West Pharmaceutical Services, Inc. (WST)

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West Pharmaceutical Services, Inc. (WST)

Q3 2008 Earnings Call

November 4, 2008 9:00 am ET


Theresa Kelleher - IR, FD

Don Morel - Chairman and CEO

Bill Federici - VP and CFO


Arnie Ursaner - CJS Securities

Larry Marsh - Barclays Capital

Ross Taylor - C.L. King

James Sidoti - Sidoti & Company



Good morning and welcome to the West third quarter earnings conference call. At this time, all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now, I will turn the conference over to Ms. Theresa Kelleher from FD. Ma'am, you may begin.

Theresa Kelleher

Thank you. Good morning, and welcome to West third quarter 2008 results conference call. As you know, we issued our results this morning. The release has been posted on the company's website located at, www.westpharma.com. If you have not received a copy of this announcement, please call FD at 212-850-5600, and a copy will be sent to you.

Before we begin, I would like to remind you that certain statements that may be made by management of the company may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements set forth anticipated results, based on management's plans and assumptions. Such statements give our current expectations or forecast of future events. They do not relate strictly to historical or current facts. In particular, these include statements concerning future actions, future performance or results of current and anticipated product, sales efforts, expenses, the outcome of contingencies such as legal proceedings and financial results.

We have tried wherever possible to identify such statements by using words such as estimate, expect, intend, believe, plan, anticipate, and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or condition. We cannot guarantee that any forward-looking statement will be realized. If known or unknown risks or uncertainties materialize, or if underlying assumptions are inaccurate, actual results could differ materially from past results, and those expressed or implied in any forward-looking statements. For a non-exclusive list of those factors, which could cause actual result to differ from expectations, please refer to the factors listed in today's press release.

Investors are also advised, however, to consult any further disclosures the company makes on related subjects in the company's 10-K, 10-Q and 8-K reports. The company undertakes no obligation to publicly update forward-looking statements whether as a result of new information, future events or otherwise. In addition, management may make reference to adjusted operating profits and adjusted diluted EPS that are considered non-GAAP financial measures. These measures have no standardized meaning prescribed by US GAAP and therefore, may not be comparable to and should not be viewed as a substitute for US GAAP operating income and diluted EPS.

Reconciliations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in the materials accompanying this morning's earnings release. This call is being recorded on behalf of West and is copyrighted material. It cannot be rerecorded or rebroadcast without the company's express permission. Your participation on this call implies your consent to our taping. Once management has concluded their remarks, we will open the floor for questions.

At this time, I would like to turn the call over to Dr. Don Morel, Chairman and CEO.

Don Morel

Thanks very much, Theresa, and good morning, everyone. Welcome to West's third quarter conference call. Thank you for taking time to join us this morning. As Theresa mentioned, joining me for the call are Bill Federici, West's Chief Financial Officer, and Mike Anderson, our Treasurer and primary Investor Relations contact.

I will begin today's call with a brief summary of our consolidated results and then provide a quick update on our ongoing expansion programs and major new product development projects, then close with an overview of our expectations for the fourth quarter and outlook for 2009. I will then turn the call over to Bill, who will take you through our quarterly results in greater detail.

We reported consolidated revenues of $256.2 million for the quarter, up 5.6% over the third quarter of 2007. Third quarter diluted EPS from continuing operations came in at $0.40 per share versus the $0.36 that we reported last year.

We are satisfied with these results in light of the unprecedented turmoil in the global financial markets, which reached its peak in mid-September and considering that the third quarter is traditionally the hardest for us to forecast, because of European summer plant shutdown and changes in inventory plans by our customers during the last half of the year. Predicting customer order patterns in the third quarter is further complicated by the fact that several of our large customers end their fiscal years on September 30.

As we mentioned in our press release, comparisons with 2007 are difficult due to non-recurring sales of erythropoietin stimulating agent, or ESA, packaging components and Exubera inhaler devices, the impact of a settlement with Nektar Therapeutics, restructuring charges, and several discrete tax items in both periods.

Excluding the effect of these items, adjusted operating profit fell slightly to $19.7 million in the quarter, resulting in adjusted earnings per diluted share of $0.37 versus $0.42 in the third quarter of 2007.

Excluding the $14.1 million in non-recurring sales from the third quarter of 2007 and the related $0.10 profit impact, sales on a constant exchange rate basis grew approximately 8% and adjusted earnings per share increased from $0.32 to $0.37 per share.

Our gross margin was 25.7% compared to 26.5% in 2007, with the decline attributable to product mix, inefficiencies resulting from the plant shutdowns in Europe and a significant lag in our ability to recover raw material cost increases under the terms of our supply agreements.

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