01—Abstract
Summary
Summary of the 10-K filed February 25, 2015. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported 2014 net sales of $1,421.4 milliona, up 3.9% from $1,368.4 million in 2013, with net income of $127.1 million, or $1.75 per diluted share, compared with $112.3 million, or $1.57 per diluted share, in 2013.
Operating profit rose 12.1% to $182.0 millionb, and operating margin improved to 12.8% from 11.9%. Gross margin slipped to 31.5% from 31.8%. Packaging Systems net sales grew 2.4% to $1,019.7 million, while Delivery Systems grew 7.6% to $402.5 million, with proprietary net sales representing 26.2% of Delivery Systems sales.
The balance sheet strengthened, with total debt falling to $336.7 millionc from $373.5 million and net debt-to-total invested capital declining to 7.8% from 13.7%. Cash and cash equivalents rose to $255.3 million, and operating cash flow was $182.9 million, down from $220.5 million, largely due to a $27.2 million increase in pension contributions and the absence of a $20.0 million customer payment received in June 2013. Management flagged that translation of non-U.S. dollar sales is expected to adversely affect 2015 sales and net income per share, and noted a $100.0 million share repurchase authorization approved in October 2014 with no shares repurchased as of year-end.
The Board also approved a quarterly dividend increase to $0.11d per share beginning in the fourth quarter of 2014. Leadership transition is a key watch item: Chairman and CEO Donald E.
Morel, Jr. announced his intention to retire at the May 2015 annual meeting, and the Board has launched a search for his successor. Sales outside the U.S. accounted for 54% of 2014 consolidated net sales, and the company cited ongoing risks from currency fluctuations, Venezuelan currency restrictions, and reliance on injectable drug products.
02—Key points
Key Highlights
- Net sales of $1,421.4 million in 2014, up 3.9% from 2013; excluding foreign currency effects, sales rose 4.3%.
- Net income of $127.1 million, or $1.75 per diluted share, versus $112.3 million, or $1.57 per diluted share, in 2013.
- Operating profit increased 12.1% to $182.0 million, with operating margin rising to 12.8% from 11.9%.
- Total debt declined to $336.7 million from $373.5 million; net debt-to-total invested capital fell to 7.8% from 13.7%.
- Operating cash flow was $182.9 million, down from $220.5 million, reflecting a $27.2 million increase in pension contributions and a $20.0 million customer payment received in 2013.
- Board approved a $100.0 million share repurchase program in October 2014 (no shares repurchased by year-end) and raised the quarterly dividend to $0.11 per share.
- Chairman and CEO Donald E. Morel, Jr. announced his intention to retire at the May 2015 annual meeting; a successor search is underway.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2014, West Pharmaceutical Services kept $0.09.
- Revenue$1.42B100.0%
- Cost of revenue−$973.6M68.5%
- Gross profit$447.8M31.5%
- Operating costs−$265.8M18.7%
- Operating income$182.0M12.8%
- Interest, other & tax−$54.9M3.9%
- Net income$127.1M8.9%
Where FY2014 revenue went
$1.42B- Cost of revenue: $973.6M, 68% of revenue
- SG&A: $228.7M, 16% of revenue
- Net income: $127.1M, 8.9% of revenue
- R&D: $37.3M, 2.6% of revenue
- Interest, other & tax: $54.9M, 3.9% of revenue
Kept 8.9% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 25, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $1.42B$1.37B | +3.9% |
| Cost of Revenue | $973.60M$933.70M | +4.3% |
| Gross Profit | $447.80M$434.70M | +3.0% |
| R&D Expenses | $37.30M$37.90M | −1.6% |
| SG&A Expenses | $228.70M$234.90M | −2.6% |
| Operating Income | $182.00M$162.40M | +12.1% |
| Interest Expense | $16.50M$17.00M | −2.9% |
| Net Income | $127.10M$112.30M | +13.2% |
| EPS (Basic) | $1.79$1.61 | +11.2% |
| EPS (Diluted) | $1.75$1.57 | +11.5% |
| Shares Outstanding (Basic) | 70.90M69.60M | +1.9% |
| Shares Outstanding (Diluted) | 72.80M71.40M | +2.0% |
05—Questions
Frequently Asked Questions
How did West Pharmaceutical's profitability change in 2014?
Net income rose to $127.1 million, or $1.75 per diluted share, from $112.3 million, or $1.57 per diluted share, in 2013. Operating profit increased 12.1% to $182.0 million, and operating margin improved to 12.8% from 11.9%. Gross margin declined slightly to 31.5% from 31.8%.
How did the two business segments perform?
Packaging Systems net sales increased 2.4% to $1,019.7 million, with operating profit rising 2.8% to $223.0 million. Delivery Systems net sales increased 7.6% to $402.5 million, and its operating profit rose 43.6% to $13.5 million. Proprietary products represented 26.2% of Delivery Systems net sales.
What risks did management highlight for 2015?
Management stated that translation of non-U.S. dollar-denominated sales is expected to adversely affect 2015 sales and net income per share compared with 2014. The filing also cites Venezuelan currency restrictions, with $2.0 million in net monetary assets denominated in bolivars, and continued pricing pressure and dependence on injectable drug products.
Is there a leadership change coming?
Yes. Donald E. Morel, Jr., Ph.D., Chairman and Chief Executive Officer, announced his intention to retire at the Annual Meeting in May 2015. The Board of Directors has launched a comprehensive search for his successor.
What is the company's capital return and financial position?
The Board approved an increase in the quarterly dividend to $0.11 per share beginning with the fourth quarter 2014 dividend, and authorized repurchases of up to $100.0 million of common stock through December 31, 2015, with no shares repurchased as of December 31, 2014. Cash and cash equivalents were $255.3 million, and borrowing capacity under the revolving credit facility was $266.8 million.
06—Continue