West Pharmaceutical Services Announces First-Quarter 2017 Results

EXTON, Pa., April 27, 2017 /PRNewswire/ -- West Pharmaceutical Services, Inc. (NYSE: WST) today announced its financial results for the first-quarter 2017 and updated financial guidance for the full-year 2017. 

First-Quarter 2017 Highlights

• Reported net sales of $387.7 million grew 7.1% over the prior-year quarter. Net sales at constant currency grew by 8.7%.
• First-quarter 2017 reported-diluted EPS was $0.81, compared to prior-year quarter's results of reported-diluted EPS of $0.30 and adjusted-diluted EPS of $0.53. First-quarter 2017 reported-diluted EPS includes the impact of a tax benefit of $0.21 associated with the adoption of guidance issued by the Financial Accounting Standards Board (FASB) regarding share-based payment transactions.
• Reaffirming full-year 2017 sales and raising reported-diluted EPS guidance. Full-year 2017 sales guidance is unchanged and is expected to be between $1.585 billion to $1.610 billion. Full-year 2017 reported-diluted EPS guidance is now expected to be between $2.66 and $2.78, compared to the prior range of $2.45 and $2.57, and reflects the previously-discussed adoption of FASB-issued guidance.

"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

"Our first quarter performance of solid organic sales growth with expansion in both gross profit and operating profit margins shows the benefit of providing critical integrated containment and delivery solutions for injectable medicines to a broad, global customer base," said Eric M. Green, President and Chief Executive Officer.  "We continue to see overall customer demand increase for high-quality components, safe and user-friendly administration devices, and innovative containment and delivery solutions and services."

Mr. Green concluded, "Our market-led strategy is strengthening our connections with customers.  Our end markets remain solid and growing, and we are reaffirming 2017 full-year organic sales growth of 7% to 9%.  While customer-specific issues may sometimes affect quarter-to-quarter variability in order volume, we feel that the strategic focus on high-value products, contract manufacturing, and patient self-injection platforms will drive our performance to the high end of our long-term 6% to 8% organic sales growth range."

Financial Results (comparisons to prior-year period)

First-quarter 2017 reported net sales were $387.7 million, compared to $362.1 million.  Reported net sales growth was 7.1%.  On a constant-currency basis, organic sales growth was 8.7%.

Proprietary Products segment reported net sales were $308.8 million, compared to $290.8 million.  Reported net sales growth was 6.2%.  Organic sales growth was 8.0%, led by high-single digit growth of high-value products.  The Pharma market unit had double-digit organic sales growth and the Biologics market unit had mid-single digit growth.  As expected, the Generics market unit saw organic sales decline in the mid-single digits as customers continued to reduce safety-stock acquired in the first half of 2016.

Committed orders in the Proprietary Products segment at March 31, 2017, were $408 million, a decrease of 5% at constant currency compared to March 31, 2016, and an increase of 8% at constant currency compared to December 31, 2016.

Contract-Manufactured Products segment reported net sales were $79.1 million, compared to $71.6 million.  Reported net sales growth was 10.6%, and organic sales growth was 11.4%.  Segment growth in the quarter benefited from the initial commercial ramp-up of large projects that commenced in the second half of 2016, as well as a favorable year-over-year comparison with a softer sales quarter in 2016.

Gross profit margin improved to 34.6%, an increase of 60 basis points.  Proprietary Products segment gross profit margin was 39.2%, an increase of 40 basis points due to price increases and increased efficiencies, partially offset by higher overhead costs, salaries and unfavorable volume and mix.  Contract-Manufactured Products segment gross profit margin was 16.3%, an increase of 160 basis points due to favorable volume, mix and price and increased efficiencies, partially offset by salary increases and increased plant depreciation. 

First-quarter 2017 reported operating profit was $61.3 million, which represented an operating profit margin of 15.8%.  First-quarter 2016 reported operating profit was $30.0 million.  Excluding restructuring and related charges and a Venezuela currency devaluation, first-quarter 2016 adjusted operating profit was $55.6 million, which represented an adjusted operating profit margin of 15.4%.  On an adjusted basis, first-quarter 2017 operating profit margin expanded by 40 basis points, primarily driven by higher gross profit margin.

Income tax expense in the quarter was $2.2 million, which represented an effective tax rate of 3.6%.  The effective tax rate reflects the impact of a tax benefit of $15.9 million associated with the previously-discussed adoption of FASB-issued guidance.  Excluding this tax benefit, the effective tax rate used in determining adjusted net income was 30.2% as compared to 28.0% in the prior-year quarter, due to increased profitability in higher-tax rate jurisdictions.

During the quarter, 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

West's expected full-year 2017 net sales, margin and EPS guidance are as follows:

The principal currency assumption used in preparing these estimates is the translation of the euro at $1.05 for the remainder of 2017.

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 29.5%.  These tax benefits will typically be largest in the first quarter of a calendar year due to the expiration of most stock options.  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 $11 million of net income benefit in the first quarter of 2016 and would have had $18 million for the full-year 2016, resulting in an EPS benefit of $0.15 in the first-quarter 2016 and $0.24 for the full-year 2016.

The Company estimates its 2017 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 3829053.

A live broadcast of the conference call will be available at the Company's web site, 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 4, 2017, by dialing 855-859-2056 (U.S.) or 404-537-3406 (International) and entering conference ID 3829053.

Forward-Looking Statements

Certain forward-looking statements are included in this release.  They use such words as "reaffirming," "raising," "unchanged," "expected," "reflects," "continue," "see," "increase," "strengthening," "remain," "may affect," "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:

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