01—Abstract
Summary
Summary of the 10-K filed February 27, 2014. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. (NYSE: WST) is a manufacturer of components and systems for the packaging and delivery of injectable drugs, organized into two reportable segments: Pharmaceutical Packaging Systems and Pharmaceutical Delivery Systems.
For 2013, net sales were $1,368.4 milliona, up 8.0% from 2012, and net income was $112.3 million, or $1.57 per diluted share, compared with $80.7 million, or $1.15 per diluted share, in 2012. Operating profit rose to $162.4 million, with operating profit margin of 11.9%, and gross margin improved to 31.8%. Packaging Systems drove most of the growth, with net sales of $996.0 million and operating profit of $217.0 million, while Delivery Systems' operating profit fell to $9.4 million from $18.4 million.
Cash flow and balance sheet strengthened over the year. Net cash provided by operating activities was $220.5 million, cash and cash equivalents rose to $230.0 millionb, and total debt declined to $373.5 million from $411.5 million. Net debt-to-total invested capital fell to 13.7% from 25.5%.
The company also doubled its share count through a two-for-one stock split in September 2013 and raised its quarterly dividend to $0.10c per share in the fourth quarter of 2013. Management anticipates continued revenue and margin improvement in 2014, driven by demand for higher-quality products and a rising share of proprietary Delivery Systems products.
Key risks disclosed include dependence on injectable drug delivery, pricing pressure, currency exposure (55% of 2013 net sales came from outside the U.S.), reliance on single-source raw materials, FDA regulatory timelines, and the expiration of Daikyo license agreements in 2017. The Packaging Systems order backlog was $336.6 milliond at December 31, 2013, down from $349.1 million, and management expects the entire backlog to be filled during 2014.
02—Key points
Key Highlights
- Net sales of $1,368.4 million in 2013, up 8.0% from 2012; excluding foreign currency effects, up 7.2%.
- Net income of $112.3 million, or $1.57 per diluted share, compared with $80.7 million, or $1.15 per diluted share, in 2012.
- Gross margin rose to 31.8% from 30.6%, and operating profit margin rose to 11.9% from 10.7%.
- Packaging Systems net sales grew 8.8% to $996.0 million, with operating profit of $217.0 million; Delivery Systems operating profit fell 48.9% to $9.4 million.
- Net cash provided by operating activities was $220.5 million, and cash and cash equivalents ended the year at $230.0 million.
- Total debt decreased to $373.5 million from $411.5 million, and net debt-to-total invested capital fell to 13.7% from 25.5%.
- Quarterly dividend increased to $0.10 per share beginning with the fourth quarter 2013 dividend, following a two-for-one stock split in September 2013.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2013, West Pharmaceutical Services kept $0.08.
- Revenue$1.37B100.0%
- Cost of revenue−$933.7M68.2%
- Gross profit$434.7M31.8%
- Operating costs−$272.3M19.9%
- Operating income$162.4M11.9%
- Interest, other & tax−$50.1M3.7%
- Net income$112.3M8.2%
Where FY2013 revenue went
$1.37B- Cost of revenue: $933.7M, 68% of revenue
- SG&A: $234.9M, 17% of revenue
- Net income: $112.3M, 8.2% of revenue
- R&D: $37.9M, 2.8% of revenue
- Interest, other & tax: $50.1M, 3.7% of revenue
Kept 8.2% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2013filed February 27, 2014Financial Statements
FY2013 against FY2012
| Line item | FY2013FY2012 | Change |
|---|---|---|
| Revenue | $1.37B$1.27B | +8.1% |
| Cost of Revenue | $933.70M$878.70M | +6.3% |
| Gross Profit | $434.70M$387.70M | +12.1% |
| R&D Expenses | $37.90M$33.20M | +14.2% |
| SG&A Expenses | $234.90M$218.10M | +7.7% |
| Operating Income | $162.40M$135.10M | +20.2% |
| Interest Expense | $17.00M$16.70M | +1.8% |
| Net Income | $112.30M$80.70M | +39.2% |
| EPS (Basic) | $1.61$1.19 | +35.3% |
| EPS (Diluted) | $1.57$1.15 | +36.5% |
| Shares Outstanding (Basic) | 69.60M68.10M | +2.2% |
| Shares Outstanding (Diluted) | 71.40M71.80M | −0.6% |
05—Questions
Frequently Asked Questions
How did West Pharmaceutical Services perform financially in 2013?
Net sales rose 8.0% to $1,368.4 million and operating profit increased to $162.4 million. Net income was $112.3 million, or $1.57 per diluted share, up from $1.15 in 2012, and the company generated $220.5 million in operating cash flow.
Which segment drove growth, and which lagged?
Packaging Systems drove growth, with net sales of $996.0 million, up 8.8%, and operating profit of $217.0 million, up 15.7%. Delivery Systems net sales rose 6.2% to $374.1 million, but its operating profit declined to $9.4 million from $18.4 million, due to factors described in the filing including development and cost increases.
How much of West's business comes from outside the U.S.?
Sales outside the U.S. accounted for 55% of consolidated net sales in 2013. The company is exposed to currency fluctuations, with approximately 45% of revenues generated in Europe, and it uses hedging arrangements including financial derivatives to manage some of this risk.
What are the main risks investors should consider?
Key risks include dependence on customers' injectable drug products, pricing pressure from customers and competitors, consolidation in the pharmaceutical industry, currency fluctuations, reliance on single-source suppliers for many critical raw materials, lengthy FDA approval processes, and the need to renew Daikyo license agreements that expire in 2017.
What changes were made to shareholder returns in 2013?
The Board approved a two-for-one stock split effective through a share distribution on September 26, 2013, and raised the quarterly dividend to $0.10 per share starting with the fourth quarter 2013 dividend. Total dividends paid were $26.8 million ($0.385 per share) in 2013, compared with $24.9 million ($0.365 per share) in 2012.
06—Continue