West Announces Third-Quarter 2019 Results
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)
-- Net sales of $456.1 million grew 5.7%; organic sales growth was 7.9%;
sales from a recent acquisition contributed an additional 20 basis
points of growth; currency translation reduced sales by 240 basis
points.
-- Reported-diluted EPS of $0.75 increased 3%.
-- Adjusted-diluted EPS of $0.79 increased 4%.
-- Company is raising its full-year 2019 net sales guidance to a new range
of between $1.815 billion and $1.825 billion.
-- Company is raising full-year 2019 adjusted-diluted EPS guidance to a new
range of between $3.10 and $3.15.
"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
-- The Company is raising its full-year 2019 net sales guidance to a new
range of between $1.815 billion and $1.825 billion, compared to the
prior guidance range of between $1.810 billion and $1.825 billion.
-- Organic sales growth is expected to be approximately 8%.
-- Net sales guidance includes a headwind of $54 million for the
full-year 2019 based on current foreign exchange rates, compared to
prior guidance of a full-year negative impact of $42 million.
-- The Company is raising full-year adjusted-diluted EPS guidance to a new
range of between $3.10 and $3.15, compared to the prior guidance range
of between $3.00 and $3.10.
-- This includes an estimated headwind of approximately $0.13 based on
current foreign currency exchange rates, compared to prior guidance
of a headwind of $0.10.
-- The acquisition of an incremental minority stake in Daikyo Seiko, Ltd.,
is not expected to have a material impact to West's full-year 2019
financial outlook.
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
Certain forward-looking statements are included in this release. They use such words as "ensure," "raising," "seeing," "growing," "trends," "continue," "are intended," "expected," "expect," "anticipates," "includes," "estimated," 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; the ability to meet development milestones with key customers; we cannot predict the time or expense required to address the issues created by, or impact on our financial results related to, the voluntary recall; and the voluntary recall and the related circumstances could subject us to claims or proceedings which may adversely impact our net sales and net income, as well as harm our reputation and customer relationships or distract management from operating our business. 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 year ended December 31, 2018.
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
Nine Months Ended
September 30,
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
Income
Net
Diluted
profit tax income EPS
expense
---
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
Income
Net
Diluted
profit tax income EPS
expense
---
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
Income
Net
Diluted
profit tax income EPS
expense
---
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
Income
Net
Diluted
profit tax income EPS
expense
---
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
(5) Organic net sales exclude the
impact from acquisitions and/
or divestitures and
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-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
As of
December 31, 2018
September 30, 2019
---
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.
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SOURCE West Pharmaceutical Services, Inc.
