Form 8-K WEST PHARMACEUTICAL SERV For: Oct 29
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E-mailUNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934
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Date of Report (Date of Earliest Event Reported) October�29, 2014
�WEST PHARMACEUTICAL SERVICES, INC. |
(Exact name of registrant as specified in its charter)
� | � | � | � | � |
Pennsylvania | � | 1-8036 | � | 23-1210010 |
(State or other jurisdiction of Incorporation) | � | (Commission File Number) | � | (IRS Employer Identification No.) |
� | � | � | � | � |
530 Herman O. West Drive, Exton, PA | � | � | � | 19341-0645 |
(Address of principal executive offices) | � | � | � | (Zip Code) |
�Registrants telephone number, including area code: 610-594-2900
Not Applicable |
(Former name or address, if changed since last report) |
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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� | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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� | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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� | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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� | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02 Results of Operations and Financial Condition.
On October�30, 2014, West Pharmaceutical Services, Inc. (Company) issued a press release announcing its financial results for the third quarter ended September�30, 2014. A copy of the press release is attached hereto as Exhibit 99.1 and incorporated herein by reference.
Item 7.01 Regulation FD Disclosure.
The information set forth in Item 2.02 Results of Operations and Financial Condition, including the exhibit referred to therein, is incorporated herein by reference.
A copy of the Companys presentation materials used during the call will be available for 30 days through the Investors link at the Companys website, http://www.westpharma.com, and is also attached hereto as Exhibit 99.2 and incorporated herein by reference.
The information in this report (including the exhibits attached hereto) is being furnished pursuant to Item 2.02 and Item 7.01 and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, (Exchange Act) or otherwise subject to the liabilities of that section, nor will it be incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as expressly set forth by specific referencing in such filing.
Item 8.01 Other Events.
On October 29, 2014, the Companys Board of Directors authorized the repurchase of up to $100 million of the Companys common stock from time to time on the open market or in privately negotiated transactions as permitted under Securities Exchange Act of 1934 Rule 10b-18. The extent to which West repurchases its shares and the timing of any repurchases of common stock will be determined by West management based on its evaluation of market conditions and other factors. The program is expected to be completed no later than December 31, 2015.
Item 9.01�Financial Statements and Exhibits.
(d) | Exhibits | � |
� | Exhibit 99.1 | West Pharmaceutical Services, Inc. Press Release, dated October 30, 2014. |
Exhibit 99.2 | West Pharmaceutical Services, Inc. Presentation Slides. | |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
WEST PHARMACEUTICAL SERVICES, INC. | ||
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� | ||
/s/ William J. Federici | ||
William J. Federici | ||
Senior Vice President and Chief Financial Officer | ||
October 30, 2014 | ||
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EXHIBIT INDEX
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Exhibit No. | Description | |
99.1 | West Pharmaceutical Services, Inc. Press Release, dated October 30, 2014. | |
99.2 | West Pharmaceutical Services, Inc. Presentation Slides. | |
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��������Exhibit 99.1
Contacts: | |
West Michael A. Anderson Vice President and Treasurer (610) 594-3345 | Investors and Financial Media: Westwicke Partners John Woolford (443) 213-0506 |
West Announces Third Quarter 2014 Results
- Conference Call Scheduled for 9 a.m. Today -
Exton, PA October 30, 2014 - West Pharmaceutical Services, Inc. (NYSE: WST) today announced its financial results for the third quarter of 2014 and updated its revenue and gross margin guidance for 2014 and its long-term financial objectives.
In addition, the Company announced a $100 million share repurchase program.
Highlights
" | Third quarter sales grew 4.1% on proprietary delivery systems growth |
" | Adjusted diluted EPS was $0.44 vs. $0.39 in the prior-year quarter |
" | 2014 adjusted diluted EPS guidance range of $1.77 to $1.82 |
" | Expects 5% to 8% revenue growth in 2015, excluding currency |
" | Provides long-term financial objectives consistent with prior plans |
Summary comparative results for the third quarter were as follows:
($ millions, except per-share data) | Three Months Ended September 30, | ||||||
� | 2014 | 2013 | |||||
Net Sales | $ | 355.9 | $ | 341.8 | |||
Gross Profit Margin | 30.9 | % | 30.8 | % | |||
Operating Profit | $ | 44.0 | $ | 39.7 | |||
Adjusted Operating Profit(1) | $ | 45.2 | $ | 39.7 | |||
Diluted EPS | $ | 0.43 | $ | 0.37 | |||
Adjusted Diluted EPS(1) | $ | 0.44 | $ | 0.39 | |||
(1) | Adjusted operating profit and adjusted diluted EPS are Non-GAAP measurements. See discussion under the heading Non-GAAP Financial Measures in this release. |
Third quarter 2014 consolidated net sales grew 4.1% (4.2% excluding currency effects) when compared to the third quarter of 2013. Excluding currency effects, Pharmaceutical Delivery Systems (PDS) sales grew 14.8% on higher contract manufacturing and proprietary product sales, and Pharmaceutical Packaging Systems (PPS) sales managed a modest increase when compared to the exceptionally strong third quarter of 2013.
Consolidated gross profit grew $4.4 million to $109.9 million on the sales increase, and yielded a gross profit margin of 30.9%, compared to 30.8% in the third quarter of 2013. The slight margin improvement was due primarily to growth in higher-margin PDS proprietary product sales.
SG&A costs were substantially unchanged at $56.0 million, and declined by 0.7 percentage points to 15.7% of revenue in the period. The relative improvement was due primarily to declining incentive compensation costs. R&D costs were also unchanged at $9.6 million. As a result, adjusted operating profit grew to $45.2 million, 13.9% higher than the $39.7 million reported in the prior-year period, and the adjusted operating profit margin improved to 12.7% of revenue, compared to 11.6% in the 2013 period.
The estimated annual effective tax rate (ETR) on adjusted pre-tax profit for 2014 is 27.9%, compared to 25.8% in determining third-quarter 2013 results. The increase is due to the expiration of the U.S. research tax credit at the end of 2013 and changes in the expected geographic mix of 2014 earnings.
The improved operating results, net of the tax increase, yielded adjusted diluted EPS growth of 12.8%, to $0.44 in the current quarter, compared to $0.39 in the 2013 period. Adjusted diluted EPS excludes a $1.2 million in-process research charge, as described in Non-GAAP Financial Measures.
Executive Commentary
We improved on a very strong third quarter in 2013 with PPS HVP sales matching our outstanding performance over the same prior year period. In the Delivery Systems segment, we generated significant sales growth from our key proprietary products," said Donald E. Morel Jr., PhD, West's Chairman and Chief Executive Officer. "Overall, our consolidated results were consistent with our expectations at the beginning of the quarter, and reflect good execution from our operations.
Our 2014 guidance reflects our expectation that the PPS business will return to a more typical order and growth pattern following several quarters of out-of-cycle ups and downs, particularly in high-value packaging components. Our PPS backlog of committed orders has grown and we expect a strong product mix for the remainder of the year. In PDS, service revenues will decline as a result of a recent divestiture, but demand for administration systems is expected to persist, and pre-clinical demand for the SmartDose" and Daikyo Crystal Zenith� products should show improvement.
This is also the point in our annual business cycle that we update our five-year outlook. Our long-term financial goals remain consistent with those we discussed last year and the revenue and profitability goals we set for 2018 remain achievable. Our new five-year goals are for 2019, when we believe we can achieve sales of between $2.1 billion and $2.3 billion and further improve our operating margins. Importantly, there is no fundamental change in how we expect to accomplish these goals: growth will come from high-value packaging components that meet the increasing quality demands of our customers for their growing products and markets, and from the successful commercialization of several of our delivery
systems technologies. To achieve that, we expect to invest in the range of $150 million to $175 million in each of the next two years in expanding capabilities and capacity to meet the growing demand for high-quality, high-value packaging components, and delivery systems, including our recently announced plans for expanding in Ireland. Weve made great progress in the last year toward achieving these goals, and I am confident we will continue to see increased growth and profitability for West in the years to come.
The Board of Directors has also approved a $100 million share repurchase program reflecting our confidence in our long-term business plan and the strength of our balance sheet and cash flow. We are well positioned to fund our expansion plans, invest in additional growth opportunities, maintain our dividend and buy back shares, all of which will create value for Wests shareholders.
Pharmaceutical Packaging Systems
PPS sales of $251.7 million were about the same as the $251.5 million reported in the third quarter of 2013. High-value pharmaceutical packaging component sales of $110.3 million were 0.9% above the prior-year quarter, excluding currency effects, in which those sales grew by an extraordinary 23.4%. Increased sales of disposable medical device components were partially offset by lower standard pharmaceutical packaging component sales. Tooling and service revenues also declined. Exclusive of currency effects, growth was strongest in the Americas, while European sales were substantially unchanged, and Asian sales declined compared to the prior-year quarter, during which sales grew by over 30%.
Modest sales growth and a marginally less profitable sales mix in the quarter yielded a gross profit of $88.8 million, compared to $89.5 in the prior-year period. As a result, gross profit margin declined 0.3 margin points, to 35.3%.
SG&A costs of $31.9 million were 12.7% of sales, compared to $30.9 million and 12.3% of sales in the prior-year period. Increases were led by compensation, primarily for annual merit pay, and were partially offset by reductions in travel and outside service costs. Research and development costs increased from $3.8 million to $4.5 million due to continued investment in next-generation packaging components and new products.
Operating profit declined $1.8 million, to $52.8 million, yielding an operating margin of 21.0%, compared to 21.7% in the prior-year quarter.
Pharmaceutical Delivery Systems
PDS sales grew 14.9% (14.8% excluding currency effects) to $104.4 million in the third quarter, from $90.8 million reported in the prior-year period. Growth was driven by gains in both proprietary products and contract manufacturing revenues. Proprietary product sales increases included $4.2 million of administration systems products, and $3.4 million of SmartDose sales for customers pre-clinical and clinical trial uses. Sales of proprietary products comprised 27.4% of segment sales in the quarter, compared to 23.6% in the prior-year period. Contract manufacturing revenues grew $5.7 million excluding currency, largely on higher volume from existing programs.
That improved sales mix generated $21.1 million of gross profit, a $5.1 million increase over the comparable 2013 period, yielding a gross profit margin of 20.3%, compared to 17.6% in the same period last year.
SG&A costs of $11.7 million were $1.3 million higher in the quarter, principally for staffing and sales commissions associated with growth in proprietary products. R&D costs of $5.1 million were moderately lower compared to $5.8 million in the 2013 period, with investments focused primarily on the further development of CZ and SmartDose products.
As a result of the sales growth and modest overall cost increases, PDS generated an operating profit of $4.8 million, compared to a loss of $0.1 million in the prior-year period.
Corporate and Other
General corporate costs of $7.1 million compared favorably with $7.3 million in the prior-year period. The decline was primarily due to lower performance-based compensation costs, which were largely offset by increased legal and other outside service costs. U.S. pension expense declined by $0.6 million compared to the 2013 quarter, primarily due to changes in actuarial valuations at the outset of the year. Stock-based compensation expense decreased $1.6 million, due to changes in the Companys share price and anticipated vesting of performance shares when compared to the prior-year period.
Financial Guidance
West reaffirmed its prior EPS guidance for 2014 and updated other elements of its prior financial guidance, as follows:
(in millions, except EPS) | Current 2014 Estimated Guidance | Prior Guidance* | |
Consolidated net sales | $1,410 to $1,435 | $1,430 to $1,460 | |
Consolidated gross profit margin (% of sales) | 31.9% to 32.1% | 32.0% to 32.5% | |
Pharmaceutical Packaging Systems sales | $1,010 to $1,025 | $1,030 to $1,050 | |
Pharmaceutical Packaging Systems gross profit margin (% of sales) | 36.8% to 37.3% | 36.8% to 37.3% | |
Pharmaceutical Delivery Systems sales | $400 to $410 | $400 to $410 | |
Pharmaceutical Delivery Systems gross profit margin (% of sales) | 19.7% to 20.2% | 19.5% to 20.5% | |
Full-Year diluted EPS* | $1.76 to $1.81 | $1.76 to $1.81 | |
Full-Year adjusted diluted EPS* | $1.77 to $1.82 | $1.77 to $1.82 | |
* Prior guidance refers to the EPS guidance provided in the Companys press release dated October 15, 2014 and, for amounts other than EPS, to the guidance provided in the Companys press release dated July 31, 2014.
The principal currency assumption used in preparing these estimates is the translation of the Euro at $1.27 for the remainder of 2014, compared to $1.37 in its prior guidance provided on July 31, 2014. The change in the currency assumption reduced estimated full-year diluted EPS by approximately $0.04 per share.
The Companys estimated guidance for the remainder of 2014 includes approximately $8 million in sales and development revenue associated with CZ and SmartDose. Most of that growth is associated with customers research and development efforts incorporating Wests proprietary products, the pre-commercial nature of which increases the risk that actual results may be lower than estimates.
The Companys EPS guidance for 2014 reflects an estimated effective tax rate of 27%, compared to the 27.9% rate reflected in the Companys year-to-date results. The lower tax rate is expected to contribute approximately $0.02 to estimated diluted EPS and is associated primarily with the anticipated 2014 reinstatement of the U.S. tax credit for increasing research and development spending. No benefit from that credit has been included in the Companys 2014 interim financial results for the periods ending on or before September 30, 2014.
2015 Revenue and Long-Term Outlook
The Company indicated that it expects revenue to grow between 5% and 8% in calendar year 2015 compared to its current estimates for 2014 at constant exchange rates. Currency is expected to have an adverse impact on sales and operating results. Growth in high-value packaging components is expected to be in the 8% to 10% range, while growth in sales of PDS proprietary products will continue to depend on the further, pre-commercial development efforts of customers.
West also provided an update to its long-term financial goals. The Company believes that organic growth in the current businesses can reasonably achieve 2019 revenues of between $2.1 billion and $2.3 billion, and generate consolidated operating profit margin in the range of 19% to 21%. The Company indicated that it is increasing its estimates of capital spending over the planning period to the range of between $150 million and $175 million per year.
West believes that its planning goals for PPS are achievable through a more profitable mix of products, which will be driven by still-growing demand for higher quality pharmaceutical packaging components. In support of those objectives, the Company recently announced further capacity expansion at a new location in Waterford, Ireland to support growth in specialized and high-value packaging.
The achievement of PDS sales and profitability goals will depend in large part on customer adoption of the Companys newer proprietary products and systems for further clinical and commercial use, including Daikyo CZ insert-needle prefillable syringes, CZ in other containment and delivery formats, the SmartDose" wearable injector, and safety, reconstitution and administration devices. Further commercialization of these products will require that our customers initiate and complete all stability, clinical and manufacturing
testing and qualification that may be relevant, and ultimately obtain regulatory approval of each of their finished products that will incorporate the Companys components and systems.
The Companys prior statements concerning its long-term financial objectives for 2018 included sales of between $2.0 billion and $2.2 billion and an operating profit margin in the range of 18% to 20%. The Company believes that its revised plans and long-term outlook are consistent with the sales growth and profitability objectives reflected in those prior statements.
The Company updates and shares its high-level, long-term objectives in order to help investors, employees and other stakeholders better understand the strategic value of current and planned capital and research and development investments. As such, the revenue and profitability goals are not intended to predict or estimate actual results in any future period, but to indicate managements view of what it reasonably believes to be achievable in that time frame.
Share Repurchase Program
The Company announced a share repurchase program authorizing the repurchase of up to $100 million of the Companys common stock from time to time on the open market or in privately negotiated transactions as permitted under Securities and Exchange Act of 1934 Rule 10b-18. The timing of such transactions will depend on a variety of factors, including market conditions, but the program is expected to be completed by December 31, 2015.
Third-Quarter Conference Call
The Company will host a conference call to discuss the results and business expectations at 9:00 a.m. Eastern Time today. To participate on the call, please dial 877-280-4960 (U.S.) or 857-244-7317 (International). The passcode is 46283848.
A live broadcast of the conference call will be available at the Companys website, www.westpharma.com, in the Investors section. Management will refer to a slide presentation during the call, which will be made available on the day of the call. To view the presentation, select Presentations in the Investors section of the Companys website.
An online archive of the broadcast will be available at the site two hours after the live call and will be available through Thursday, November 6, 2014, by dialing 888-286-8010 (U.S.) or 617-801-6888 (International) and entering passcode 48052092.
Forward-Looking Statements
Certain forward-looking statements are included in this release. They use such words as may, will, expect, believe, plan, and other similar terminology. These statements reflect managements current expectations regarding future events and operating performance and speak only as of the date of this release. These forward-looking statements involve a number of risks and uncertainties. The following are some of the factors that could cause our actual results to differ materially from those expressed in or underlying our forward-looking statements: customers changing inventory requirements and manufacturing plans; customer decisions to move forward with our new products and product categories, including the technical requirements of particular applications and initiating commercial scale production of those products; average profitability, or mix, of the products we sell; dependence on third-party suppliers and partners; interruptions or weaknesses in our supply chain; increased raw material costs; fluctuations in currency exchange; and the ability to meet development milestones with key customers. This list of important factors is not all inclusive.
Except as required by law or regulation, we undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise. For a description of certain factors that could cause the Company's future results to differ from those expressed in any such forward-looking statements, see Item 1A, entitled Risk Factors, in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.
Non-GAAP Financial Measures
This press release and the preceding discussion of our results, financial guidance and the accompanying financial tables use the following financial measures that have not been calculated in accordance with generally accepted accounting principles (GAAP) accepted in the U.S., and therefore are referred to as non-GAAP financial measures:
" | Adjusted operating profit |
" | Adjusted net income |
" | Adjusted diluted EPS |
" | Net debt |
" | Total invested capital |
" | Net debt to total invested capital |
West believes that these non-GAAP measures of financial results provide useful information to management and investors regarding business trends, results of operations, and the Companys overall performance and financial position. Our executive management team uses these financial measures to evaluate the performance of the Company in terms of profitability and efficiency, to compare operating results to prior periods, to evaluate changes in the operating results of each segment, and to measure and allocate financial resources to our segments. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in comparing its financial measures with other companies.
Our executive management does not consider such non-GAAP measures in isolation or as an alternative to such measures determined in accordance with GAAP. The principal limitation of these financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded. In order to compensate for these limitations, non-GAAP financial measures are presented in connection with GAAP results. We urge investors and potential investors to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures, and not to rely on any single financial measure to evaluate the Companys business.
In calculating adjusted operating profit, adjusted net income and adjusted diluted EPS, we exclude the impact of items that are not considered representative of ongoing operations. Such items include restructuring and related costs, certain asset impairments, other specifically identified gains or losses, and discrete income tax items. A reconciliation of these adjusted non-GAAP measures to the comparable GAAP financial measures is included in the accompanying tables.
The following is a description of the items excluded from adjusted operating profit, adjusted net income and adjusted diluted EPS for the three and nine-month periods presented in the accompanying tables:
License costs - During the three and nine months ended September 30, 2014, we recorded a $1.2 million charge for license costs associated with acquired in-process research.
Discrete tax items - During the three and nine months ended September 30, 2013, we recorded a discrete tax charge of $1.3 million resulting from the impact of the change in the enacted tax rate in the United Kingdom on our previously-recorded deferred tax asset balances. During the nine months ended September 30, 2013, we also recorded a discrete tax benefit of $1.3 million related to the reinstatement of the Research and Development tax credit in January 2013. In accordance with U.S. GAAP, although the tax credit was reinstated on a retroactive basis to January 1, 2012, the credit was not taken into account for financial reporting purposes until 2013.
Extinguishment of debt - During the nine months ended September 30, 2013, we repurchased $1.7 million in aggregate principal amount of our 4.00% Convertible Junior Subordinated Debentures Due 2047, resulting in a pre-tax loss on debt extinguishment of $0.2 million, the majority of which consisted of the premium over par value.
WEST PHARMACEUTICAL SERVICES, INC. CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in millions, except per share data) | |||||||||||||||||||||||||||
� | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
� | 2014 | 2013 | 2014 | 2013 | |||||||||||||||||||||||
Net sales | $ | 355.9 | 100 | % | $ | 341.8 | 100 | % | $ | 1,071.6 | 100 | % | $ | 1,025.7 | 100 | % | |||||||||||
Cost of goods and services sold | 246.0 | 69 | 236.3 | 69 | 733.5 | 68 | 697.6 | 68 | |||||||||||||||||||
Gross profit | 109.9 | 31 | 105.5 | 31 | 338.1 | 32 | 328.1 | 32 | |||||||||||||||||||
Research and development | 9.6 | 3 | 9.6 | 3 | 29.5 | 3 | 28.2 | 3 | |||||||||||||||||||
Selling, general and administrative expenses | 56.0 | 16 | 56.1 | 16 | 169.9 | 16 | 174.9 | 17 | |||||||||||||||||||
Other expense /(income), net | 0.3 | 0.1 | 1.3 | (0.5 | ) | ||||||||||||||||||||||
Operating profit | 44.0 | 12 | 39.7 | 12 | 137.4 | 13 | 125.5 | 12 | |||||||||||||||||||
Loss on debt extinguishment | 0.2 | ||||||||||||||||||||||||||
Interest expense, net | 2.7 | 4.0 | 1 | 10.0 | 1 | 11.7 | 1 | ||||||||||||||||||||
Income before income taxes | 41.3 | 12 | 35.7 | 11 | 127.4 | 12 | 113.6 | 11 | |||||||||||||||||||
Income tax expense | 11.7 | 3 | 10.6 | 3 | 35.5 | 3 | 29.5 | 3 | |||||||||||||||||||
Equity in net income of affiliated companies | 1.4 | 1.7 | 3.8 | 4.6 | |||||||||||||||||||||||
Net income | $ | 31.0 | 9 | % | $ | 26.8 | 8 | % | $ | 95.7 | 9 | % | $ | 88.7 | 8 | % | |||||||||||
Net income per share: | � | � | � | � | � | � | � | � | |||||||||||||||||||
Basic | $ | 0.44 | � | $ | 0.38 | � | $ | 1.35 | � | $ | 1.28 | � | |||||||||||||||
Assuming dilution | $ | 0.43 | � | $ | 0.37 | � | $ | 1.32 | � | $ | 1.25 | � | |||||||||||||||
Average common shares outstanding | 71.0 | � | 69.8 | � | 70.8 | � | 69.4 | � | |||||||||||||||||||
Average shares assuming dilution | 72.6 | � | 71.4 | � | 72.5 | � | 70.9 | � | |||||||||||||||||||
WEST PHARMACEUTICAL SERVICES REPORTING SEGMENT INFORMATION (UNAUDITED) (in millions) | |||||||||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
Net Sales: | 2014 | 2013 | 2014 | 2013 | |||||||||||
Pharmaceutical Packaging Systems | $ | 251.7 | $ | 251.5 | $ | 772.6 | $ | 754.5 | |||||||
Pharmaceutical Delivery Systems | 104.4 | 90.8 | 299.5 | 272.3 | |||||||||||
Eliminations | (0.2 | ) | (0.5 | ) | (0.5 | ) | (1.1 | ) | |||||||
Consolidated Total | $ | 355.9 | $ | 341.8 | $ | 1,071.6 | $ | 1,025.7 | |||||||
Operating Profit (Loss): | � | � | � | � | |||||||||||
Pharmaceutical Packaging Systems | $ | 52.8 | $ | 54.6 | $ | 167.1 | $ | 170.0 | |||||||
Pharmaceutical Delivery Systems | 4.8 | (0.1 | ) | 8.3 | 3.4 | ||||||||||
US pension expense | (1.7 | ) | (2.3 | ) | (5.5 | ) | (9.7 | ) | |||||||
Stock-based compensation expense | (3.6 | ) | (5.2 | ) | (12.5 | ) | (15.6 | ) | |||||||
General corporate costs | (7.1 | ) | (7.3 | ) | (18.8 | ) | (22.6 | ) | |||||||
Operating Profit | $ | 45.2 | $ | 39.7 | $ | 138.6 | $ | 125.5 | |||||||
WEST PHARMACEUTICAL SERVICES
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
(in millions, except per share data)
Three-months ended September 30, 2014 | Operating Profit | Income Tax Expense | Net Income | Diluted EPS | ||||||||
Reported (GAAP) | $ | 44.0 | $ | 11.7 | $ | 31.0 | $ | 0.43 | ||||
License costs | 1.2 | 0.4 | 0.8 | 0.01 | ||||||||
Adjusted (Non-GAAP) | $ | 45.2 | $ | 12.1 | $ | 31.8 | $ | 0.44 | ||||
Three-months ended September 30, 2013 | Operating Profit | Income Tax Expense | Net Income | Diluted EPS | ||||||||
Reported (GAAP) | $ | 39.7 | $ | 10.6 | $ | 26.8 | $ | 0.37 | ||||
Discrete tax items | (1.3 | ) | 1.3 | 0.02 | ||||||||
Adjusted (Non-GAAP) | $ | 39.7 | $ | 9.3 | $ | 28.1 | $ | 0.39 | ||||
Nine-months ended September 30, 2014 | Operating Profit | Income Tax Expense | Net Income | Diluted EPS | ||||||||
Reported (GAAP) | $ | 137.4 | $ | 35.5 | $ | 95.7 | $ | 1.32 | ||||
License costs | 1.2 | 0.4 | 0.8 | 0.01 | ||||||||
Adjusted (Non-GAAP) | $ | 138.6 | $ | 35.9 | $ | 96.5 | $ | 1.33 | ||||
Nine-months ended September 30, 2013 | Operating Profit | Loss on Debt Extinguishment | Income Tax Expense | Net Income | Diluted EPS | ||||||||||
Reported (GAAP) | $ | 125.5 | $ | 0.2 | $ | 29.5 | $ | 88.7 | $ | 1.25 | |||||
Extinguishment of debt | (0.2 | ) | 0.2 | ||||||||||||
Discrete tax items | (0.1 | ) | 0.1 | ||||||||||||
Adjusted (Non-GAAP) | $ | 125.5 | $ | $ | 29.4 | $ | 89.0 | $ | 1.25 | ||||||
Please refer to Non-GAAP Financial Measures for more information.
WEST PHARMACEUTICAL SERVICES
NON-GAAP MEASURES
RECONCILIATION OF 2014 ADJUSTED DILUTED EPS GUIDANCE
TO 2014 REPORTED GUIDANCE
Full Year 2014 Guidance �(1) (2) | |
Adjusted diluted EPS guidance | $1.77 to $1.82 |
License costs | (0.01) |
Reported diluted EPS guidance | $1.76 to $1.81 |
(1) | Guidance includes various currency exchange rate assumptions, most significantly the Euro at $1.27 for the remainder of 2014. Actual results will vary as a result of exchange rate variability. Please refer to Non-GAAP Financial Measures for additional information regarding adjusted diluted EPS. |
(2) | The 2014 consequences of those items described in Non-GAAP Financial Measures, and similar items that may be incurred during 2014, are excluded from the adjusted diluted EPS guidance for 2014. |
WEST PHARMACEUTICAL SERVICES CASH FLOW ITEMS (UNAUDITED) (in millions) | |||||||
� | Nine Months Ended September 30, | ||||||
� | 2014 | 2013 | |||||
Depreciation and amortization | $ | 68.0 | $ | 63.1 | |||
Operating cash flow | $ | 136.9 | $ | 151.7 | |||
Capital expenditures | $ | 84.8 | $ | 113.1 | |||
WEST PHARMACEUTICAL SERVICES FINANCIAL CONDITION (UNAUDITED) (in millions) | |||||||
� | As of September 30, 2014 | As of December 31, 2013 | |||||
Cash and Cash Equivalents | $ | 246.8 | $ | 230.0 | |||
Debt | $ | 342.7 | $ | 373.5 | |||
Equity | $ | 970.1 | $ | 906.4 | |||
Net Debt to Total Invested Capital(3) | 9.0 | % | 13.7 | % | |||
Working Capital | $ | 437.0 | $ | 413.8 | |||
(3) Net Debt and Total Invested Capital are Non-GAAP measures. Net debt is determined by reducing total debt by the amount of cash and cash equivalents, and for purpose of measuring net debt to invested capital, total invested capital is the sum of net debt and shareholders' equity. Please refer to Non-GAAP Financial Measures in this release for additional information regarding those measures.
Trademark Notices
Trademarks and registered trademarks are the property of West Pharmaceutical Services, Inc., in the United States and other jurisdictions, unless noted otherwise.
Daikyo Crystal Zenith� and Daikyo RSV� are trademarks of Daikyo Seiko, Ltd. Daikyo Crystal Zenith� technologies are licensed from Daikyo Seiko, Ltd.
1 Speakers: Donald E. Morel, Jr. Chairman and Chief Executive Officer William J. Federici Senior Vice President and Chief Financial Officer All trademarks and registered trademarks are the property of West Pharmaceutical Services, Inc., unless noted otherwise. West Pharmaceutical Services, Inc. Third-Quarter 2014 Analyst Conference Call 9 a.m. Eastern Time, October 30, 2014 A webcast of todays call can be accessed in the Investors section of the Companys web site www.westpharma.com To participate on the call please dial: 877-280-4960 (U.S.) 857-244-7317 (International). The passcode is 46283848 An online archive of the broadcast will be available at the site two hours after the live call and will be available through Thursday, November 6, 2014, by dialing: 888-286-8010 (U.S.) or 617-801-6888 (International) The passcode 48052092 These presentation materials are intended to accompany todays press release announcing the Companys results for the quarter and managements discussion of those results during todays conference call.
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2 Cautionary Statement Under the Private Securities Litigation Reform Act of 1995 This presentation and any accompanying management commentary contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to statements about expected financial results for 2014 and future years. Each of these estimates is based on preliminary information, and actual results could differ from these preliminary estimates. We caution investors that the risk factors listed under Cautionary Statement in todays press release, as well as those set forth under the caption "Risk Factors" in our most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission and as revised or supplemented by our quarterly reports on Form 10-Q, could cause our actual results to differ materially from those estimated or predicted in the forward-looking statements. You should evaluate any statement in light of these important factors. Except as required by law or regulation, we undertake no obligation to publicly update any forward- looking statements, whether as a result of new information, future events, or otherwise. Non-GAAP Financial Measures Certain financial measures included in todays press release and accompanying tables, in these presentation materials, and which may be referred to in managements discussion of the Companys results and outlook, are Non-GAAP (Generally Accepted Accounting Principles) financial measures. Non-GAAP financial measures should not be considered in isolation or as an alternative to such measures determined in accordance with GAAP. Please refer to the Non-GAAP Financial Measures and Notes to Non-GAAP Financial Measures at the end of these materials for more information.
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3 Third-Quarter 2014 Summary Results $ millions, except earnings per-share (EPS) data (1) Adjusted operating profit and adjusted diluted EPS are Non-GAAP measurements. See discussion under the heading Non-GAAP Financial Measures in this release. ($ millions, except per-share data) Three Months Ended September 30, 2014 2013 Net Sales $ 355.9 $ 341.8 Gross Profit Margin 30.9% 30.8% Operating Profit $ 44.0 $ 39.7 Adjusted Operating Profit(1) 45.2 39.7 Diluted EPS $ 0.43 $ 0.37 Adjusted Diluted EPS(1) $ 0.44 $ 0.39
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4 Third-Quarter Operating Results " Sales growth and stronger mix " Pharmaceutical Delivery Systems sales grew 14.8% " Proprietary product sales up 33.6% " Comprise 27.4% of segment sales " Led by administration systems and SmartDose� electronic wearable injector " Contract manufacturing grew 8.2%, mostly on existing business " Pharmaceutical Packaging Systems sales grew 0.2% vs. strong prior-year � High-value product sales grew 0.9% � Led by Westar and Daikyo RS and RU products " Gross profit 4.2% higher on sales growth " Overall mix yields modest GM margin improvement " Adjusted operating profit up 14.1% on Sales growth, lower SG&A All prior-period sales comparisons exclude the impact of changes in currency. SmartDose� is a registered trademark of Medimop Medical Projects Ltd., a subsidiary of West Pharmaceutical Services, Inc.
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5 Expansion and Product Development � Geographic expansion: " India facility began commercial production in Q3 " Announced plans for new Waterford, Ireland facility on October 2, 2014 � Initial capacity supporting key insulin products � Future expansion to support evolving high-value product needs � Proprietary delivery systems " Daikyo CZ� products: � 1ml syringe pre-commercial progress � Growing vial and cartridge opportunities " SmartDose development: � SmartDose clinical development to continue into 2015 � Other funded development programs progressing Daikyo CZ� is a registered trademark of Daikyo Seiko, Ltd.
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6 2014 Outlook � Overall annual revenue growth 3% to 4%, excluding currency � Confirming prior EPS guidance " Adjusted diluted EPS estimate range of $1.77 to $1.82 � PPS: " High-value product growth, sales mix expected to drive profitability � PDS: " Proprietary products expected to generate growth � SmartDose clinical supply to continue � Administration aids growing after slow start " Strong comparable fourth quarter 2013
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7 2015 and Long-term Outlook � Expect 2015 sales growth to be in the 5% to 8% range, ex-currency � No fundamental changes in long-term growth strategies and drivers " Growth in high-value components " Geographic expansion " Efficiency in operations " Commercialize proprietary device products � Zero defect goal adds to HVP opportunity, capacity needs " Increasing relevant capital spending " Total Capex: $150 million to $175 million annually � 2019 revenue objective in the range of $2.1 billion to $2.3 billion " In line with prior long-term expectations � 2019 planning objective: Operating profit margins in 19% to 21% range
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8 Change in Consolidated Sales Third-Quarter 2013 to 2014 ($ millions) $355.9 $0.2 $11.6 $2.7 $341.8 2013 Sales Volume & Mix Sales Price Currency 2014 Sales
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9 Change in Consolidated Gross Profit Margin % Third-Quarter 2013 to 2014 30.9% 0.9% 0.5% 0.5% 0.0% 30.8% 2014 2013
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10 Change in SG&A Costs Third-Quarter 2013 to 2014 ($ millions) $56.0 $3.4 $0.6 $2.1 $1.8 $56.1
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11 Cash Flow Metrics ($ millions) (1) 2013 capital expenditures includes $35 million of 2013 funding associated with the Companys new headquarters and research facility, most of which was incurred and recorded in earlier years Nine Months Ended September 30, 2014 2013 Depreciation and amortization $68.0 $63.1 Operating cash flow $136.9 $151.7 Capital expenditures (1) $84.8 $113.1
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12 Summary Balance Sheet Information ($ millions) Net debt to total invested capital is a Non-GAAP measure, which management believes provides a useful measure of the comparative degree of Wests financial leverage. Net debt is determined by reducing total debt by the amount of cash and cash equivalents, and for purpose of measuring net debt to invested capital, total invested capital is the sum of net debt and shareholders equity. As of September 30, 2014 As of December 31, 2013 Cash and Cash Equivalents $246.8 $230.0 Debt $342.7 $373.5 Equity $970.1 $906.4 Net Debt to Total Invested Capital 9.0% 13.7% Working Capital $437.0 $413.8
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13 2014 Full-year Financial Guidance ($ millions, except EPS) Estimated 2014 Revenue(1) Estimated Gross Profit %(1) Pharmaceutical Packaging Systems Segment $1,010 - $1,025 36.8% to 37.3% Pharmaceutical Delivery Systems Segment $400 - $410 19.7% to 20.2% Consolidated $1,410 - $1,435 31.9% - 32.1 % Capital Spending $125 - $145 Adjusted diluted EPS(1) (2) $1.77 to $1.82 per share (1) Guidance includes various currency exchange rate assumptions, most significantly the Euro at $1.27 for the remainder of 2014. Actual results will vary as a result of variability of exchange rates, among other items. (2) Adjusted diluted EPS is a Non-GAAP financial measure. See Notes to Non-GAAP Financial Measures , slides 14 to 16
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14 Notes to Non-GAAP Financial Measures For additional details, please see todays press release and Safe Harbor Statement. Todays press release, these presentation materials and associated presentation use the following financial measures that have not been calculated in accordance with generally accepted accounting principles (GAAP) accepted in the U.S., and therefore are referred to as non- GAAP financial measures: � Adjusted operating profit � Adjusted income tax expense � Adjusted net income � Adjusted diluted EPS � Net debt � Total invested capital � Net debt to total invested capital West believes that these non-GAAP measures of financial results provide useful information to management and investors regarding business trends, results of operations, and the Companys overall performance and financial position. Our executive management team uses these financial measures to evaluate the performance of the Company in terms of profitability and efficiency, to compare operating results to prior periods, to evaluate changes in the operating results of each segment, and to measure and allocate financial resources to our segments. The Company believes that the use of these non-GAAP financial measures provides an additional tool for investors to use in evaluating ongoing operating results and trends in comparing its financial measures with other companies. Our executive management does not consider such non-GAAP measures in isolation or as an alternative to such measures determined in accordance with GAAP. The principal limitation of these financial measures is that they exclude significant expenses and income that are required by GAAP to be recorded. In addition, they are subject to inherent limitations as they reflect the exercise of judgment by management about which items are excluded. In order to compensate for these limitations, non-GAAP financial measures are presented in connection with GAAP results. We urge investors and potential investors to review the reconciliations of our non-GAAP financial measures to the comparable GAAP financial measures, and not to rely on any single financial measure to evaluate the Companys business. In calculating adjusted operating profit, adjusted income tax expense, adjusted net income and adjusted diluted EPS, we exclude the impact of items that are not considered representative of ongoing operations. Such items generally include restructuring and related costs, certain asset impairments, other specifically identified gains or losses, and discrete income tax items. A reconciliation of these adjusted non-GAAP measures to the comparable GAAP financial measures is included in the accompanying tables. Please see Non-GAAP Financial Measures in todays press release for further information concerning reconciling items.
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15 Notes to Non-GAAP Financial Measures(1) RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED) (in millions, except per share data) (1) See Notes to Non-GAAP Financial Measures (Slide 14), Cautionary Statement (Slide 2) and todays press release for an explanation and reconciliation of these items. Nine-months ended September 30, 2014 Operating Profit Income Tax Expense Net Income Diluted EPS Reported (GAAP) $137.4 $35.5 $95.7 $1.32 License costs 1.2 0.4 0.8 0.01 Adjusted (Non-GAAP) $138.6 $35.9 $96.5 $1.33 Nine-months ended September 30, 2013 Operating Profit Loss on debt extinguishment Income Tax Expense Net Income Diluted EPS Reported (GAAP) $125.5 $0.2 $29.5 $88.7 $1.25 Extinguishment of debt - (0.2) - 0.2 - Discrete tax items - - (0.1) 0.1 - Adjusted (Non-GAAP) $125.5 $- $29.4 $89.0 $1.25 Three-months ended September 30, 2014 Operating Profit Income Tax Expense Net Income Diluted EPS Reported (GAAP) $44.0 $11.7 $31.0 $0.43 License costs 1.2 0.4 0.8 0.01 Adjusted (Non-GAAP) $45.2 $12.1 $31.8 $0.44 Three-months ended September 30, 2013 Operating Profit Income Tax Expense Net Income Diluted EPS Reported (GAAP) $39.7 $10.6 $26.8 $0.37 Discrete tax items - (1.3) 1.3 0.02 Adjusted (Non-GAAP) $39.7 $9.3 $28.1 $0.39
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16 Notes to Non-GAAP Financial Measures For additional details, please see todays press release and Safe Harbor Statement. Reconciliation of 2014 Adjusted Diluted EPS Guidance to 2014 Reported Guidance Full Year 2014 Guidance (1) (2) Adjusted diluted EPS guidance $1.77 to $1.82 License costs (0.01) Reported diluted EPS guidance $1.76 to $1.81 (1) Guidance includes various currency exchange rate assumptions, most significantly the Euro at $1.27 for the remainder of 2014. Actual results will vary as a result of exchange rate variability. Please refer to Notes to Non- GAAP Financial Measures for additional information regarding adjusted diluted EPS. (2) The 2014 consequences of those items described in Notes to Non-GAAP Financial Measures, and similar items that may be incurred during the remainder of 2014, are excluded from the adjusted diluted EPS guidance for 2014.
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