Attached files
| file | filename |
|---|---|
| 8-K - 8-K - WEST PHARMACEUTICAL SERVICES INC | wst-q32016form8k.htm |
| EX-99.1 - EXHIBIT 99.1 - WEST PHARMACEUTICAL SERVICES INC | exh991q32016earningsrelease.htm |
West Pharmaceutical Services, Inc.
Third Quarter 2016 Analyst Conference Call
9 a.m. Eastern Time, October 27, 2016
Speakers:
Eric M. Green
President and Chief Executive Officer
William J. Federici
Senior Vice President and Chief Financial Officer
A webcast of today’s call can be accessed in the “Investors”
section of the Company’s web site: www.westpharma.com
To participate on the call please dial:
− 877-930-8295 (U.S.)
− 253-336-8738 (International).
− The conference ID is 96078365
An online archive of the broadcast will be available at the site
three hours after the live call and will be available through
Thursday, November 3, 2016, by dialing:
− 855-859-2056 (U.S.)
− 404-537-3406 (International)
− The conference ID 96078365
These presentation materials are intended to accompany today’s press release announcing the Company’s results for
the quarter and management’s discussion of those results during today’s conference call.
1
Safe Harbor Statement
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 product development and operational
performance. Each of these statements is based on preliminary information, and actual results could differ from any preliminary estimates. We
caution investors that the risk factors listed under “Cautionary Statement” in our press releases, 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-U.S. GAAP Financial Measures
Certain financial measures included in these presentation materials, or which may be referred to in management’s discussion of the Company’s
results and outlook, have not been calculated in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and therefore are
referred to as non-GAAP 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 “Reconciliation of Non-GAAP Measures” at the end of these materials for more
information.
Trademarks
Registered trademarks used in this report are the property of West Pharmaceutical Services, Inc. or its subsidiaries, in the United States and other
jurisdictions, unless noted otherwise.
2
Q3 2016 Highlights
Net sales of $377 million, organic sales growth* of 10.0%
‒ Proprietary Products organic sales growth of 11.6%
‒ Contract-Manufactured Products organic sales growth of 4.6%
Increased gross and operating profit margins
Reported diluted EPS of $0.50. Adjusted diluted EPS of $0.53, an
increase of 20% from prior year
* Excluding the impact from translational changes in foreign exchange
3
Q3 2016 Highlights
Proprietary Products, 79% of total sales
BIOLOGICS
Double-digit organic
sales growth
GENERICS
High-single digit
organic sales growth
PHARMA
Mid-single digit
organic sales growth
Mid-single digit
organic sales growth
CONTRACT-
MANUFACTURED
PRODUCTS
21% of total
High-value product organic sales growth of 25%
4
Global Operations
Gross margin +70 basis points
Successfully reducing lead times and
increasing product availability
‒ Proprietary Products backlog at September 30,
2016 was $388 million, a 2% decline (constant
currency) over prior-year quarter
‒ Continue to see strong customer demand for
high-value products
5
2016 Outlook
Raising full-year 2016 net sales and tightening adjusted diluted
EPS(1) guidance
2016 net sales range: $1.510 billion to $1.520 billion
− Represents upper end of prior range of 7% to 9% organic sales growth
2016 adjusted diluted EPS(1) range: $2.17 to $2.22
− Represents 19% to 21% growth over 2015
(1) Please refer to “Notes to Non-GAAP Financial Measures” on slides 14-17, and “Non-GAAP Financial Measures” in today’s
press release, for additional information regarding adjusted diluted EPS.
6
Introducing 2017 Sales Outlook
Reaffirming Long-term 2020 Financial Targets
7
2017 Sales Outlook – expected to grow at the high-end of long-term outlook of 6% to 8%
Reaffirming 2020 Financial Targets
2015A 2016 Guidance 2020 Targets
Sales ($ millions) 1,399.8 1,510 to 1,520 2,200 to 2,400
Adjusted
Operating Profit
Margin
13.6% ~15.0% 19% to 23%
Third Quarter 2016 Summary Results
($ millions, except earnings-per-share (EPS) data)
(1) “Net sales at constant currency”, “adjusted operating profit”, and “adjusted diluted EPS” are Non-GAAP measures. See slides 14-17 and the
discussion under the heading “Non-GAAP Financial Measures” in today’s press release for an explanation and reconciliation of these items. Except as
noted, statements in these slides concerning comparative sales are measured on a constant currency basis.
Three Months Ended
September 30,
2016 2015
Reported Net Sales $376.7 $344.5
Net Sales at Constant Currency(1) $379.1 $344.5
Gross Profit Margin 32.1% 31.4%
Reported Operating Profit (Loss) $51.3 ($3.5)
Adjusted Operating Profit(1) $53.6 $45.5
Diluted EPS $0.50 $0.02
Adjusted Diluted EPS(1) $0.53 $0.44
8
$376.7
($2.3)
$31.6
$2.9
$344.5
2015 Volume & Mix Sales Price Currency Translation 2016
Change in Consolidated Sales
Third Quarter 2015 to 2016
($ millions)
9
32.1%
(1.1%)
(1.7%)
2.5%
0.5%
0.5%
31.4%
2015 Volume & Mix Sales Price Raw Material JPY
Denominated
Materials
Plant
Overhead &
Other
2016
Change in Gross Profit Margin %
Third Quarter 2015 to 2016
10
Change in SG&A Costs
Third Quarter 2015 to 2016
($ millions)
$58.3 $0.2
$2.7
$0.7
$0.5
$54.6
2015 Comp and Benefits US Pension Incentive & Stock
Comp
Currency 2016
15.8%
of Sales
15.5%
of Sales
11
Cash Flow and Balance Sheet Metrics
($ millions)
CASH FLOW ITEMS
(UNAUDITED)
(in millions)
FINANCIAL CONDITION
(UNAUDITED)
(in millions)
Nine Months Ended September 30,
2016 2015
Depreciation and amortization $67.9 $66.6
Operating cash flow $147.6 $144.4
Capital expenditures $122.7 $86.8
As of
September 30, 2016
As of
December 31, 2015
Cash and cash equivalents $205.9 $274.6
Debt $231.2 $298.2
Equity $1,142.3 $1,023.9
Net debt-to-total invested capital (1) 2.2% 2.3%
Working capital $421.3 $359.4
12
(1) Net debt and total invested capital are Non-GAAP measures. Net debt is determined by reducing total debt by the amount of cash and cash
equivalents, and for purpose of measuring net debt to invested capital, total invested capital is the sum of net debt and shareholders’
equity. Please refer to “Non-GAAP Financial Measures” on slides 14-17 for additional information regarding those measures.
Updated 2016 Full-Year Guidance
($ millions, except EPS - Non-GAAP) (1) (2)
Estimated
2016 Revenue
Estimated Gross
Profit %
Proprietary Products $1,195 - $1,200 38.0% to 38.2%
Contract-Manufactured Products $315 - $320 16.8% to 17.2%
Consolidated $1,510 - $1,520 33.6% to 33.7%
Est. Capital Spending $150 - $175
Est. Adjusted Diluted EPS (1) (2) $2.17 to $2.22 per share
Est. Reported Diluted EPS (1) (2) $1.80 to $1.95 per share
(1)
Guidance includes various currency exchange rate assumptions, most significantly the euro at $1.10 for the remainder of 2016.
Actual results will vary as a result of variability of exchange rates, among other items.
(2)
Please refer to “Notes to Non-GAAP Financial Measures” on slides 14-17, and “Non-GAAP Financial Measures” in today’s press release,
for additional information regarding adjusted diluted EPS.
13
Today’s 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:
Net sales at constant currency (organic sales)
Adjusted operating profit
Adjusted operating profit margin
Adjusted net income
Adjusted income tax expense
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 Company’s
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 Company’s business.
Net sales at constant currency translates the current-period reported sales of subsidiaries whose functional currency is other than the U.S. dollar at the applicable foreign exchange rates in
effect during the comparable prior-year period. 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.
Please see “Financial Guidance” and “Non-GAAP Financial Measures” in today’s press release for further information concerning reconciling items.
Notes to Non-GAAP Financial Measures
For additional details, please see today’s press release
& Safe Harbor Statement
14
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 14-17), “Cautionary Statement” (Slide 2)
and today’s press release for an explanation and reconciliation of these items.
Reconciliation of Reported and Adjusted Operating profit, Net Income and Diluted EPS
($ millions, except EPS data)
Three months ended September 30, 2016
Operating
profit
Income tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $51.3 $14.4 $37.6 $0.50
Restructuring and related charges 2.3 0.7 1.6 0.02
Discrete tax item - (0.3) 0.3 0.01
Adjusted (Non-GAAP) $53.6 $14.8 $39.5 $0.53
Nine months ended September 30, 2016
Operating
profit
Income tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $142.5 $38.3 $104.5 $1.40
Restructuring and related charges 23.7 8.1 15.6 0.21
Venezuela currency devaluation 2.7 - 2.7 0.03
Discrete tax item - (0.3) 0.3 0.01
Adjusted (Non-GAAP) $168.9 $46.1 $123.1 $1.65
15
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 14-17), “Cautionary Statement” (Slide 2)
and today’s press release for an explanation and reconciliation of these items.
Reconciliation of Net Sales to Net Sales at Constant Currency(1)
($ millions, except EPS data)
(1) Net sales at constant currency translates the current-period reported sales of subsidiaries whose functional currency is other
than the U.S. dollar at the applicable foreign exchange rates in effect during the comparable prior-year period.
Three months ended September 30, 2016 Proprietary CM Eliminations Total
Reported net sales (GAAP) $298.1 $79.0 $(0.4) $376.7
Effect of changes in currency translation rates 2.4 - - 2.4
Net sales at constant currency (Non-GAAP)(1) $300.5 $79.0 $(0.4) $379.1
Nine months ended September 30, 2016 Proprietary CM Eliminations Total
Reported net sales (GAAP) $899.9 $227.8 $(0.9) $1,126.8
Effect of changes in currency translation rates 12.8 (0.2) - 12.6
Net sales at constant currency (Non-GAAP)(1) $912.7 $227.6 $(0.9) $1,139.4
16
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 14-17), “Cautionary Statement” (Slide 2)
and today’s press release for an explanation and reconciliation of these items.
Reconciliation of adjusted diluted EPS guidance to reported diluted EPS guidance
Full Year 2016 Guidance(1) (2)
Adjusted diluted EPS guidance $2.17 to $2.22
Estimated restructuring charges (0.23 to 0.28)
Estimated currency devaluation (Venezuela) (0.03 to 0.08)
Discrete tax item (0.01)
Reported diluted EPS guidance $1.80 to $1.95
(1) Please refer to “Notes to Non-GAAP Financial Measures” on slides 14 and 15, and “Non-GAAP Financial
Measures” in today’s press release, for additional information regarding adjusted diluted EPS.
(2) Guidance includes various currency exchange rate assumptions, most significantly the euro at $1.10 for the
remainder of 2016. Actual results will vary as a result of exchange rate variability.
17