01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. (WST) reported net sales of $1,192.3 milliona for 2011, up 7.9% from $1,104.7 million in 2010 (5.2% excluding foreign currency effects).
Operating profit rose to $109.6 millionb from $90.7 million, and net income was $75.5 million, or $2.16 per diluted share, compared with $65.3 million, or $1.89 per diluted share, in 2010. Growth was driven by sales volume, sales price increases and a favorable foreign exchange impact of $30.2 million, while gross margin slipped to 28.5% from 28.8% because of higher raw material costs. Packaging Systems, the larger segment with $857.4 million in net sales, grew 9.2%, while Delivery Systems grew 3.9% to $336.7 million.
Management describes its 2012 outlook as positive, anticipating continued revenue improvement in high-value packaging and prefilled syringe components, modest growth from proprietary devices such as SmartDose, and planned 2012 capital spending of approximately $135 million to $155 millionc. Cash flow from operations was $130.7 million, and total debt was $349.4 million at year-end, against cash and cash equivalents of $91.8 million.
The company also raised its quarterly dividend to $0.18d per share in the fourth quarter of 2011 and reported a $289.8 million order backlog at December 31, 2011. Key risks flagged in the filing include raw material and energy price volatility, pricing pressure from customers and competitors, dependence on injectable drug products, regulatory approval timelines, and international currency exposure, with more than half of revenue generated outside the United States.
02—Key points
Key Highlights
- Net sales rose 7.9% to $1,192.3 million in 2011, with 5.2% growth excluding foreign currency effects.
- Net income increased to $75.5 million, or $2.16 per diluted share, from $65.3 million, or $1.89 per diluted share, in 2010.
- Operating profit increased to $109.6 million from $90.7 million, though gross margin declined to 28.5% from 28.8% due to higher raw material costs.
- Packaging Systems net sales grew 9.2% to $857.4 million, while Delivery Systems grew 3.9% to $336.7 million.
- Cash flow from operations was $130.7 million, and capital spending is expected to be between approximately $135 million and $155 million in 2012.
- Order backlog was $289.8 million at December 31, 2011, up from $250.6 million a year earlier, all expected to be filled in 2012.
- The quarterly dividend was raised to $0.18 per share in the fourth quarter of 2011 from $0.17.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2011, West Pharmaceutical Services kept $0.06.
- Revenue$1.19B100.0%
- Cost of revenue−$853.0M71.5%
- Gross profit$339.3M28.5%
- Operating costs−$229.7M19.3%
- Operating income$109.6M9.2%
- Interest, other & tax−$34.1M2.9%
- Net income$75.5M6.3%
Where FY2011 revenue went
$1.19B- Cost of revenue: $853.0M, 72% of revenue
- SG&A: $191.1M, 16% of revenue
- Net income: $75.5M, 6.3% of revenue
- R&D: $29.1M, 2.4% of revenue
- Other operating costs: $9.5M, 0.8% of revenue
- Interest, other & tax: $34.1M, 2.9% of revenue
Kept 6.3% as net incomeOther operating costs $9.5M · 0.8%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $1.19B$1.10B | +7.9% |
| Cost of Revenue | $853.00M$786.60M | +8.4% |
| Gross Profit | $339.30M$318.10M | +6.7% |
| R&D Expenses | $29.10M$23.90M | +21.8% |
| SG&A Expenses | $191.10M$187.70M | +1.8% |
| Operating Income | $109.60M$90.70M | +20.8% |
| Interest Expense | $18.20M$16.80M | +8.3% |
| Net Income | $75.50M$65.30M | +15.6% |
| EPS (Basic) | $1.12$1.96 | −42.9% |
| EPS (Diluted) | $1.08$1.89 | −42.9% |
| Shares Outstanding (Basic) | 67.30M33.30M | +102.1% |
| Shares Outstanding (Diluted) | 74.00M36.70M | +101.6% |
05—Questions
Frequently Asked Questions
What drove West's revenue growth in 2011?
Consolidated net sales increased $87.6 million, or 7.9%, with sales volume contributing 3.9 percentage points and sales price increases contributing 1.3 percentage points. Favorable foreign exchange added $30.2 million of the increase.
How did raw material costs affect profitability?
Increased raw material costs, mainly natural rubber and hydrocarbon-linked materials such as synthetic polymers and plastic resin, reduced consolidated gross margin by 2.2 percentage points. A temporary raw materials surcharge implemented in July 2011 partly offset these costs.
What is the company's outlook for 2012?
Management describes its 2012 business outlook as positive, anticipating continued revenue improvement in high-value packaging and prefilled syringe components, and modest growth from proprietary devices. It expects an effective tax rate of approximately 25.0% for 2012.
How leveraged is West's balance sheet?
Total debt was $349.4 million and total equity was $654.9 million at December 31, 2011, with a net debt-to-total invested capital ratio of 28.2%. The company stated it was in compliance with all debt covenants.
What are the main risks highlighted in the filing?
Key risks include raw material and energy price volatility, pricing pressure from customers and competitors, dependence on customers' injectable drug products, lengthy FDA and international regulatory approval processes, foreign currency exposure, and reliance on single-source suppliers for many critical raw materials.
06—Continue