Bayer's Earnings Downside Risks Amid Currency and Commodity Pressures: Assessing the Long-Term Viability of Restructuring

Bayer AG, a global leader in pharmaceuticals, crop science, and consumer health, has long been a bellwether for the chemical and agrochemical industries. However, the company's recent financial performance and strategic initiatives have sparked intense debate among investors and analysts. With Berenberg Bank's revised EPS forecasts, escalating legal liabilities, and macroeconomic headwinds, the question looms: Can Bayer's restructuring efforts sustain its long-term financial health?

Berenberg's Revised EPS Forecasts: A Cautious Outlook

In August 2025, Berenberg Bank cut its EPS forecasts for Bayer, citing the depreciation of the U.S. dollar and lower commodity prices as key drivers. Despite maintaining a “Hold” rating with a €26 price target, the bank expressed skepticism about Bayer's ability to meet 2026 EBITDA consensus estimates. This revision underscores the fragility of Bayer's earnings model, particularly in its Crop Science division, where glyphosate litigation and regulatory hurdles have stifled growth.

Bayer's Q2 2025 results revealed a net loss of €199 million, though core earnings per share rose 30.9% to €1.23, driven by improved financial results and tax efficiency. The company raised its full-year guidance for sales (€46–48 billion) and EBITDA (€9.7–10.2 billion), buoyed by blockbuster drugs like Nubeqa and Kerendia. However, Berenberg's analysts argue that these gains are offset by structural challenges in the agricultural sector, including weak volume growth and the rising importance of biologics—a market where Bayer lags competitors.

Legal Liabilities: A Looming Shadow

Bayer's glyphosate and PCB litigation remains a critical risk factor. In 2025, the company recorded €1.7 billion in additional provisions, including €1.2 billion for glyphosate and €530 million for PCB-related cases. Notable verdicts, such as the $2.1 billion Georgia jury award and the Missouri appellate court's affirmation of a $611 million judgment, highlight the scale of exposure. With over 67,000 active glyphosate cases and ongoing PCB litigation in states like Vermont and Washington, Bayer faces a potential financial black hole.

The company's rumored consideration of a Chapter 11 bankruptcy for its Monsanto subsidiary—historically a tool for mass tort litigation management—has further rattled investors. While such a move could centralize settlements, it risks eroding trust with plaintiffs and regulators. Political lobbying efforts, including threats to withdraw Roundup from the U.S. market, also raise ethical concerns and could backfire if public sentiment turns against the company.

Restructuring: Cost-Cutting vs. Long-Term Viability

Bayer's restructuring program, which includes 12,000 job cuts and a focus on the Dynamic Shared Ownership (DSO) model, aims to achieve €2.3 billion in annual savings by 2026. While these measures have reduced operational costs and improved EBITDA margins, they come at a cost. Free cash flow in Q2 2025 plummeted 90.2% to €125 million, driven by restructuring expenses and litigation provisions.

The success of this strategy hinges on two factors:
1. Pharmaceuticals Division Momentum: Blockbuster drugs like Nubeqa and Kerendia have driven 50.5% and 67.1% sales growth, respectively. If this trend continues, the Pharmaceuticals division could offset losses in Crop Science and legal costs.
2. Legal Risk Mitigation: A global settlement for glyphosate or favorable Supreme Court rulings (e.g., the pending Durnell case) could stabilize Bayer's balance sheet. However, the company's reliance on political lobbying and bankruptcy strategies introduces uncertainty.

Currency and Commodity Pressures: A Double-Edged Sword

The depreciation of the U.S. dollar has exacerbated Bayer's earnings pressures, particularly in its Crop Science division, where U.S. operations are a key revenue driver. Meanwhile, lower commodity prices have reduced demand for traditional pesticides, accelerating the shift toward biologics—a market Bayer is only beginning to penetrate. While favorable currency effects have reduced net financial debt by 9.5% year-to-date, these benefits are unlikely to offset long-term structural challenges.

Investment Implications

For investors, Bayer presents a high-risk, high-reward scenario. The company's Pharmaceuticals division offers robust growth potential, but its long-term viability depends on managing legal liabilities and navigating macroeconomic headwinds. Key considerations include:
- Short-Term Caution: Until glyphosate and PCB litigation risks are resolved, Bayer's stock remains vulnerable to volatility. Historical data from the past three years shows a 71.43% win rate over 10 days following earnings releases, suggesting that post-earnings periods may offer opportunities for moderate gains despite broader uncertainties.
- Long-Term Potential: If the Pharmaceuticals division continues to outperform and restructuring efforts stabilize the business, Bayer could regain its footing. The 30-day average return of 2.50% post-earnings highlights the potential for gradual value realization.
- Diversification: Investors should weigh Bayer's exposure to legal and regulatory risks against its pharmaceuticals growth, balancing the portfolio with less cyclical sectors.

Conclusion

Bayer's restructuring efforts and pharmaceuticals growth are commendable, but the company's long-term sustainability remains contingent on resolving its legal liabilities and adapting to shifting market dynamics. While Berenberg's revised EPS forecasts reflect a cautious outlook, investors who prioritize resilience over short-term gains may find opportunities in Bayer's undervalued Pharmaceuticals division—if they can stomach the risks. For now, the path to profitability is anything but clear.