West Announces Second-Quarter 2018 Results
Executive Summary
- Second-quarter 2018 reported net sales of
$447.5 million grew 12.6% over the prior-year quarter. At constant currency, organic sales growth was 9.0%. - Second-quarter 2018 reported-diluted EPS was
$0.75 , as compared to$0.51 in the same period last year. Excluding restructuring charges and a non-recurring tax benefit, second-quarter 2018 adjusted-diluted EPS was$0.70 , as compared to adjusted-diluted EPS of$0.66 in the same period last year. - The Company reaffirms full-year 2018 net sales guidance range of
$1.720 billion to $1.730 billion and full-year 2018 adjusted-diluted EPS range of$2.80 to $2.90 . - Last week, West officially opened its
Waterford, Ireland facility, a global center of excellence for West's advanced manufacturing network. TheWaterford site will also be among the first in West's global manufacturing network to commercialize Westar® Select, the latest in its portfolio of high-value product solutions.
"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
"Second-quarter 2018 sales performance was fueled by solid Proprietary Products segment sales, led by double-digit high-value products growth, and robust growth in the Contract-Manufactured Products segment," said
"We expanded both gross profit and reported- and adjusted-operating profit margins. A combination of high-value product sales growth and cost efficiencies more than offset unabsorbed overhead at our
Second-Quarter Financial Results (comparisons to prior-year period)
Second-quarter 2018 reported net sales of
Proprietary Products segment organic sales growth was 6.9%. By market unit, second-quarter 2018 Proprietary Products segment sales growth was led by double-digit growth in Generics and high-single digit growth in Pharma, along with low-single digit growth in Biologics. High-value products returned to double-digit organic sales growth, led by solid adoption in the Pharma and Generics market units.
Contract-Manufactured Products segment organic sales growth was 16.9%, despite the loss of a consumer-product contract manufacturing customer in early 2018. This growth was fueled by demand for diagnostic and drug delivery devices, offsetting declines in the mature consumer-product category. Second-quarter 2018 performance also benefited from timing of tooling orders, as well as initial orders from recent competitive takeaways.
Second-quarter 2018 gross profit margin was 31.8%, compared to 31.4% in the same period last year, an increase of 40 basis points. Correlated with double-digit sales of high-value products, Proprietary Products segment gross margin increased year-over-year by 180 basis points, more than offsetting unabsorbed overhead from the start-up of our
The Company has 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.
Second-quarter 2018 reported operating profit margin was 13.5%, as compared to 10.6% in the same period last year. Excluding restructuring charges and charges associated with the
For the second-quarter 2018, reported income tax expense was
During the second-quarter 2018, the Company repurchased 260,000 shares of common stock at a cost of
Full-Year 2018 Financial Guidance
The Company reaffirms full-year 2018 net sales guidance range of
The Company also reaffirms full-year 2018 adjusted-diluted EPS guidance to be in a range of
The Company is revising its 2018 capital spending guidance to be in a range of between
Second-Quarter Conference Call
The Company will host a conference call to discuss the results and business expectations at
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
Forward-Looking Statements
Certain forward-looking statements are included in this release. They use such words as "reaffirmed," "reaffirms," "will," "on track," "achieve," "expected," "increasing," "to be," "continue," "continues," "assumes," "offsetting," "estimates," "revising" 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
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. 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 financial 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:
Restructuring and related charges – During the three months ended
Tax law changes – During the three and six months ended
WEST PHARMACEUTICAL SERVICES, INC. |
||||||||
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||
2018 |
2017 |
2018 |
2017 |
|||||
Net sales |
$447.5 |
100% |
$397.6 |
100% |
$863.2 |
100% |
$785.3 |
100% |
Cost of goods and services sold |
305.3 |
68 |
272.6 |
69 |
586.6 |
68 |
526.1 |
67 |
Gross profit |
142.2 |
32 |
125.0 |
31 |
276.6 |
32 |
259.2 |
33 |
Research and development |
10.8 |
2 |
10.0 |
2 |
20.4 |
3 |
20.3 |
2 |
Selling, general and administrative expenses |
70.0 |
16 |
61.3 |
15 |
138.3 |
16 |
123.8 |
16 |
Other expense, net |
1.1 |
- |
11.7 |
3 |
4.2 |
- |
12.6 |
2 |
Operating profit |
60.3 |
14 |
42.0 |
11 |
113.7 |
13 |
102.5 |
13 |
Interest expense, net |
1.9 |
- |
1.9 |
- |
3.2 |
- |
3.7 |
- |
Other nonoperating income |
(1.7) |
- |
(0.6) |
- |
(3.3) |
- |
(1.4) |
- |
Income before income taxes |
60.1 |
14 |
40.7 |
11 |
113.8 |
13 |
100.2 |
13 |
Income tax expense |
6.0 |
1 |
2.9 |
1 |
18.5 |
2 |
5.1 |
1 |
Equity in net income of affiliated companies |
(2.0) |
- |
(1.0) |
- |
(4.4) |
- |
(4.6) |
1 |
Net income |
$56.1 |
13% |
$38.8 |
10% |
$99.7 |
11% |
$99.7 |
13% |
Net income per share: |
||||||||
Basic |
$0.76 |
$0.53 |
$1.35 |
$1.35 |
||||
Diluted |
$0.75 |
$0.51 |
$1.33 |
$1.32 |
||||
Average common shares outstanding |
73.6 |
73.9 |
73.8 |
73.6 |
||||
Average shares assuming dilution |
75.0 |
75.8 |
75.2 |
75.7 |
WEST PHARMACEUTICAL SERVICES |
||||
Three Months Ended |
Six Months Ended |
|||
June 30, |
June 30, |
|||
Net Sales: |
2018 |
2017 |
2018 |
2017 |
Proprietary Products |
$346.0 |
$312.8 |
$672.2 |
$621.6 |
Contract-Manufactured Products |
101.5 |
84.9 |
191.0 |
164.0 |
Eliminations |
- |
(0.1) |
- |
(0.3) |
Consolidated Total |
$447.5 |
$397.6 |
$863.2 |
$785.3 |
Operating Profit (Loss): |
||||
Proprietary Products |
$71.7 |
$56.7 |
$134.5 |
$121.8 |
Contract-Manufactured Products |
9.0 |
10.5 |
18.5 |
19.3 |
U.S. pension expense |
(2.3) |
(2.3) |
(4.7) |
(4.6) |
Stock-based compensation expense |
(6.0) |
(5.5) |
(9.4) |
(9.0) |
General corporate costs |
(9.9) |
(6.3) |
(19.7) |
(13.9) |
Adjusted Operating Profit |
$62.5 |
$53.1 |
$119.2 |
$113.6 |
Adjusted Operating Profit Margin |
14.0% |
13.4% |
13.8% |
14.5% |
Restructuring and related charges |
(2.2) |
- |
(5.5) |
- |
Venezuela deconsolidation |
- |
(11.1) |
- |
(11.1) |
Reported Operating Profit |
$60.3 |
$42.0 |
$113.7 |
$102.5 |
Reported Operating Profit Margin |
13.5% |
10.6% |
13.2% |
13.1% |
WEST PHARMACEUTICAL SERVICES |
||||
Reconciliation of Reported and Adjusted Operating Profit, Net Income and Diluted EPS |
||||
Three months ended June 30, 2018 |
Operating |
Income |
Net |
Diluted |
Reported (GAAP) |
$60.3 |
$6.0 |
$56.1 |
$0.75 |
Restructuring and related charges |
2.2 |
0.6 |
1.6 |
0.01 |
Tax law changes |
- |
4.8 |
(4.8) |
(0.06) |
Adjusted (Non-GAAP) |
$62.5 |
$11.4 |
$52.9 |
$0.70 |
Six months ended June 30, 2018 |
Operating |
Income |
Net |
Diluted |
Reported (GAAP) |
$113.7 |
$18.5 |
$99.7 |
$1.33 |
Restructuring and related charges |
5.5 |
1.2 |
4.3 |
0.05 |
Tax law changes |
- |
4.5 |
(4.5) |
(0.06) |
Adjusted (Non-GAAP) |
$119.2 |
$24.2 |
$99.5 |
$1.32 |
Three months ended June 30, 2017 |
Operating |
Income |
Net |
Diluted |
Reported (GAAP) |
$42.0 |
$2.9 |
$38.8 |
$0.51 |
Venezuela deconsolidation |
11.1 |
- |
11.1 |
0.15 |
Adjusted (Non-GAAP) |
$53.1 |
$2.9 |
$49.9 |
$0.66 |
Six months ended June 30, 2017 |
Operating |
Income |
Net |
Diluted |
Reported (GAAP) |
$102.5 |
$5.1 |
$99.7 |
$1.32 |
Venezuela deconsolidation |
11.1 |
- |
11.1 |
0.15 |
Adjusted (Non-GAAP) |
$113.6 |
$5.1 |
$110.8 |
$1.47 |
WEST PHARMACEUTICAL SERVICES |
||||
Reconciliation of Net Sales to Net Sales at Constant Currency (1) |
||||
Three months ended June 30, 2018 |
Proprietary |
CM |
Eliminations |
Total |
Reported net sales (GAAP) |
$346.0 |
$101.5 |
$ - |
$447.5 |
Effect of changes in currency translation rates |
(11.6) |
(2.4) |
- |
(14.0) |
Net sales at constant currency (Non-GAAP) (1) |
$334.4 |
$99.1 |
$ - |
$433.5 |
Six months ended June 30, 2018 |
Proprietary |
CM |
Eliminations |
Total |
Reported net sales (GAAP) |
$672.2 |
$191.0 |
$ - |
$863.2 |
Effect of changes in currency translation rates |
(34.8) |
(6.5) |
- |
(41.3) |
Net sales at constant currency (Non-GAAP) (1) |
$637.4 |
$184.5 |
$ - |
$821.9 |
(1) |
Net sales at constant currency translates the current-period reported sales of subsidiaries whose |
Reconciliation of Reported-Diluted EPS Guidance to Adjusted-Diluted EPS Guidance |
|
Full Year 2018 Guidance(2)(3) |
|
Reported-diluted EPS guidance |
$2.73 to $2.88 |
Restructuring and related charges |
0.08 to 0.13 |
Tax law changes |
(0.06) |
Adjusted-diluted EPS guidance |
$2.80 to $2.90 |
(2) |
See "Full-Year 2018 Financial Guidance" and "Non-GAAP Financial Measures" in today's |
(3) |
Guidance includes various currency exchange rate assumptions, most significantly the euro |
WEST PHARMACEUTICAL SERVICES |
||
Six Months Ended June 30, |
||
2018 |
2017 |
|
Depreciation and amortization |
$51.9 |
$46.8 |
Operating cash flow |
$127.0 |
$106.0 |
Capital expenditures |
$48.2 |
$67.0 |
WEST PHARMACEUTICAL SERVICES |
||
As of June 30, 2018 |
As of |
|
Cash and cash equivalents |
$225.5 |
$235.9 |
Debt |
$196.4 |
$197.0 |
Equity |
$1,281.9 |
$1,279.9 |
Net debt-to-total invested capital (4) |
N/A |
N/A |
Working capital |
$479.3 |
$464.0 |
(4) |
Net debt and total invested capital are Non-GAAP measures. Net debt is determined by |
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Trademarks and registered trademarks are the property of
Investor Contact:
Vice President, Investor Relations
(610) 594-3318
Quintin.Lai@westpharma.com
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