West Pharmaceutical Services, Inc. (WST)

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West Pharmaceutical Services, Inc. (WST)

Q4 2013 Earnings Conference Call

February 20, 2014 09:00 ET


John Woolford - Investor Relations, Westwicke Partners

Don Morel - Chairman and Chief Executive Officer

Bill Federici - Chief Financial Officer

Mike Anderson - Treasurer


Arnie Ursaner - CJS Securities

Rafael Tejada - Bank of America-Merrill Lynch

Ross Taylor - CL King



Welcome to the West Pharmaceutical Services Fourth Quarter and Full Year 2013 Results Conference Call. At this time, all participants are in a listen-only mode. (Operator Instructions) 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 objections, you may disconnect at this time.

And now I’d like to turn today’s meeting over to Mr. John Woolford from Westwicke Partners. Sir, you may begin.

John Woolford - Investor Relations, Westwicke Partners

Thank you, operator. Good morning everyone and welcome to West’s fourth quarter and full year 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, 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 U.S. 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 that 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 adjusted 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?

Don Morel - Chairman and Chief Executive Officer

Thank you, John and good morning everyone. Joining me for today’s call are Bill Federici, West’s Chief Financial Officer and Mike Anderson, our Treasurer and Primary Investor Relations contact. This morning Bill and I will review our fourth quarter 2013 results and discuss our outlook and financial guidance for 2014. To support our commentary, we will refer to a PowerPoint slide deck that can be accessed through our website, www.westpharma.com under Investors. In the event you cannot access the file, the information in the slides is covered in both this morning’s release and our remarks.

Turning to some highlights for the fourth quarter as illustrated on Slide #3. West finished 2013 with a solid fourth quarter generating adjusted earnings of $0.38 per share versus $0.30 in the fourth quarter of 2012, an increase of more than 25%. Sales on a constant currency basis were up just over 5% at $342.7 million and our consolidated gross margin improved by 0.8 percentage points. Sales growth was driven by a slightly more favorable product mix and price increases in Pharmaceutical Packaging and higher contract manufacturing revenues and proprietary product sales in the Delivery Systems group.

Slide 4 provides a summary of our fourth quarter financial performance. Slide 5 provides operating highlights for both the Packaging Systems and Delivery Systems segments. For the quarter, Packaging Systems sales increased 4.5% led by high-value Envision and FluroTec components. The backlog decreased slightly as our manufacturing team focused on reducing lead time and back orders for some key products. Sales in the Delivery Systems segment increased 7% led by increased sales of the éris safety system and contract manufacturing services.

Our full year financial performance was summarized on Slide 6. 2013 was a record year for West. Sales grew 7.2% on a consolidated currency neutral basis to $1.37 billion driven by high value product sales and strong international sales growth in pharmaceutical systems. Gross margin and operating margin each improved by 1.2 and 0.7 percentage points on an adjusted basis to 31.8% and 11.9% respectively.

Adjusted earnings per share were $1.63 taking into account the two for one stock split executed in September. We also increased our R&D investment in key programs like SmartDose, while maintaining our capital program to build capacity for high value product lines like Envision, FluroTec and NovaPure. Most importantly we secured the $20 million milestone for SmartDose exclusivity with a major customer and CZ sales for the full year exceeded our initial expectations at the outset of the year driven by cartridge and vial volumes.

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