Full Press Release Details
EXTON, Pa. , Oct. 24, 2019 /PRNewswire/ -- West Pharmaceutical Services, Inc. (NYSE: WST ) today announced its financial results for the third-quarter 2019 and updated full-year 2019 financial guidance.
Third-Quarter 2019 Summary (comparisons to prior-year period)
"Adjusted-diluted EPS" and "organic sales growth" are Non-U.S. GAAP measurements. See discussion under the heading "Non-U.S. GAAP Financial Measures" in this release.
"Our third-quarter results demonstrate the forward momentum we have seen throughout 2019. In line with our expectations, we are seeing strong customer uptake of our high-value products (HVPs), especially in the Biologics market unit," said Eric M. Green , President and Chief Executive Officer. "With the anticipated growing demand for our HVPs and positive trends in the marketplace, we expect our performance to continue to be strong for the remainder of the year and are raising our outlook for the full-year 2019."
Mr. Green continued, "Earlier this month, we announced an increase in our minority equity stake to 49 percent in Daikyo Seiko, Ltd. The expansion of our long-standing relationship, on an exclusive basis, will ensure our continued success and strengthen our partnership with Daikyo."
Proprietary Products Segment
Net sales grew by 6.2% to $345.2 million . Organic sales growth was 8.5%, with incremental sales from a recent acquisition contributing 30 basis points of Proprietary Products growth and currency translation decreasing sales by 260 basis points. HVPs (components and devices) represented 63% of segment sales and generated double-digit organic sales growth.
Our Biologics market unit had strong double-digit organic sales growth, led by customer purchases of NovaPure ® , Daikyo ® and Flurotec ® components as well as products incorporating Daikyo's Crystal Zenith ® technology. Our Generics market unit posted mid-single digit organic sales growth, led by sales of Daikyo components, products incorporating Crystal Zenith technology, self-injection platforms and Westar ® RU. Our Pharma market unit saw a mid-single digit organic decline due to the impact of a previously reported voluntary recall of our Vial2Bag ® product.
Contract-Manufactured Products Segment
Net sales grew by 4.2% to $111.1 million . Organic sales growth was 6.0% with currency translation decreasing sales by 180 basis points. Segment performance was led by sales of healthcare-related injection and diagnostic devices.
Financial Highlights (first nine months of 2019)
Operating cash flow was $260.8 million , an increase of 21%. Capital expenditures were $88.8 million , compared to $74.7 million over the same period last year. Free cash flow (operating cash flow minus capital expenditures) was $172.0 million , an increase of 22%.
The Company recorded $3.8 million of restructuring and related charges through the first nine months of 2019 from actions we have taken that are intended to streamline our manufacturing network. This restructuring plan is expected to be completed by the end of 2019 and result in $7.0 million of restructuring and related charges in 2019. Implemented in first-quarter 2018, the Company expects cumulative expenses over the plan period to be approximately $16.0 million . Once fully completed, the Company anticipates that the plan will provide annualized savings of approximately $14.0 million .
Full-Year 2019 Financial Guidance
Third-Quarter 2019 Conference Call
The Company will host a conference call to discuss the results and business expectations at 9:00 a.m. Eastern Time today. To participate on the call please dial 877-930-8295 (U.S.) or 253-336-8738 (International). The conference ID is 9278868.
A live broadcast of the conference call will be available at the Company's website, www.westpharma.com , in the "Investors" section. Management will refer to a slide presentation during the call, which will be made available on the day of the call. To view the presentation, select "Presentations" in the "Investors" section of the Company's website.
An online archive of the broadcast will be available at the website three hours after the live call and will be available through Thursday, October 31, 2019 , by dialing 855-859-2056 (U.S.) or 404-537-3406 (International) and entering conference ID 9278868.
Forward-Looking Statements
Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.
Non-U.S. GAAP Financial Measures
For the purpose of aiding the comparison of our year-over-year results, we may refer to net sales and other financial results excluding the effects of changes in foreign currency exchange rates. Organic net sales exclude the impact from acquisitions and/or divestitures and translate the current-period reported sales of subsidiaries whose functional currency is other than the U.S. Dollar at the applicable foreign exchange rates in effect during the comparable prior-year period. We may also refer to financial results excluding the effects of unallocated items. The re-measured results excluding effects from currency translation, the impact from acquisitions and/or divestitures, and the effects of unallocated items are not in conformity with U.S. generally accepted accounting principles (U.S. GAAP) and should not be used as a substitute for the comparable U.S. GAAP financial measures. The non-U.S. GAAP financial measures are incorporated into our discussion and analysis as management uses them in evaluating our results of operations and believes that this information provides users a valuable insight into our overall performance and financial position. A reconciliation of these adjusted Non-U.S. GAAP financial measures to the comparable U.S. GAAP financial measures is included in the accompanying tables.
| WEST PHARMACEUTICAL SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) ( in millions, except per share data) | ||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2019 | 2018 | 2019 | 2018 | |||||
| Net sales | $456.1 | 100% | $431.7 | 100% | $1,369.3 | 100% | $1,294.9 | 100% |
| Cost of goods and services sold | 308.3 | 68 | 296.1 | 69 | 916.8 | 67 | 882.7 | 68 |
| Gross profit | 147.8 | 32 | 135.6 | 31 | 452.5 | 33 | 412.2 | 32 |
| Research and development | 9.3 | 2 | 10.1 | 2 | 28.7 | 2 | 30.5 | 2 |
| Selling, general and administrative expenses | 64.8 | 14 | 64.9 | 15 | 203.7 | 15 | 203.2 | 16 |
| Other expense (income), net | 6.4 | 1 | (0.2) | - | 1.6 | - | 4.0 | - |
| Operating profit | 67.3 | 15 | 60.8 | 14 | 218.5 | 16 | 174.5 | 14 |
| Interest expense, net | 1.1 | - | 1.5 | - | 3.9 | - | 4.7 | - |
| Other nonoperating expense (income) | 1.3 | 1 | (1.8) | - | 0.2 | - | (5.1) | - |
| Income before income taxes | 64.9 | 14 | 61.1 | 14 | 214.4 | 16 | 174.9 | 14 |
| Income tax expense | 10.9 | 2 | 8.0 | 2 | 42.5 | 3 | 26.5 | 2 |
| Equity in net income of affiliated companies | (2.3) | - | (2.1) | 1 | (5.9) | - | (6.5) | - |
| Net income | $56.3 | 12% | $55.2 | 13% | $177.8 | 13% | $154.9 | 12% |
| Net income per share: | ||||||||
| Basic | $0.76 | $0.75 | $2.40 | $2.10 | ||||
| Diluted | $0.75 | $0.73 | $2.36 | $2.05 | ||||
| Average common shares outstanding | 74.0 | 73.9 | 73.9 | 73.9 | ||||
| Average shares assuming dilution | 75.5 | 75.7 | 75.3 | 75.4 |
| WEST PHARMACEUTICAL SERVICES REPORTING SEGMENT INFORMATION (UNAUDITED) (in millions) | ||||
| Three Months Ended | Nine Months Ended | |||
| September 30, | September 30, | |||
| Net Sales : | 2019 | 2018 | 2019 | 2018 |
| Proprietary Products | $345.2 | $325.2 | $1,045.9 | $997.4 |
| Contract-Manufactured Products | 111.1 | 106.7 | 323.6 | 297.7 |
| Eliminations | (0.2) | (0.2) | (0.2) | (0.2) |
| Consolidated Total | $456.1 | $431.7 | $1,369.3 | $1,294.9 |
| Gross Profit: | ||||
| Proprietary Products | $131.8 | $120.4 | $406.3 | $370.4 |
| Contract-Manufactured Products | 16.0 | 15.2 | 46.2 | 41.8 |
| Gross Profit | $147.8 | $135.6 | $452.5 | $412.2 |
| Gross Profit Margin | 32.4% | 31.4% | 33.0% | 31.8% |
| Operating Profit (Loss): | ||||
| Proprietary Products | $72.9 | $68.2 | $238.7 | $202.7 |
| Contract-Manufactured Products | 11.6 | 11.2 | 33.5 | 29.7 |
| U.S. pension expense | - | (2.3) | - | (7.0) |
| Stock-based compensation expense | (5.4) | (5.3) | (18.8) | (14.7) |
| General corporate costs | (9.0) | (8.7) | (30.1) | (28.4) |
| Adjusted Operating Profit | $70.1 | $63.1 | $223.3 | $182.3 |
| Adjusted Operating Profit Margin | 15.4% | 14.6% | 16.3% | 14.1% |
| Restructuring and related charges | (1.8) | (1.2) | (3.8) | (6.7) |
| Argentina currency devaluation | (1.0) | (1.1) | (1.0) | (1.1) |
| Reported Operating Profit | $67.3 | $60.8 | $218.5 | $174.5 |
| Reported Operating Profit Margin | 14.8% | 14.1% | 16.0% | 13.5% |
| WEST PHARMACEUTICAL SERVICES RECONCILIATION OF NON-U.S. GAAP MEASURES (UNAUDITED) Please refer to "Non-U.S. GAAP Financial Measures" for more information (in millions, except per share data) | ||||
| Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS | ||||
| Three months ended September 30, 2019 | Operating profit | Income tax expense | Net income | Diluted EPS |
| Reported (U.S. GAAP) | $67.3 | $10.9 | $56.3 | $0.75 |
| Restructuring and related charges (1) | 1.8 | 0.4 | 1.4 | 0.01 |
| Pension settlement (2) | - | 0.6 | 2.1 | 0.03 |
| Argentina currency devaluation (3) | 1.0 | 0.3 | 0.7 | 0.01 |
| Tax law changes (4) | - | 1.0 | (1.0) | (0.01) |
| Adjusted (Non-U.S. GAAP) | $70.1 | $13.2 | $59.5 | $0.79 |
| Nine months ended September 30, 2019 | Operating profit | Income tax expense | Net income | Diluted EPS |
| Reported (U.S. GAAP) | $218.5 | $42.5 | $177.8 | $2.36 |
| Restructuring and related charges (1) | 3.8 | 0.9 | 2.9 | 0.03 |
| Pension settlement (2) | - | 0.6 | 2.1 | 0.03 |
| Argentina currency devaluation (3) | 1.0 | 0.3 | 0.7 | 0.01 |
| Tax law changes (4) | - | 1.0 | (1.0) | (0.01) |
| Adjusted (Non-U.S. GAAP) | $223.3 | $45.3 | $182.5 | $2.42 |
| Three months ended September 30, 2018 | Operating profit | Income tax expense | Net income | Diluted EPS |
| Reported (U.S. GAAP) | $60.8 | $8.0 | $55.2 | $0.73 |
| Restructuring and related charges (1) | 1.2 | 0.3 | 0.9 | 0.01 |
| Argentina currency devaluation (3) | 1.1 | - | 1.1 | 0.02 |
| Tax law changes (4) | - | (0.4) | 0.4 | - |
| Adjusted (Non-U.S. GAAP) | $63.1 | $7.9 | $57.6 | $0.76 |
| Nine months ended September 30, 2018 | Operating profit | Income tax expense | Net income | Diluted EPS |
| Reported (U.S. GAAP) | $174.5 | $26.5 | $154.9 | $2.05 |
| Restructuring and related charges (1) | 6.7 | 1.5 | 5.2 | 0.07 |
| Argentina currency devaluation (3) | 1.1 | - | 1.1 | 0.02 |
| Tax law changes (4) | - | 4.1 | (4.1) | (0.06) |
| Adjusted (Non-U.S. GAAP) | $182.3 | $32.1 | $157.1 | $2.08 |
| (1) | During the three and nine months ended September 30, 2019, the Company recorded $1.8 million and $3.8 million, respectively, in restructuring and related charges. During the three and nine months ended September 30, 2018, the Company recorded $1.2 million and $6.7 million, respectively, in restructuring and related charges. Full-year 2019 expected restructuring and related charges to complete its current plan remain unchanged at $7.0 million. Once fully completed, the Company expects that the plan will provide annualized savings of approximately $14.0 million. |
| (2) | During the three and nine months ended September 30, 2019, the Company recorded a pension settlement charge of $2.7 million within other nonoperating expense (income), as it determined that normal-course lump-sum payments for each of its U.S. qualified and non-qualified defined benefit pension plans exceeded the threshold for settlement accounting under U.S. GAAP for the year. |
| (3) | During the three and nine months ended September 30, 2019, the Company recorded a charge of $1.0 million related to the continued devaluation of Argentina's currency. During the three and nine months ended September 30, 2018, the Company recorded a charge of $1.1 million related to the classification of Argentina's economy as highly inflationary under U.S. GAAP as of July 1, 2018. |
| (4) | During the three and nine months ended September 30, 2019, the Company recorded a tax benefit of $1.0 million due to the impact of federal law changes enacted during the quarter. During the three and nine months ended September 30, 2018, the Company recorded a net tax charge of $0.4 million and a net tax benefit of $4.1 million, respectively, for the estimated impact of the Tax Cuts and Jobs Act. |
| WEST PHARMACEUTICAL SERVICES RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) Please refer to "Non-U.S. GAAP Financial Measures" for more information (in millions, except per share data) | ||||
| Reconciliation of Net Sales to Organic Net Sales (5) | ||||
| Three months ended September 30, 2019 | Proprietary | CM | Eliminations | Total |
| Reported net sales (U.S. GAAP) | $345.2 | $111.1 | $(0.2) | $456.1 |
| Effect of acquisitions and/or divestitures | (1.0) | - | - | (1.0) |
| Effect of changes in currency translation rates | 8.6 | 2.0 | - | 10.6 |
| Organic net sales (Non-U.S. GAAP) (5) | $352.8 | $113.1 | $(0.2) | $465.7 |
| Nine months ended September 30, 2019 | Proprietary | CM | Eliminations | Total |
| Reported net sales (U.S. GAAP) | $1,045.9 | $323.6 | $(0.2) | $1,369.3 |
| Effect of acquisitions and/or divestitures | (2.0) | - | - | (2.0) |
| Effect of changes in currency translation rates | 37.6 | 7.7 | - | 45.3 |
| Organic net sales (Non-U.S. GAAP) (5) | $1,081.5 | $331.3 | $(0.2) | $1,412.6 |
| WEST PHARMACEUTICAL SERVICES RECONCILIATION OF NON-U.S. GAAP FINANCIAL MEASURES (UNAUDITED) Please refer to "Non-U.S. GAAP Financial Measures" for more information (in millions, except per share data) | |||
| Reconciliation of Reported-Diluted EPS Guidance to Adjusted-Diluted EPS Guidance | |||
| 2018 Actual | 2019 Guidance | % Change | |
| Reported-diluted EPS (U.S. GAAP) | $2.74 | $2.99 to $3.04 | 9.1% to 10.9% |
| Restructuring and related charges | 0.08 | 0.07 | |
| Pension settlement | - | 0.04 | |
| Argentina currency devaluation | 0.02 | 0.01 | |
| Tax law changes | (0.03) | (0.01) | |
| Adjusted-diluted EPS (Non-U.S. GAAP) (6) | $2.81 | $3.10 to $3.15 | 10.3% to 12.1% |
| Notes: | |
| See "Full-Year 2019 Financial Guidance" and "Non-U.S. GAAP Financial Measures" in today's press release for additional information regarding adjusted-diluted EPS. | |
| (6) | In 2018, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.19. We have opted not to forecast 2019 tax benefits from stock-based compensation in upcoming quarters, as they are out of the Company's control. Instead, we recognize the benefits as they occur. In the third-quarter 2019 and first-nine months of 2019, tax benefits associated with stock-based compensation increased adjusted-diluted EPS by $0.05 and $0.12, respectively. Any future tax benefits associated with stock-based compensation that we receive in 2019 would provide a positive adjustment to our full-year EPS guidance. |
| WEST PHARMACEUTICAL SERVICES CASH FLOW ITEMS (UNAUDITED) (in millions) | ||
| Nine Months Ended September 30, | ||
| 2019 | 2018 | |
| Depreciation and amortization | $77.1 | $78.1 |
| Operating cash flow | $260.8 | $215.4 |
| Capital expenditures | $88.8 | $74.7 |
| WEST PHARMACEUTICAL SERVICES FINANCIAL CONDITION (UNAUDITED) (in millions) | ||
| As of September 30, 2019 | As of December 31, 2018 | |
| Cash and cash equivalents | $396.0 | $337.4 |
| Accounts receivable, net | $316.1 | $288.2 |
| Inventories | $230.4 | $214.5 |
| Accounts payable | $145.3 | $130.4 |
| Debt | $195.1 | $196.1 |
| Equity | $1,487.6 | $1,396.3 |
| Working capital | $669.1 | $610.7 |
Trademark Notices
Trademarks and registered trademarks are the property of West Pharmaceutical Services, Inc., in the United States and other jurisdictions, unless noted otherwise.
Daikyo Crystal Zenith ® and Daikyo CZ ® are registered trademarks of Daikyo Seiko, Ltd. Daikyo Crystal Zenith technologies are licensed from Daikyo Seiko, Ltd.
SOURCE West Pharmaceutical Services, Inc.