West Pharmaceutical Services Announces First Quarter 2016 Results

EXTON, Pa., April 28, 2016 /PRNewswire/ -- West Pharmaceutical Services, Inc. (NYSE: WST) today announced its financial results for the first quarter 2016 and updated financial guidance for the full-year 2016. 

First Quarter 2016 Highlights

• Reported net sales of $362.1 million grew 7.8% over the prior-year quarter. Net sales at constant currency grew by 10.5%.
• Adjusted operating profit margin of 15.4% increased by 120 basis points over the prior-year quarter.
• First-quarter 2016 reported diluted EPS was $0.30. Adjusted diluted EPS was $0.53, a growth of 18% over the prior-year quarter. Excluding an additional $0.02 negative EPS impact in currency effects, first-quarter adjusted diluted EPS would have grown by 24% over the prior-year quarter.
• Raising lower-end of full-year 2016 sales and adjusted diluted EPS guidance. Full-year sales are expected to be between $1.49 billion to $1.51 billion compared to prior range of $1.485 billion to $1.51 billion. Full-year 2016 adjusted diluted EPS is now expected to be between $2.12 and $2.25 compared to prior range of $2.10 and $2.25.

"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

"We had a good start to the year with over 10% organic sales growth and increased gross and adjusted operating margins," said Eric M. Green, President and Chief Executive Officer. "I am pleased with these results, as this is the Company's first quarter operating within a newly restructured organization that focuses on the unique needs of our customers. The Commercial group, now organized into two business segments (Proprietary Products and Contract Manufactured Products) delivered broad-based growth in all geographical regions and in the three market groups of Biologics, Generics and Pharma. We continue to see growing demand for our high-value product offerings including Westar RS^®, Westar RU^®, FluroTec^® and Daikyo components."

"Our Global Operations group had a successful start to the year with improvements in throughput and lean manufacturing, both of which contributed to organic sales growth and gross margin expansion in the quarter."

"We continue to increase the number of customers that are evaluating our SmartDose^® wearable injector using the Daikyo Crystal Zenith^® silicone-free container system. During this quarter, we announced the development of more advanced and novel wearable injectors, leveraging the flexibility of Daikyo Crystal Zenith^® cartridges and Flurotec^® laminated plungers."

Mr. Green concluded, "We are reaffirming our 2016 guidance for 6% to 8% organic sales growth. With the good start to the year, we are raising the lower-end of our full-year 2016 sales guidance to a new range of $1.49 billion to $1.51 billion and adjusted diluted EPS guidance to a new range of $2.12 to $2.25."

First Quarter 2016 Results

Gross profit margin improved to 34.0%, an increase of 130 basis points compared to the prior-year quarter. The improvement reflects a more profitable sales mix, volume-related efficiencies and lower raw material costs, offset in part by increased labor and overhead costs, including depreciation and repairs.

Excluding $22.9 million of restructuring and related charges and $2.7 million from the devaluation of the Venezuela currency, first quarter 2016 adjusted operating profit was $55.6 million. First quarter 2016 adjusted operating profit margin was 15.4%, an increase of 120 basis points compared to the 2015 quarter. The improvement reflects higher gross profit margin and lower SG&A spending as a percentage of sales offset by higher R&D spending as a percentage of sales to support new initiatives to develop novel containment and delivery systems.

First Quarter 2016 Business Segment Results

Proprietary Products ($290.8 million, growth of 9.6% over prior-year quarter)

Organic sales growth was 13.0%, led by double-digit sales growth in the Biologics and Generics markets with mid-single digit sales growth in Pharma. High-value product offerings had organic sales growth of 22%, led by Westar^®, FluroTec^® and Daikyo components, Crystal Zenith^® containers and devices, and administration systems. High-value product offerings represented more than 50% of Proprietary Products sales for the quarter.

The Proprietary Products backlog of committed orders at March 31, 2016 was $437.2 million, an increase of 24% at constant currency compared to March 31, 2015 and 5% at constant currency compared to December 31, 2015.

Operating profit for the segment was $61.9 million, resulting in an operating margin of 21.3%, compared to $54.2 million and 20.4% in the 2015 period due to operational efficiencies, a favorable mix of sales, offset by overhead costs, normal inflationary increases in cost of goods, and an increase in R&D expense related to personnel additions and new developmental projects.

Contract-Manufactured Products ($71.6 million, 1.2% growth over prior-year quarter)

Organic sales growth was 1.4%, led by customers ordering products for core drug delivery systems and diagnostics. A favorable mix of products sold was offset by the pass-through to customers of the decrease in plastic resin prices during the quarter.

Operating profit for the segment was $7.0 million, resulting in an operating profit margin of 9.8%, compared to $6.2 million and 8.8% in the 2015 period. The margin increase was partially driven by a 30 basis point gross profit margin improvement, as the favorable mix of products sold were partially offset by increased overhead costs.

Corporate and Other

General corporate costs increased $0.6 million to $6.5 million, as a result of higher costs related to professional services. Stock-based compensation costs declined $0.7 million from the prior-year period. U.S. pension expense increased $0.8 million, to $2.2 million. 

The annual effective tax rate (ETR) used in determining adjusted net income was 28.0% as compared to 28.4% in the same quarter of 2015.

During the quarter, the Company repurchased 142,800 shares for $9.1 million. There are 557,200 shares remaining to be repurchased in the program authorized in December 2015.

Full-Year 2016 Financial Guidance

West's expected full-year 2016 revenue, margin and EPS guidance are as follows:

The principal currency assumption used in preparing these estimates is the translation of the euro at $1.12 for the remainder of 2016. The comparable weighted-average euro/U.S. dollar exchange rate for 2015 was $1.11.

The Company expects that its annual effective tax rate, used in determining adjusted net income and adjusted diluted EPS, will be approximately 28.5%.

The Company estimates its 2016 capital spending at between $150 million and $175 million.

First-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 92201943.

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 site three hours after the live call and will be available through Thursday, May 5, 2016, by dialing 877-930-8295 (U.S.) or 253-336-8738 (International) and entering conference ID 92201943.

Forward-Looking Statements

Certain forward-looking statements are included in this release. They use such words as "may," "will," "continue," "expects," "estimates," "see," "preparing," "raising," "reaffirming," 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.

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