West Pharmaceutical Services, Inc. (WST)

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West Pharmaceutical Services, Inc. (WST)

Q1 2013 Earnings Call

May 2, 2013 9:00 am ET


John Woolford – Investor Relations-Westwicke Partners

Donald E. Morel – Chairman and Chief Executive Officer

William J. Federici – Vice President and Chief Financial Officer


Arnie Ursaner – CJS Securities

Ross Taylor – CL King



Welcome to the West Pharmaceutical Services First Quarter 2013 conference call. At this time, all participants are in a listen-only mode. If you require operator assistance at any time, please press star then zero on your telephone keypad, and a coordinator will be pleased to assist you. (inaudible) this call is being recorded on behalf of West and is copyrighted material. It cannot be rerecorded or rebroadcast without the company’s expressed permission. Your participation in this call implies your consent to our taping. If you have any objection, you may disconnect at this time.

Now I’d like to turn the call over – sorry, turn today’s meeting over to Mr. John Woolford from Westwicke Partners. Sir, you may begin.

John Woolford

Thank you, operator. Good morning everyone and welcome to West’s first quarter 2013 results conference call. We issued our financial results this morning and the release has been posted in the Investors section on the company’s website located at www.westpharma.com. If you have not received a copy of this announcement, please call Westwicke Partners at 443-213-0500 and a copy will be sent to you immediately.

Posted on the company’s website is a slide presentation that management will refer to in their remarks today. The presentation is in PDF format. Should you require a link to a free download of software that will enable users to view the presentation, it is also available on the website.

I remind you that statements made by management on this call and in the presentation will contain forward-looking statements within the meaning of US Federal Securities law and that are based on management’s beliefs and assumptions, current expectations, estimates and forecasts.

Many of the factors that will determine the company’s future results are beyond the ability of the company to control or predict. These statements are subject to known or unknown risks or uncertainties and therefore actual results could differ materially from past results and those expressed or implied in any forward-looking statement.

For a non-exclusive list of factors which could cause actual results to differ from expectations, please refer to today’s press release, as well as any further disclosures the company makes on related subjects in the company’s 10-K, 10-Q, and 8-K reports.

In addition, during today’s call management may make reference to non-GAAP financial measures including adjusting operating profit and adjusted diluted EPS. Reconciliations and limitations of the non-GAAP financial measures to the most comparable financial results prepared in conformity to GAAP are provided in materials accompanying this morning’s earnings release.

At this time, I would like to turn the call over to Don Morel, West’s Chairman and CEO. Don?

Donald Morel

Thank you very much, John, and good morning everyone. Welcome to this morning’s conference call, where both Federici and I will be reviewing West’s Q1 2013 performance and our outlook for the remainder of the year. As in past calls, we will refer to a PowerPoint slide deck to support our commentary. The deck can be accessed via our website under Investors. However, if you cannot access the file, the information in the slides is covered in both this morning’s release and our prepared remarks.

Beginning with slide number three, West had a very good first quarter with consolidated revenues increasing 7.2% to just over $339 million, excluding currency effects as a result of ongoing strong demand in both operating segments. Sales in the packaging system segment grew by 6.6% and delivery systems grew by 9.1%, again excluding the effects of currency.

Our consolidated gross margin for the quarter improved to 1 core percentage point to 32.9%, and adjusted operating profit improved by $1 million when compared with the prior year. Operating profit growth was offset by the combined effects of an increase in SG&A and R&D spending, an increase in variable stock-based incentive compensation, and Venezuela’s currency devaluation. For the quarter, adjusted earnings per share were $0.87, an improvement of $0.04 versus the first quarter of 2012.

Additional segment details are provided on slide number four. Pharmaceutical packaging sales were again driven by volume growth, a positive mix bolstered by higher sales of our advanced packaging products such as Westar ready-to-use components, FluroTec, and Envision, and higher selling prices in key product lines. Delivery system sales grew as a result of strong demand for contract manufacturing services with existing healthcare customers, orders for CZ vials and cartridges, and proprietary devices for reconstitution and safety. Overall sales of proprietary systems accounted for 25% of total delivery system revenue, up from just over 21% in the first quarter of 2012.

Our current backlog of firm committed orders at the end of the quarter grew again, reaching almost $375 million, an increase of approximately 16% compared to the end of the first quarter of 2012, and approximately 3% from the fourth quarter of 2012, excluding currency. This sequential pattern is more in line with historical norms, as customers typically place larger orders at the outset of the year and then work down inventory through the first two quarters. As was the case at the end of 2012, the composition of the backlog is currently weighted towards the high-value products.

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