer is implementing a new operating model that has seen management jobs slashed and more responsibility placed into the hands of lower-level employees to accelerate decision-making. Those efforts continue and are expected to deliver a further 800 million euros of cost savings this year, on top of the 500 million euros saved last year.

The company's crop-science business has been suffering from cheaper generic competition in plant protection products in addition to weak demand. Bayer said it will seek to boost the unit's annual profitability by over 1 billion euros by 2029 by targeting above-market sales growth and cash generation.

Key target areas to turn the unit around include the product portfolio, research and development, production and commercial and enabling functions, it said.

"You're going to see us with our sleeves rolled up, focused on taking the right actions to set up our customers, our company and our owners for a prosperous future," Anderson said.

The company expects to report earnings before interest, taxes, depreciation, amortization and special items--its closely watched profitability metric--this year of between 9.5 billion and 10 billion euros on a currency-adjusted basis.

That would mark a decline from 10.12 billion euros in 2024.

Sales this year are seen roughly unchanged.

Free cash flow--a metric that analysts are watching as a gauge of turnaround progress--fell to 3.31 billion euros in the fourth quarter from 4.26 billion euros a year before.

The company posted a fourth-quarter net loss of 335 million euros compared with a profit of 1.34 billion euros in the same quarter the previous year.

Ebitda before special items fell to 2.35 billion euros from 3.02 billion euros, ahead of the 2.27 billion euros in a Vara Research consensus. Earnings were impacted by negative currency effects and impairment losses in the crop-science unit.

Sales dropped 1.1% to 11.73 billion euros as higher sales at its pharma business were offset by a drop in crop science, while consumer-health sales also slipped slightly. Analysts had seen sales at 11.26 billion euros.

Write to Dominic Chopping at dominic.chopping@wsj.com

(END) Dow Jones Newswires

March 05, 2025 03:30 ET (08:30 GMT)

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