German drugs and chemicals group Bayer unveiled a revamp at its agrochemicals unit after strong healthcare earnings helped the company post a 14 percent rise in second-quarter operating profit on Tuesday.

Earnings before interest, tax and special items from continuing operations rose to 928 million euros ($1.19 billion), better than the average forecast of 875 million euros in a Reuters poll of 15 analysts.

Bayer said it would cut 1,500 jobs and close or restructure factories at its CropScience unit in a plan designed to save 300 million euros a year.

CropScience, which vies with Switzerland's Syngenta for the top spot in the agrochemicals market, posted a higher-than-expected rise in earnings due to cost cuts.

Bayer shares rose as much as 1.2 percent but were nearly flat at 39.47 euros at 0804 GMT, in line with the DAX bluechip index.

It's a mixed picture - HealthCare has been strong as expected, CropScience better than estimated, and MaterialScience somewhat disappointing, said Sal. Oppenheim analyst Ludger Mues.

At MaterialScience, there's price pressure on polycarbonate, and the unit is feeling the first impact of new capacities, he said.

Analysts say a chemical sector upswing that has boosted profitability for the past two years is fading amid capacity increases, a slowdown in demand and high raw material costs.

In recent quarters, the upswing has benefited Bayer's MaterialScience unit, which makes plastics and chemicals.

Mues downgraded Bayer to neutral from buy, citing doubts about the chemical sector's prospects, poor profitability at CropScience and slight setbacks to its drugs unit in the recent past, such as generic competition and pipeline problems.

Bayer, which has bought rival drugmaker Schering for around 17 billion euros, said it expected underlying earnings from continuing operations before interest and tax to rise this year, even excluding Schering.

Sales rose 5.8 percent to 7.07 billion euros in the quarter, compared with the 7.207 billion-euro average from the poll.


During the quarter, Bayer captured control of Schering in the biggest deal of its 143-year history and announced the surprise sale of its diagnostics unit to Siemens for 4.2 billion euros.

It also plans to sell its H.C.Starck and Wolff Walsrode chemicals units.

Given the fact that all business units will be heavily restructured and integrated over the next two years, reported numbers will contain higher uncertainties, said Kepler Equities analyst Lutz Grueten.

Underlying earnings before interest and tax rose 24 percent in the quarter at its HealthCare unit, 23 percent at CropScience and by less than 5 percent at its MaterialScience unit.

Bayer said it was raising its earnings targets for HealthCare, with underlying earnings from continuing operations - excluding Schering - now seen rising by about 20 percent in 2006, compared with a 10 percent forecast earlier.

Despite analysts' fears of a slowdown, Bayer also raised its forecasts for MaterialScience, saying it hoped to match last year's performance after earlier warning of a possible fall in earnings.

The CropScience revamp involves special cash charges of 330 million euros, along with writedowns of around 120 million euros, mainly in 2007 and 2008. The measures will add to earnings in 2008, Bayer said.

Bayer CropScience, however, is seen posting a decline in core margins this year.

Bayer shares have risen 12 percent this year, with the Schering acquisition and hopes for the drugs business helping it outpace both the DAX and the DJ Stoxx European Chemicals index , which have risen 8 and 6.5 percent, respectively.

Bayer stock trades at 15 times estimated 2006 earnings, making it costlier than main German rival BASF, which does not have a pharmaceuticals business.