Attached files
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| 8-K - 8-K - WEST PHARMACEUTICAL SERVICES INC | wst-q22016form8k.htm |
| EX-99.1 - EXHIBIT 99.1 - WEST PHARMACEUTICAL SERVICES INC | exh991q22016earningsrelease.htm |
West Pharmaceutical Services, Inc.
Second Quarter 2016 Analyst Conference Call
9 a.m. Eastern Time, July 28, 2016
Speakers:
Eric M. Green
President 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.
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 50076663
An online archive of the broadcast will be available at the site three
hours after the live call and will be available through Thursday,
August 4, 2016, by dialing:
855-859-2056 (U.S.)
404-537-3406 (International)
The conference ID 50076663
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.
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. Repatha® is a registered trademark of Amgen, Inc.
Safe Harbor Statement
2
Net sales of $388 million, organic sales growth* of 8.2%
Proprietary Products organic sales growth of 8.9%
Contract-Manufactured Products organic sales growth of
5.1%
Increased operating profit margin
Reported diluted EPS of $0.60. Adjusted diluted EPS of $0.59,
an increase of 26% from prior year
Global Operations – increased throughput, operational
efficiencies and quality
Innovation and Technology – new product launches and
approvals
Q2 2016 Highlights
3
* Excluding the impact from changes in foreign exchange
4
Proprietary Products, 80% of total sales
GENERICS
Double-digit organic
sales growth
BIOLOGICS
High-single digit
organic sales growth
PHARMA
High-single digit
organic sales growth
Mid-single digit
organic sales growth
CONTRACT-
MANUFACTURED
PRODUCTS
Q2 2016 Highlights
20% of total
High-Value Product Offerings +17% organic sales growth
Global Operations
Gross margin +160 basis points
Increased capacity utilization and
efficiency levels, especially for High-
Value Products
Proprietary Products backlog at June 30,
2016 was $417 million
+20% (constant currency) over
prior-year quarter
Waterford construction is on-track and
on-budget
5
Waterford, Ireland construction site
SmartDose® Technology
Developments
First commercial approval
Selected by Amgen for
Repatha® monthly single
dosing
FDA approval in July
Multiple active programs in
place with additional customers
Next-generation technology in
development
6
7
Engineered for
Multiple Injection
Modalities
Designed for
Biologics
Developed for
Quality Risk
Management
Launched
1-3mL NovaPure® Plunger
2016 Outlook
Raising full-year 2016 net sales and lower-end of
adjusted diluted EPS(1) guidance
2016 net sales: $1.505 billion to $1.520 billion
Represents 7% to 9% organic sales growth
2016 adjusted diluted EPS(1): $2.15 to $2.25
Represents 17% to 23% growth over 2015
(1) Please refer to “Notes to Non-GAAP Financial Measures” on slides 15-18, and “Non-GAAP Financial
Measures” in today’s press release, for additional information regarding adjusted diluted EPS.
8
Second Quarter 2016 Summary Results
($ millions, except earnings-per-share (EPS) data)
9
(1) “Net sales at constant currency”, “adjusted operating profit”, “adjusted operating profit margin”, and “adjusted diluted EPS” are Non-GAAP measures.
See slides 15-18 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
June 30,
2016 2015
Reported Net Sales $388.0 $359.7
Net Sales at Constant Currency(1) $389.2 $359.7
Gross Profit Margin 34.4% 32.8%
Reported Operating Profit $61.2 $39.1
Adjusted Operating Profit(1) $59.7 $50.0
Adjusted Operating Profit Margin(1) 15.4% 13.9%
Diluted EPS $0.60 $0.38
Adjusted Diluted EPS(1) $0.59 $0.47
Change in Consolidated Sales
Second quarter 2015 to 2016
($ millions)
10
$388.0
($1.2)
$26.6 $2.9
$359.7
2015 Volume &
Mix
Sales Price Currency 2016
11
Change in Gross Profit Margin %
Second quarter 2015 to 2016
34.4%
(1.7%)
1.7%
0.8%
0.5% 0.3%
32.8%
2015 Volume &
Mix
Efficiency Sales Price Raw
Material
Labor, OH,
Deprec &
Other
2016
12
Change in SG&A Costs
Second quarter 2015 to 2016
($ millions)
$62.5
$0.8 $0.2 $0.2
$2.2 $0.7
$60.8
2015 Comp and
Benefits
US Pension Incentive &
Stock Comp
Currency All Other 2016
16.9%
of Sales
16.1%
of Sales
Cash Flow and Balance Sheet Metrics
($ millions)
13
CASH FLOW ITEMS
(UNAUDITED)
(in millions)
BALANCE SHEET ITEMS
(UNAUDITED)
(in millions)
(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 “Notes to Non-GAAP Financial
Measures” on slides 15-18 and “Non-GAAP Financial Measures” in today’s press release for additional information regarding those measures.
Six Months Ended June 30,
2016 2015
Depreciation and amortization $45.0 $44.2
Operating cash flow $79.2 $75.6
Capital expenditures $74.0 $57.1
As of
June 30, 2016
As of
December 31, 2015
Cash and cash equivalents $202.7 $274.6
Debt $231.4 $298.2
Equity $1,109.4 $1,023.9
Net debt-to-total invested capital(1) 2.5% 2.3%
Working capital $419.8 $359.4
Updated 2016 Full-Year Guidance
($ millions, except EPS - Non-GAAP) (1) (2)
14
Estimated
2016 Revenue
Estimated Gross
Profit %
Proprietary Products $1,195 - $1,200 37.9% to 38.4%
Contract-Manufactured Products $310 - $320 17.1% to 17.6%
Consolidated $1,505 - $1,520 33.6% to 34.0 %
Est. Capital Spending $150 - $175
Est. Adjusted Diluted EPS (1) $2.15 to $2.25 per share
Est. Reported Diluted EPS (1) (2) $1.79 to $1.99 per share
(1)
Guidance includes various currency exchange rate assumptions, most significantly the euro at $1.12 for the remainder of 2016.
Actual results will vary as a result of variability of exchange rates, among other items.
(2)
Estimated reported diluted EPS includes estimated restructuring charges of $0.23 to $0.28 per share and estimated Venezuela currency
devaluation charge of $0.03 to $0.08 per share.
Notes to Non-GAAP Financial Measures
For additional details, please see today’s press release
& Safe Harbor Statement
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.
15
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 15-18), “Cautionary Statement” (Slide 2)
and today’s press release for an explanation and reconciliation of these items.
($ million, except EPS data)
Reconciliation of Reported and Adjusted Operating profit, Net Income and Diluted EPS
16
Three months ended June 30, 2016
Operating
profit
Income
tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $61.2 $17.0 $44.7 $0.60
Restructuring and related charges (1.5) (0.5) (1.0) (0.01)
Venezuela currency devaluation - (0.2) 0.2 -
Adjusted (Non-GAAP) $59.7 $16.3 $43.9 $0.59
Six months ended June 30, 2016
Operating
profit
Income
tax
expense
Net
income
Diluted
EPS
Reported (GAAP) $91.2 $23.9 $66.9 $0.90
Restructuring and related charges 21.4 7.4 14.0 0.19
Venezuela currency devaluation 2.7 - 2.7 0.03
Adjusted (Non-GAAP) $115.3 $31.3 $83.6 $1.12
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 15-18), “Cautionary Statement” (Slide 2)
and today’s press release for an explanation and reconciliation of these items.
($ million, except EPS data)
Reconciliation of Net Sales to Net Sales at Constant Currency(1)
(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.
17
Three months ended June 30, 2016 Proprietary CM Eliminations Total
Reported net sales (GAAP) $311.0 $77.2 $(0.2) $388.0
Effect of changes in currency translation rates 1.5 (0.3) - 1.2
Net sales at constant currency (Non-GAAP)(1) $312.5 $76.9 $(0.2) $389.2
Six months ended June 30, 2016 Proprietary CM Eliminations Total
Reported net sales (GAAP) $601.8 $148.8 $(0.5) $750.1
Effect of changes in currency translation rates 10.4 (0.2) - 10.2
Net sales at constant currency (Non-GAAP)(1) $612.2 $148.6 $(0.5) $760.3
(1) Please refer to “Notes to Non-GAAP Financial Measures” on slides 15 and 16, 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
$1.12 for the remainder of 2016. Actual results will vary as a result of exchange rate variability.
Reconciliation of adjusted diluted EPS guidance to reported diluted EPS guidance
Notes to Non-GAAP Financial Measures
RECONCILIATION OF NON-GAAP MEASURES (UNAUDITED)
See “Notes to Non-GAAP Financial Measures” (Slide 15-18), “Cautionary Statement” (Slide 2)
and today’s press release for an explanation and reconciliation of these items.
18
Full Year 2016 Guidance(1) (2)
Adjusted diluted EPS guidance $2.15 to $2.25
Estimated restructuring charges
Estimated currency devaluation (Venezuela)
(0.23 to 0.28)
(0.03 to 0.08)
Reported diluted EPS guidance $1.79 to $1.99