West Pharmaceutical Services, Inc. (WST)

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West Pharmaceutical Services Inc. (WST)

Q1 2014 Earnings Conference Call

May 1, 2014 09:00 am ET

Executives

Don Morel – Chairman & Chief Executive Officer

Bill Federici – Senior Vice President & Chief Financial Officer

John Wollford – Westwicke Partners (IR)

Analysts

Arnie Ursaner – CJS Securities

Rafael Tejada – Bank of America Merrill Lynch

Ross Taylor – CL King and Associates

Presentation

Operator

Welcome to the West Pharmaceutical Services Q1 2014 Results Conference Call. (Operator instructions.) And 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 Q1 2014 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’ve 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 on the Investor tab under Presentation Materials 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’s 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 laws 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 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

Thank you, John, good morning everyone and welcome to West’s Q1 2014 Earnings Call. This morning Bill and I will review our results and discuss our outlook and financial guidance for the remainder of the year. We will again refer to a slide deck to support our prepared remarks that can be accessed through our website at www.westpharma.com under Investors. In the event you cannot access the presentation our commentary will cover the information both in this morning’s release and the slides.

Beginning with Slide 3 which summarizes our Q1 performance, a modest increase in sales coupled with a less-than-favorable mix in the Packaging Systems segment produced a softer start to the year than we would normally see. As we discussed in our February call this was not completely unexpected and we do not believe it reflects any fundamental change in the underlying drivers of our business.

On a consolidated basis sales rose 1.2% to $346.8 million excluding the effects of currency. Revenues were effectively flat in the Packaging Systems segment while sales increased 5.6% in the Delivery Systems segment driven primarily by demand for contract manufacturing services. The less than favorable mix produced a decline in our gross margin, leading to earnings of $0.38 per fully diluted share versus $0.44 in Q1 2013 which was a record year in all respects.

Highlights for the operating segments are shown on Slide 4. For the quarter, Packaging Systems sales of high-value products declined by a little over 6%, primarily as a result of reduced orders for Teflon and FluroTec enclosures. This was built into our full year operating plan given the substantial growth these product lines experienced throughout 2013. Our analysis of current order flows and the rapid increase in our Packaging Systems backlog through March gives us confidence that this issue is largely behind us.

In the Delivery Systems segment slight declines in sales of proprietary products like Safety, Reconstitution and CZ were more than offset by continued strength in the contract manufacturing business. CZ sales for the period were $3 million comprised mostly of vial and cartridge sales. Sales of the 1ml long Insert needle syringe were modest and are expected to be sporadic throughout the year depending on customer pre-commercial use for testing and validation requirements.

Despite the relatively slow start to the year we see no fundamental changes to the primary growth drivers of our business over the long term. For the next three quarters we expect our order book to steadily improve, leading to a strong finish for the year. Indeed as I mentioned earlier, our backlog strengthened substantially at the end of Q1, increasing 11% versus year-end levels. More importantly the composition of the backlog indicates that orders for high-value products are returning to historical patterns and we should see high-single to low-double digit growth through the end of the year.

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