West Pharmaceutical Services, Inc. (WST)

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West Pharmaceutical Services Inc. (WST)

Q2 2013 Earnings Conference Call

August 1, 2013 9:00 a.m. ET


Donald E. Morel Jr., Ph.D. – Chairman and Chief Executive Officer

William J. Federici – Vice President and Chief Financial Officer

Michael A. Anderson – Treasurer and Vice President

John Woolford - Investor Relations-Westwicke Partners


Arnold Ursaner – CJS Securities

Sean Dodge – Jefferies & Company

Ross Taylor – CL King and Associates



A very good day to you ladies and gentlemen. Welcome to the West Pharmaceutical Services Second Quarter 2013 conference call. At this time, all participants are in a listen-only mode. 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 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 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 second 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. Please note that we are issuing a corrected release which should be available soon. We are correcting the upper end of the 2013 GAAP fully diluted EPS range to $3.28. If you have not received a copy of the 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’d 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 West’s second quarter Analyst call. I’m joined by Bill Federici, West’s Chief Financial Officer; and Mike Anderson, our Treasurer and Primary Investor Relations Contact.

As you know, West released our Q2 earnings earlier this morning and during this call, Bill and I will be discussing our recent performance and our outlook for the second half of the year. As in past calls, we will refer to a PowerPoint slide deck to support our remarks which 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.

Slide number 3 lays out a few highlights from the quarter and today’s announcements. First, results were very positive for both businesses. We’re growing sales, expanding margins and higher earnings per share. Those results in the quarter are a factor in raising our EPS expectations for the full year. I’ll come back to those in a moment and Bill will go into greater detail during his commentary.

We realized an important milestone in the quarter, receiving a $20 million exclusivity fee from a customer for the use of SmartDose in a single therapeutic area. We will recognize that income over the 13 year life of the agreement. And so it is not a major factor in our current results. It is however a major marker in terms of the state of the technology and while the customer and drug remain confidential, we are very excited about the future prospects for this platform.

In addition to our results, we also announced today that we will affect the two-for-one stock split in September. This is the second split in the last 10 years and is symbolic of our confidence in West’s future. In connection with the split, we also announced today that West’s Board approved an increase in our quarterly dividend by $0.01, effective in the fourth quarter. This increase marks the 21st consecutive yearly dividend increase for West and is also indicative of our confidence and the long term prospects for the business.

Turning to some additional financial highlights on Slide number 4, consolidated sales increased to $344.5 million or by 5.7%, excluding currency effects as a result of ongoing strong demand across both operating segments. Our consolidated gross margin for the quarter improved by 1.8 margin points to 32.2%, and operating profit improved by $3 million to $42.5 million when compared with the prior year period. For the quarter, adjusted earnings per share were $0.86, versus $0.79 during the second quarter of 2012.

Read the rest of this transcript for free on seekingalpha.com