EXTON, Pa., July 27, 2017 /PRNewswire/ -- West
Pharmaceutical Services, Inc. (NYSE: WST) today announced its
financial results for the second-quarter 2017 and updated financial
guidance for the full-year 2017.
Second-Quarter 2017 Highlights
- Reported net sales of $397.6
million, a record high, grew 2.5% over the prior-year
quarter. Net sales at constant currency (organic) grew by
3.9%.
- Second-quarter 2017 reported-diluted EPS was $0.51, compared to $0.60 in the prior-year quarter. Second-quarter
2017 adjusted diluted EPS was $0.66,
compared to $0.59 in the prior-year
quarter. Second-quarter 2017 reported and adjusted-diluted EPS
include the impact of a tax-related EPS benefit of $0.13 regarding share-based payment
transactions.
- Revising full-year 2017 sales and adjusted-diluted EPS
guidance. Full-year 2017 sales guidance is expected to be in a
range between $1.585 billion and $1.600
billion, compared to the prior guidance range between
$1.585 billion and $1.610 billion.
Full-year 2017 adjusted-diluted EPS guidance is expected to be in a
range between $2.66 and $2.73,
compared to the prior guidance range between $2.66 and $2.78. Both current and prior guidance
ranges include the favorable impact from tax-related benefits
associated with share-based payment transactions.
"Adjusted-diluted EPS" and "net sales at constant currency" are
Non-GAAP measurements. See discussion under the heading
"Non-GAAP Financial Measures" in this release.
Executive Commentary
"Following a strong start to the year, we generated
approximately 4% organic sales growth in the second-quarter," said
Eric M. Green, President and Chief
Executive Officer. "However, due to an unfavorable sales mix
in the quarter, our margins did not meet our expectations."
"Strong Contract-Manufactured Products sales growth and solid
performance of the Pharma market unit did not offset the softness
in the Generics market unit and, to a lesser extent, Biologics
market unit, which were impacted by customer inventory management
and delays in several new drug launches. In addition, our
Generics unit experienced lower volumes from select customers that
have had their production impacted by regulatory issues."
Mr. Green concluded, "We believe that we are taking the
appropriate actions to bring our full-year 2017 results in-line
with our updated guidance. We see no fundamental change in
the markets we serve. We have confidence in our strategy and
our long-term view of West's ability to grow organic sales 6% to 8%
per year with expanding margins for the next several years.
West has participated on 100% of the newly-approved biologic drugs
in the U.S. this year, and we are encouraged by indications that a
number of large customers are resuming their typical order
patterns. We continue to invest in our business to fuel our
long-term growth potential and are managing our costs. Based
on market dynamics and customer order patterns, we expect sales
performance to continue to build over the balance of the year, with
normal seasonality trends for the third and fourth quarters."
Second-Quarter 2017 Financial Results (comparisons to
prior-year period)
Reported net sales were $397.6
million, compared to $388.0
million. Reported net sales growth was 2.5%. On
a constant-currency basis, sales growth was 3.9%.
Proprietary Products segment reported net sales were
$312.8 million, compared to
$311.0 million. Reported net
sales growth was 0.6%. Organic sales growth was 2.2%, led by
mid-single digit growth in the Pharma and Biologics market
units. The Generics market unit organic sales declined
mid-single digits. Weaker-than-expected Biologics and
Generics market unit performance also resulted in low-single digit
organic sales growth for high-value products.
Committed orders in the Proprietary Products segment at
June 30, 2017 were $382 million, a decrease of 7% at constant
currency compared to June 30, 2016,
and a decrease of 0.8% at constant currency compared to
December 31, 2016.
Contract-Manufactured Products segment reported net sales were
$84.9 million, compared to
$77.2 million. Reported net
sales growth was 9.9%, and organic sales growth was
10.5%.
Gross profit margin was 31.4%, a decrease of 300 basis
points. Proprietary Products segment gross profit margin was
35.4%, a decrease of 310 basis points due to weaker Generics and
Biologics market unit sales growth and to higher labor costs and
unabsorbed overhead. Contract-Manufactured Products segment
gross profit margin was 16.8%, a decrease of 80 basis points due to
increased labor and overhead costs, partially offset by sales price
increases and production efficiencies.
Second-quarter 2017 reported operating profit was $42.7 million, which represented an operating
profit margin of 10.7%. Excluding the impact of the
deconsolidation of our Venezuelan subsidiary, second-quarter 2017
adjusted operating profit was $53.8
million, representing an adjusted operating profit margin of
13.5%, a year-over-year decrease of 190 basis points. The
major driver for this decline is lower gross profit margins,
partially offset by lower R&D and SG&A expense on a
combined basis as a percentage of sales.
Income tax expense in the quarter was $2.9 million, which represented an effective tax
rate of 7.1%. The effective tax rate reflects the impact of a
tax benefit of $9.6 million
associated with the previously-discussed adoption of FASB-issued
guidance. Our estimated full-year 2017 effective tax rate,
excluding this tax benefit and other discrete tax benefits, is
30.8%.
During the quarter, the Company did not repurchase any
shares. For the first six months of 2017, the Company
repurchased 325,000 shares for $26.9
million. There are 475,000 shares available to be
repurchased in the program authorized by our Board of Directors in
December 2016.
Full-Year 2017 Financial Guidance
The Company is revising its full-year 2017 constant-currency
(organic) sales growth guidance to approximately 6%, compared to a
prior guidance range of 7% to 9%.
West's expected full-year 2017 net sales, margin and EPS
guidance are as follows:
(in millions,
except EPS)
|
2017 Updated
Guidance
|
Prior
Guidance
|
Consolidated net
sales
|
$1,585 to
$1,600
|
$1,585 to
$1,610
|
Consolidated gross
profit margin (% of net sales)
|
32.7% to
33.3%
|
34.4% to
34.8%
|
Proprietary Products
net sales
|
$1,240 to
$1,250
|
$1,245 to
$1,260
|
Contract-Manufactured
Products net sales
|
$345 to
$350
|
$340 to
$350
|
Full-Year
adjusted-diluted EPS*
|
$2.66 to
$2.73
|
$2.66 to
$2.78
|
|
*Includes the
reported-diluted EPS impact of $0.34 for the first-half 2017 tax
benefit associated with the previously-discussed adoption of
FASB-issued guidance.
|
The principal currency assumption used in preparing these
estimates is the translation of the euro at $1.14 for the remainder of 2017, compared to a
prior assumption of $1.05 per
euro.
Excluding the impact from tax benefits associated with the
previously-discussed adoption of FASB-issued guidance, the Company
expects that its annual effective tax rate will be approximately
30.7%. The Company does not plan on forecasting future
benefits as they could vary quarter to quarter with the time and
size of stock option exercises. Instead, the Company will
include the impacts with each reported period. As a point of
reference, the Company would have had $2
million of net income benefit in the second quarter of 2016
and would have had $18 million for
the full-year 2016, resulting in an EPS benefit of $0.01 in the second-quarter 2016 and $0.24 for the full-year 2016.
The Company estimates its 2017 capital spending to be up to
$150 million, compared to a prior
guidance range between $150 million and $175
million.
Second-Quarter 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 47244012.
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, August 3, 2017, by
dialing 855-859-2056 (U.S.) or 404-537-3406 (International) and
entering conference ID 47244012.
Forward-Looking Statements
Certain forward-looking statements are included in this
release. They use such words as "expected," "reflects," "no
fundamental change," "we are encouraged," "continue," "see,"
"increase," "remain," "may," "believe," "expects," "revising,"
"include," "estimates," and other similar terminology. These
statements reflect management's current expectations regarding
future events and operating performance and speak only as of the
date of this release. There is no certainty that actual
results will be achieved in-line with current expectations.
These forward-looking statements involve a number of risks
and uncertainties. The following are some of the factors that
could cause our actual results to differ materially from those
expressed in or underlying our forward-looking statements:
customers' changing inventory requirements and manufacturing plans;
customer decisions to move forward with our new products and
product categories; average profitability, or mix, of the products
we sell; dependence on third-party suppliers and partners;
interruptions or weaknesses in our supply chain; increased raw
material costs; fluctuations in currency exchange; and the ability
to meet development milestones with key customers. This list
of important factors is not all inclusive. For a description
of certain additional factors that could cause the Company's future
results to differ from those expressed in any such forward-looking
statements, see Item 1A, entitled "Risk Factors," in the Company's
Annual Report on Form 10-K for the years ended December 31, 2016.
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-GAAP Financial Measures
This press release and the preceding discussion of the Company's
results, financial guidance, and the accompanying financial tables
use the following financial measures that have not been calculated
in accordance with U.S. generally accepted accounting principles
(GAAP), and therefore are referred to as Non-GAAP financial
measures:
- Net sales at constant currency (organic sales growth)
- Adjusted operating profit
- Adjusted operating profit margin
- Adjusted income tax expense
- Adjusted net income
- Adjusted diluted EPS
- Net debt
- Total invested capital
- Net debt-to-total invested capital
The Company believes that these Non-GAAP measures of financial
results provide useful information to management and investors
regarding business trends, results of operations, and the Company's
overall performance and financial position. The Company's
executive management team uses these financial measures to evaluate
the performance of the Company in terms of profitability and
efficiency, to compare operating results to prior periods, to
evaluate changes in the operating results of each segment, and to
measure and allocate financial resources to its segments. The
Company believes that the use of these Non-GAAP financial measures
provides an additional tool for investors to use in evaluating
ongoing operating results and trends in comparing its financial
measures with other companies.
The Company's executive management does not consider such
Non-GAAP measures in isolation or as an alternative to such
measures determined in accordance with GAAP. The principal
limitation of these financial measures is that they exclude
significant expenses and income that are required by GAAP to be
recorded. In addition, they are subject to inherent
limitations as they reflect the exercise of judgment by management
about which items are excluded. In order to compensate for
these limitations, Non-GAAP financial measures are presented in
connection with GAAP results. The Company urges investors and
potential investors to review the reconciliations of its Non-GAAP
financial measures to the comparable GAAP financial measures, and
not to rely on any single financial measure to evaluate the
Company's business.
Net sales at constant currency translates 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. In
calculating adjusted operating profit, adjusted operating profit
margin, adjusted income tax expense, adjusted net income and
adjusted diluted EPS, the Company excludes the impact of items that
are not considered representative of ongoing operations. Such
items may include restructuring and related costs, certain asset
impairments, other specifically-identified gains or losses, and
discrete income tax items. A reconciliation of these adjusted
Non-GAAP measures to the comparable GAAP financial measures is
included in the accompanying tables.
The following is a description of the items excluded from
adjusted operating profit, adjusted income tax expense, adjusted
net income, and adjusted diluted EPS for the three and six months
presented in the accompanying tables:
Venezuela deconsolidation
– During the three and six months ended June 30, 2017, due to its continued reduced
access to U.S. Dollar settlement controlled by the Venezuelan
government, the Company recorded a charge of $11.1 million related to the deconsolidation of
its Venezuelan subsidiary, following its determination that it no
longer met the GAAP criteria for control of that subsidiary.
Beginning with the three months ended June 30, 2017, the Company's consolidated
financial statements exclude the results of our Venezuelan
subsidiary.
Restructuring and related charges – During the
three months ended June 30, 2016, the
Company recorded $1.5 million in
reversals of previously-recorded restructuring and related charges.
During the six months ended June 30,
2016, the Company incurred $21.4
million in restructuring and related charges, including
$6.4 million for severance charges
and $15.0 million for non-cash asset
write-downs associated with the discontinued use of certain
trademarks and certain equipment.
Venezuela currency
devaluation – During the six months ended June 30, 2016, the Company recorded a charge of
$2.7 million related to the
devaluation of the Venezuelan Bolivar from the
previously-prevailing official exchange rate of 6.3 Bolivars to USD to 10.0 Bolivars to USD.
WEST
PHARMACEUTICAL SERVICES, INC.
CONSOLIDATED
STATEMENTS OF INCOME
(UNAUDITED)
(in millions,
except per share data)
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
June
30,
|
Six Months
Ended
June
30,
|
|
2017
|
2016
|
2017
|
2016
|
Net sales
|
$397.6
|
100%
|
$388.0
|
100%
|
$785.3
|
100%
|
$750.1
|
100%
|
Cost of goods and
services sold
|
272.6
|
69
|
254.7
|
66
|
526.2
|
67
|
493.5
|
66
|
Gross
profit
|
125.0
|
31
|
133.3
|
34
|
259.1
|
33
|
256.6
|
34
|
Research and
development
|
10.0
|
2
|
8.8
|
2
|
20.3
|
2
|
18.2
|
2
|
Selling, general and
administrative expenses
|
60.6
|
15
|
62.5
|
16
|
122.2
|
16
|
120.6
|
16
|
Other expense,
net
|
11.7
|
3
|
0.8
|
-
|
12.6
|
2
|
26.6
|
4
|
Operating
profit
|
42.7
|
11
|
61.2
|
16
|
104.0
|
13
|
91.2
|
12
|
Interest expense,
net
|
2.0
|
-
|
1.7
|
-
|
3.8
|
-
|
3.9
|
-
|
Income before income
taxes
|
40.7
|
11
|
59.5
|
16
|
100.2
|
13
|
87.3
|
12
|
Income tax
expense
|
2.9
|
1
|
17.0
|
4
|
5.1
|
1
|
23.9
|
3
|
Equity in net income
of affiliated companies
|
1.0
|
-
|
2.2
|
1
|
4.6
|
1
|
3.5
|
-
|
Net income
|
$38.8
|
10%
|
$44.7
|
11%
|
$99.7
|
13%
|
$66.9
|
9%
|
|
|
|
|
|
|
|
|
|
Net income per
share:
|
|
|
|
|
|
|
|
|
Basic
|
$0.53
|
|
$0.61
|
|
$1.35
|
|
$0.92
|
|
Diluted
|
$0.51
|
|
$0.60
|
|
$1.32
|
|
$0.90
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding
|
73.9
|
|
73.3
|
|
73.6
|
|
72.9
|
|
Average shares
assuming dilution
|
75.8
|
|
74.8
|
|
75.7
|
|
74.5
|
|
WEST
PHARMACEUTICAL SERVICES
REPORTING SEGMENT
INFORMATION
(UNAUDITED)
(in
millions)
|
|
|
|
|
|
|
|
Three Months
Ended
|
Six Months
Ended
|
|
June
30,
|
June
30,
|
Net
Sales:
|
2017
|
2016
|
2017
|
2016
|
Proprietary
Products
|
$312.8
|
$311.0
|
$621.6
|
$601.8
|
Contract-Manufactured
Products
|
84.9
|
77.2
|
164.0
|
148.8
|
Eliminations
|
(0.1)
|
(0.2)
|
(0.3)
|
(0.5)
|
Consolidated
Total
|
$397.6
|
$388.0
|
$785.3
|
$750.1
|
|
|
|
|
|
Operating Profit
(Loss):
|
|
|
|
|
Proprietary
Products
|
$56.3
|
$66.2
|
$121.2
|
$128.1
|
Contract-Manufactured
Products
|
10.5
|
9.7
|
19.3
|
16.7
|
US pension
expense
|
(1.3)
|
(2.2)
|
(2.5)
|
(4.4)
|
Stock-based
compensation expense
|
(5.5)
|
(4.9)
|
(9.0)
|
(9.5)
|
General corporate
costs
|
(6.2)
|
(9.1)
|
(13.9)
|
(15.6)
|
Adjusted Operating
Profit
|
$53.8
|
$59.7
|
$115.1
|
$115.3
|
Adjusted Operating
Profit Margin
|
13.5%
|
15.4%
|
14.7%
|
15.4%
|
Venezuela
deconsolidation
|
(11.1)
|
-
|
(11.1)
|
-
|
Venezuela currency
devaluation
|
-
|
-
|
-
|
(2.7)
|
Restructuring and
related charges
|
-
|
1.5
|
-
|
(21.4)
|
Reported Operating
Profit
|
$42.7
|
$61.2
|
$104.0
|
$91.2
|
Reported Operating
Profit Margin
|
10.7%
|
15.8%
|
13.2%
|
12.2%
|
WEST
PHARMACEUTICAL SERVICES
RECONCILIATION OF
NON-GAAP MEASURES (UNAUDITED)
Please refer to
"Non-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
June 30, 2017
|
Operating
profit
|
Income
tax
expense
|
Net
income
|
Diluted
EPS
|
Reported
(GAAP)
|
$42.7
|
$2.9
|
$38.8
|
$0.51
|
Venezuela
deconsolidation
|
11.1
|
-
|
11.1
|
0.15
|
Adjusted
(Non-GAAP)
|
$53.8
|
$2.9
|
$49.9
|
$0.66
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2017
|
Operating
profit
|
Income
tax
expense
|
Net
income
|
Diluted
EPS
|
Reported
(GAAP)
|
$104.0
|
$5.1
|
$99.7
|
$1.32
|
Venezuela
deconsolidation
|
11.1
|
-
|
11.1
|
0.15
|
Adjusted
(Non-GAAP)
|
$115.1
|
$5.1
|
$110.8
|
$1.47
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2016
|
Operating
profit
|
Income
tax
expense
|
Net
income
|
Diluted
EPS
|
Reported
(GAAP)
|
$61.2
|
$17.0
|
$44.7
|
$0.60
|
Restructuring and
related charges
|
(1.5)
|
(0.5)
|
(1.0)
|
(0.01)
|
Venezuela currency
devaluation
|
-
|
(0.2)
|
0.2
|
-
|
Adjusted
(Non-GAAP)
|
$59.7
|
$16.3
|
$43.9
|
$0.59
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2016
|
Operating
profit
|
Income
tax
expense
|
Net
income
|
Diluted
EPS
|
Reported
(GAAP)
|
$91.2
|
$23.9
|
$66.9
|
$0.90
|
Restructuring and
related charges
|
21.4
|
7.4
|
14.0
|
0.19
|
Venezuela currency
devaluation
|
2.7
|
-
|
2.7
|
0.03
|
Adjusted
(Non-GAAP)
|
$115.3
|
$31.3
|
$83.6
|
$1.12
|
WEST
PHARMACEUTICAL SERVICES
RECONCILIATION OF
NON-GAAP MEASURES (UNAUDITED)
Please refer to
"Non-GAAP Financial Measures" for more information
(in millions,
except per share data)
|
|
|
|
Reconciliation of
Net Sales to Net Sales at Constant
Currency(1)
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2017
|
Proprietary
|
CM
|
Eliminations
|
Total
|
Reported net sales
(GAAP)
|
$312.8
|
$84.9
|
$(0.1)
|
$397.6
|
Effect of changes in
currency translation rates
|
5.1
|
0.5
|
-
|
5.6
|
Net sales at constant
currency (Non-GAAP)(1)
|
$317.9
|
$85.4
|
$(0.1)
|
$403.2
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2017
|
Proprietary
|
CM
|
Eliminations
|
Total
|
Reported net sales
(GAAP)
|
$621.6
|
$164.0
|
$(0.3)
|
$785.3
|
Effect of changes in
currency translation rates
|
10.3
|
1.1
|
-
|
11.4
|
Net sales at constant
currency (Non-GAAP)(1)
|
$631.9
|
$165.1
|
$(0.3)
|
$796.7
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, 2016
|
Proprietary
|
CM
|
Eliminations
|
Total
|
Reported net sales
(GAAP)
|
$311.0
|
$77.2
|
$(0.2)
|
$388.0
|
Effect of changes in
currency translation rates
|
1.5
|
(0.3)
|
-
|
1.2
|
Net sales at constant
currency (Non-GAAP)(1)
|
$312.5
|
$76.9
|
$(0.2)
|
$389.2
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30, 2016
|
Proprietary
|
CM
|
Eliminations
|
Total
|
Reported net sales
(GAAP)
|
$601.8
|
$148.8
|
$(0.5)
|
$750.1
|
Effect of changes in
currency translation rates
|
10.4
|
(0.2)
|
-
|
10.2
|
Net sales at constant
currency (Non-GAAP)(1)
|
$612.2
|
$148.6
|
$(0.5)
|
$760.3
|
|
|
|
|
|
(1)
Net sales at constant currency translates 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.
|
WEST
PHARMACEUTICAL SERVICES
RECONCILIATION OF
NON-GAAP MEASURES (UNAUDITED)
Please refer to
"Non-GAAP Financial Measures" for more information
(in millions,
except per share data)
|
|
|
|
Reconciliation of
Reported Diluted EPS Guidance to Adjusted Diluted EPS
Guidance
|
|
|
|
Full Year 2017
Guidance(2) (3)
|
Reported diluted EPS
guidance
|
$2.51 to
$2.58
|
Venezuela
deconsolidation
|
0.15
|
Adjusted diluted EPS
guidance
|
$2.66 to
$2.73
|
|
|
(2)
See "Full-Year 2017 Financial Guidance" and "Non-GAAP Financial
Measures" in today's press release for additional information
regarding adjusted diluted EPS.
|
|
|
(3)
Guidance includes various currency exchange rate assumptions, most
significantly the euro at $1.14 for the remainder of 2017.
Actual results will vary as a result of exchange rate
variability.
|
WEST
PHARMACEUTICAL SERVICES
CASH FLOW
ITEMS
(UNAUDITED)
(in
millions)
|
|
|
Six Months Ended June
30,
|
|
2017
|
2016
|
Depreciation and
amortization
|
$46.8
|
$45.0
|
Operating cash
flow
|
$106.0
|
$79.2
|
Capital
expenditures
|
$67.0
|
$74.0
|
WEST
PHARMACEUTICAL SERVICES
FINANCIAL
CONDITION
(UNAUDITED)
(in
millions)
|
|
|
|
|
As of
June 30,
2017
|
As
of December 31, 2016
|
Cash and cash
equivalents
|
$226.6
|
$203.0
|
Debt
|
$229.5
|
$228.6
|
Equity
|
$1,242.4
|
$1,117.5
|
Net debt-to-total
invested capital(4)
|
0.2%
|
2.2%
|
Working
capital
|
$428.8
|
$400.9
|
|
|
|
|
|
|
(4) Net
debt and total invested capital are Non-GAAP measures. Net
debt is determined by reducing total debt by the amount of cash and
cash equivalents, and for purpose of measuring net debt to invested
capital, total invested capital is the sum of net debt and
shareholders' equity. Please refer to "Non-GAAP Financial
Measures" in this release for additional information regarding
those measures.
|
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® are trademarks of Daikyo Seiko, Ltd.
Daikyo Crystal Zenith® technologies are licensed from
Daikyo Seiko, Ltd.
Investor Contact:
Quintin Lai
Vice President, Investor Relations
(610) 594-3318
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SOURCE West Pharmaceutical Services, Inc.