EXTON, Pa., Oct. 25, 2018 /PRNewswire/ -- West
Pharmaceutical Services, Inc. (NYSE: WST) today announced its
financial results for the third-quarter 2018 and reaffirmed net
sales and adjusted-diluted EPS guidance for full-year
2018.
Executive Summary
- Third-quarter 2018 reported net sales of $431.7 million grew 8.4% over the prior-year
quarter. At constant currency, organic sales growth was 9.6%.
- Third-quarter 2018 reported-diluted EPS was $0.73, as compared to $0.67 in the same period last year. Excluding
restructuring-related and other charges, third-quarter 2018
adjusted-diluted EPS was $0.76, a 13%
increase over the same period last year.
- The Company reaffirms full-year 2018 net sales and
adjusted-diluted EPS guidance. The Company expects full-year 2018
capital spending to be in a new range of between $110 million and $120
million, compared to a prior range of between $120 million and $130
million.
"Adjusted-diluted EPS," "net sales at constant currency" and
"organic sales" are Non-GAAP measurements. See discussion
under the heading "Non-GAAP Financial Measures" in this
release.
Executive Commentary
"We had solid third-quarter 2018 organic sales growth driven by
a high-single digit Proprietary Products segment increase and a
strong double-digit increase in the Contract-Manufactured Products
segment," said Eric M. Green,
President and Chief Executive Officer. "Our high-value
product (HVP) portfolio continues to do well, led by strong
double-digit sales growth in our Westar® RS and RU,
NovaPure® and Crystal Zenith® products.
"I am pleased with the performance of our Global Operations
team, which is successfully executing on all of their planned
initiatives. The Company continues to raise the bar on
industry-leading quality and service targets, and the team is
expanding capacity to support long-term demand forecasts by
increasing plant utilization within our worldwide network. As
a result, we are revising our capital spending guidance to be in a
new range of between $110 million and
$120 million, down from prior
projections of $120 million to
$130 million."
Mr. Green concluded, "We remain on track to achieve our
full-year 2018 financial targets. Our markets are stable, and
West continues to address the needs of our customers by providing
the quality, availability and scientific excellence required to
support their regulated injectable and diagnostic products."
Third-Quarter 2018 Financial Results (comparisons to
prior-year period)
Third-quarter 2018 reported net sales of $431.7 million grew 8.4% over the prior-year
quarter sales of $398.2
million. At constant currency, organic sales growth
was 9.6%.
Proprietary Products segment organic sales growth was
6.6%. By market unit, third-quarter 2018 Proprietary Products
segment sales growth was led by double-digit growth in the Pharma
Market Unit. Generics Market Unit organic sales growth was
mid-single digits, and Biologics Market Unit organic sales declined
mid-single digits. Biologics sales were impacted by a decline
in self-injection delivery device sales associated with lower than
expected commercial sales of the underlying drug product.
Contract-Manufactured Products segment organic sales growth was
20.1%. This growth was driven by continued escalation of
demand for diabetes-related diagnostic and drug delivery
devices.
Third-quarter 2018 gross profit margin was 31.4%, in line with
the same period last year. Proprietary Products segment gross
margin increased by 120 basis points, due to higher efficiencies,
favorable volume/mix and increased sales prices, partially offset
by increased labor costs, unabsorbed overhead from the start-up of
our Waterford facility and higher
raw material costs. Contract-Manufactured Products segment
gross margin declined by 200 basis points mainly due to unabsorbed
overhead from plant consolidation activities and start-up costs
associated with the expediting of the launch of new programs.
We expect margins in that segment to revert to more normal levels
going forward.
As of January 1, 2018, the Company
adopted new rules for pension accounting. Instead of
recognizing pension gains or losses in the "Selling, general and
administrative expenses" line on the income statement, these gains
or losses are now located "below the line" in nonoperating
income. The Company has restated all prior periods to allow
year-over-year comparisons with 2018 performance.
Third-quarter 2018 reported operating profit margin was 14.1%,
as compared to 15.8% in the same period last year. Excluding
restructuring costs and other charges, third-quarter 2018 adjusted
operating profit margin was 14.6%. In the third-quarter 2017,
the Company had a benefit from reimbursed costs associated with a
technology that was subsequently licensed to a third party, which
increased other operating income in the period by $9.1 million. Excluding this prior year
benefit, third-quarter 2018 adjusted operating profit margin would
have expanded by 110 basis points.
For the third-quarter 2018, reported income tax expense was
$8.0 million, representing a reported
effective tax rate of 13.1%. Tax benefits from stock-based
compensation were $7.7 million in the
third-quarter 2018, as compared to $4.8
million in the same period last year. This amount was
higher-than-expected for the quarter, as prior Company guidance
anticipated $9 million for the
second-half of 2018. The Company expects the remainder to
come in the fourth-quarter 2018. Excluding the impact of tax
benefits from stock-based compensation, the reported effective tax
rate would have been 25.7%.
Full-Year 2018 Financial Guidance and Long-Term
Outlook
The Company is reaffirming its full-year 2018 net sales guidance
range of $1.720 billion to
$1.730 billion. The Company
assumes an expected translation exchange rate of $1.15 per euro for the remainder of the year.
The Company is also reaffirming its full-year 2018
adjusted-diluted EPS guidance to be in a range of between
$2.80 to $2.90. The lower end of the guidance range
reflects the Company's expected performance and approximately
$1 million of tax benefits from
stock-based compensation in the fourth-quarter of 2018.
The Company is revising its full-year 2018 capital spending
guidance. The new range is expected to be in a range of
between $110 million and $120 million, which is below the prior range of
between $120 million and $130 million.
For 2019 and beyond, the Company reiterates its long-term
financial construct and expectations for above-market sales growth
with expanding gross and operating profit margins. As has
been its practice, the Company will provide full-year 2019 guidance
on its Q4 2018 conference call.
Third-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 8341499.
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, November 1, 2018,
by dialing 855-859-2056 (U.S.) or 404-537-3406 (International) and
entering conference ID 8341499.
Forward-Looking Statements
Certain forward-looking statements are included in this
release. They use such words as "expect," "expected,"
"successfully executing," "expanding," "revising," "reaffirming,"
"continues," "assumes," "reiterate," "remain," "expediting,"
"reflects" 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 year ended December 31,
2017.
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
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. 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 nine months
presented in the accompanying tables:
Restructuring and related charges – During the
three months ended September 30,
2018, the Company recorded $1.2
million in restructuring and related charges, consisting of
$0.1 million for severance charges,
$0.4 million for non-cash asset
write-downs, and $0.7 million for
other charges. During the nine months ended September 30, 2018, the Company recorded
$6.7 million in restructuring and
related charges, consisting of $3.4
million for severance charges, $0.8
million for non-cash asset write-downs, and $2.5 million for other charges. The plan will
require restructuring and related charges in the range of
$8.0 million to $13.0 million and capital expenditures in the
range of $9.0 million to $14.0 million. Once fully completed, we expect
that the plan will provide the Company with annualized savings in
the range of $17.0 million to
$22.0 million.
Tax law changes – 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, to adjust its estimated impact of the
Tax Cuts and Jobs Act ("2017 Tax Act"). During the three and twelve
months ended December 31, 2017, the
Company had recorded a provisional charge for the estimated impact
of the 2017 Tax Act, based upon its then-current understanding of
the 2017 Tax Act and the guidance available at the time. The
Company will continue to actively monitor the developments relating
to the 2017 Tax Act and will adjust its estimate as necessary
during the one-year measurement period.
Argentina currency
devaluation – 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.
Venezuela
deconsolidation – During the nine months ended
September 30, 2017, as a result of
the continued deterioration of conditions in Venezuela, as well as 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. As of
April 1, 2017, the Company's
consolidated financial statements exclude the results of its
Venezuelan subsidiary.
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,
|
|
2018
|
2017
|
2018
|
2017
|
Net sales
|
$431.7
|
100%
|
$398.2
|
100%
|
$1,294.9
|
100%
|
$1,183.5
|
100%
|
Cost of goods and
services sold
|
296.1
|
69
|
273.1
|
68
|
882.7
|
68
|
799.2
|
68
|
Gross
profit
|
135.6
|
31
|
125.1
|
32
|
412.2
|
32
|
384.3
|
32
|
Research and
development
|
10.1
|
2
|
9.1
|
2
|
30.5
|
2
|
29.4
|
2
|
Selling, general and
administrative expenses
|
64.9
|
15
|
62.6
|
16
|
203.2
|
16
|
186.4
|
16
|
Other expense,
net
|
(0.2)
|
-
|
(9.5)
|
(2)
|
4.0
|
-
|
3.1
|
-
|
Operating
profit
|
60.8
|
14
|
62.9
|
16
|
174.5
|
14
|
165.4
|
14
|
Interest expense,
net
|
1.5
|
-
|
1.1
|
-
|
4.7
|
-
|
4.8
|
-
|
Other nonoperating
income
|
(1.8)
|
-
|
(1.1)
|
-
|
(5.1)
|
-
|
(2.5)
|
-
|
Income before income
taxes
|
61.1
|
14
|
62.9
|
16
|
174.9
|
14
|
163.1
|
14
|
Income tax
expense
|
8.0
|
2
|
14.0
|
4
|
26.5
|
2
|
19.1
|
2
|
Equity in net income
of affiliated companies
|
(2.1)
|
1
|
(2.1)
|
1
|
(6.5)
|
-
|
(6.7)
|
1
|
Net income
|
55.2
|
13%
|
$51.0
|
13%
|
154.9
|
12%
|
$150.7
|
13%
|
|
|
|
|
|
|
|
|
|
Net income per
share:
|
|
|
|
|
|
|
|
|
Basic
|
$0.75
|
|
$0.69
|
|
$2.10
|
|
$2.04
|
|
Diluted
|
$0.73
|
|
$0.67
|
|
$2.05
|
|
$1.99
|
|
|
|
|
|
|
|
|
|
|
Average common shares
outstanding
|
73.9
|
|
74.2
|
|
73.9
|
|
73.8
|
|
Average shares
assuming dilution
|
75.7
|
|
75.9
|
|
75.4
|
|
75.8
|
|
WEST
PHARMACEUTICAL SERVICES
REPORTING SEGMENT
INFORMATION
(UNAUDITED)
(in
millions)
|
|
|
Three Months
Ended
|
Nine Months
Ended
|
|
September
30,
|
September
30,
|
Net
Sales:
|
2018
|
2017
|
2018
|
2017
|
Proprietary
Products
|
$325.2
|
$308.9
|
$997.4
|
$930.5
|
Contract-Manufactured
Products
|
106.7
|
89.3
|
297.7
|
253.3
|
Eliminations
|
(0.2)
|
-
|
(0.2)
|
(0.3)
|
Consolidated
Total
|
$431.7
|
$398.2
|
$1,294.9
|
$1,183.5
|
|
|
|
|
|
Operating Profit
(Loss):
|
|
|
|
|
Proprietary
Products
|
$68.2
|
$67.5
|
$202.7
|
$189.3
|
Contract-Manufactured
Products
|
11.2
|
10.8
|
29.7
|
30.1
|
U.S. pension
expense
|
(2.3)
|
(2.2)
|
(7.0)
|
(6.8)
|
Stock-based
compensation expense
|
(5.3)
|
(4.6)
|
(14.7)
|
(13.6)
|
General corporate
costs
|
(8.7)
|
(8.6)
|
(28.4)
|
(22.5)
|
Adjusted Operating
Profit
|
$63.1
|
$62.9
|
$182.3
|
$176.5
|
Adjusted Operating
Profit Margin
|
14.6%
|
15.8%
|
14.1%
|
14.9%
|
|
|
|
|
|
Restructuring and
related charges
|
(1.2)
|
-
|
(6.7)
|
-
|
Argentina
devaluation
|
(1.1)
|
-
|
(1.1)
|
-
|
Venezuela
deconsolidation
|
-
|
-
|
-
|
(11.1)
|
Reported Operating
Profit
|
$60.8
|
$62.9
|
$174.5
|
$165.4
|
Reported Operating
Profit Margin
|
14.1%
|
15.8%
|
13.5%
|
14.0%
|
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
September 30, 2018
|
Operating
profit
|
Income
tax
expense
|
Net
income
|
Diluted
EPS
|
Reported
(GAAP)
|
$60.8
|
$8.0
|
$55.2
|
$0.73
|
Restructuring and
related charges
|
1.2
|
0.3
|
0.9
|
0.01
|
Argentina
devaluation
|
1.1
|
-
|
1.1
|
0.02
|
Tax law
changes
|
-
|
(0.4)
|
0.4
|
-
|
Adjusted
(Non-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
(GAAP)
|
$174.5
|
$26.5
|
$154.9
|
$2.05
|
Restructuring and
related charges
|
6.7
|
1.5
|
5.2
|
0.07
|
Argentina
devaluation
|
1.1
|
-
|
1.1
|
0.02
|
Tax law
changes
|
-
|
4.1
|
(4.1)
|
(0.06)
|
Adjusted
(Non-GAAP)
|
$182.3
|
$32.1
|
$157.1
|
$2.08
|
|
|
Nine months ended
September 30, 2017
|
Operating
profit
|
Income
tax
expense
|
Net
income
|
Diluted
EPS
|
Reported
(GAAP)
|
$165.5
|
$19.1
|
$150.7
|
$1.99
|
Venezuela
deconsolidation
|
11.1
|
-
|
11.1
|
0.15
|
Adjusted
(Non-GAAP)
|
$176.6
|
$19.1
|
$161.8
|
$2.14
|
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
September 30, 2018
|
Proprietary
|
CM
|
Eliminations
|
Total
|
Reported net sales
(GAAP)
|
$325.2
|
$106.7
|
$(0.2)
|
$431.7
|
Effect of changes in
currency translation rates
|
4.3
|
0.5
|
-
|
4.8
|
Net sales at constant
currency (Non-GAAP) (1)
|
$329.5
|
$107.2
|
$(0.2)
|
$436.5
|
|
Nine months ended
September 30, 2018
|
Proprietary
|
CM
|
Eliminations
|
Total
|
Reported net sales
(GAAP)
|
$997.4
|
$297.7
|
$(0.2)
|
$1,294.9
|
Effect of changes in
currency translation rates
|
(30.5)
|
(6.0)
|
-
|
(36.5)
|
Net sales at constant
currency (Non-GAAP) (1)
|
$966.9
|
$291.7
|
$(0.2)
|
$1,258.4
|
|
|
(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.
|
Reconciliation of
Reported-Diluted EPS Guidance to Adjusted-Diluted EPS
Guidance
|
|
|
Full Year 2018
Guidance(2)(3)
|
Reported-diluted EPS
guidance
|
$2.71 to
$2.86
|
Restructuring and
related charges
|
0.08 to
0.13
|
Argentina
devaluation
Tax law
changes
|
0.02
(0.06)
|
Adjusted-diluted EPS
guidance
|
$2.80 to
$2.90
|
|
|
(2)
|
See "Full-Year 2018
Financial Guidance and Long-Term Outlook" 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 $1.15 for the remainder of 2018. Actual results will vary
as a result of exchange rate variability.
|
WEST
PHARMACEUTICAL SERVICES
CASH FLOW
ITEMS
(UNAUDITED)
(in
millions)
|
|
|
Nine Months Ended
September 30,
|
|
2018
|
2017
|
Depreciation and
amortization
|
$78.1
|
$71.8
|
Operating cash
flow
|
$215.4
|
$181.8
|
Capital
expenditures
|
$74.7
|
$101.3
|
WEST
PHARMACEUTICAL SERVICES
FINANCIAL
CONDITION
(UNAUDITED)
(in
millions)
|
|
|
As of
September 30, 2018
|
As of
December 31, 2017
|
Cash and cash
equivalents
|
$297.3
|
$235.9
|
Debt
|
$196.2
|
$197.0
|
Equity
|
$1,351.8
|
$1,279.9
|
Working
capital
|
$561.3
|
$464.0
|
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
Quintin.Lai@westpharma.com
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SOURCE West Pharmaceutical Services, Inc.