01—Abstract
Summary
Summary of the 10-K filed February 26, 2016. 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, operating two reportable segments in 2015: Pharmaceutical Packaging Systems and Pharmaceutical Delivery Systems.
Consolidated net sales were $1,399.8 milliona in 2015, down from $1,421.4 million in 2014, with unfavorable foreign currency effects of $123.9 million. Excluding currency effects, the filing states net sales increased 7.2%. Consolidated operating profit fell to $128.6 million from $182.0 million, mainly due to a $50.4 million pension settlement charge and a $10.9 million executive retirement charge.
Net income was $95.6 millionb, or $1.30 per diluted share, versus $127.1 million, or $1.75 per diluted share, in 2014. Operating cash flow rose to $212.4 million from $182.9 million. The company ended 2015 with $274.6 million of cash and cash equivalents, total debt of $298.2 million, and total equity of $1,023.9 million.
Net debt-to-total invested capital improved to 2.3% from 7.7%. Packaging Systems net sales were $1,000.7 millionc and Delivery Systems net sales were $400.2 million. Management stated the company will move to Proprietary Products and Contract-Manufactured Products reportable segments beginning in 2016, and the board approved a restructuring plan in February 2016 with a 2016 charge of $23.0 million to $28.0 million.
The filing also flags currency exposure, with 52.0% of 2015 consolidated net sales generated outside the U.S., and a Venezuelan Bolivar devaluation in February 2016 with an estimated pre-tax charge of $2.3 milliond in the first quarter of 2016. Dependence on injectable drug delivery, pricing pressure, and reliance on licenses from affiliate Daikyo, which expire in 2017, are cited as key risks.
02—Key points
Key Highlights
- Net sales of $1,399.8 million in 2015, down from $1,421.4 million, with a $123.9 million unfavorable foreign currency impact; excluding currency effects, net sales rose 7.2%.
- Net income fell to $95.6 million ($1.30 per diluted share) from $127.1 million ($1.75 per diluted share), reflecting a $50.4 million pension settlement charge and a $10.9 million executive retirement charge.
- Operating profit declined to $128.6 million from $182.0 million; operating profit margin was 9.2% versus 12.8% in 2014.
- Operating cash flow increased to $212.4 million from $182.9 million, and cash and cash equivalents ended the year at $274.6 million.
- Net debt-to-total invested capital improved to 2.3% from 7.7%, with total debt reduced to $298.2 million from $335.5 million.
- Packaging Systems order backlog was $413.2 million at December 31, 2015, up from $339.7 million, with the entire backlog expected to be filled in 2016.
- A 2016 restructuring plan carries an estimated charge of $23.0 million to $28.0 million, with cost reductions of $4.0 million to $5.0 million in 2016 and $8.0 million to $10.0 million in 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2015, West Pharmaceutical Services kept $0.07.
- Revenue$1.40B100.0%
- Cost of revenue−$944.0M67.4%
- Gross profit$455.8M32.6%
- Operating costs−$327.2M23.4%
- Operating income$128.6M9.2%
- Interest, other & tax−$33.0M2.4%
- Net income$95.6M6.8%
Where FY2015 revenue went
$1.40B- Cost of revenue: $944.0M, 67% of revenue
- SG&A: $233.0M, 17% of revenue
- Net income: $95.6M, 6.8% of revenue
- R&D: $34.1M, 2.4% of revenue
- Other operating costs: $60.1M, 4.3% of revenue
- Interest, other & tax: $33.0M, 2.4% of revenue
Kept 6.8% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2015filed February 26, 2016Financial Statements
FY2015 against FY2014
| Line item | FY2015FY2014 | Change |
|---|---|---|
| Revenue | $1.40B$1.42B | −1.5% |
| Cost of Revenue | $944.00M$973.60M | −3.0% |
| Gross Profit | $455.80M$447.80M | +1.8% |
| R&D Expenses | $34.10M$37.30M | −8.6% |
| SG&A Expenses | $233.00M$228.70M | +1.9% |
| Operating Income | $128.60M$182.00M | −29.3% |
| Interest Expense | $14.10M$16.50M | −14.5% |
| Net Income | $95.60M$127.10M | −24.8% |
| EPS (Basic) | $1.33$1.79 | −25.7% |
| EPS (Diluted) | $1.30$1.75 | −25.7% |
| Shares Outstanding (Basic) | 72.00M70.90M | +1.6% |
| Shares Outstanding (Diluted) | 73.80M72.80M | +1.4% |
05—Questions
Frequently Asked Questions
How did West Pharmaceutical perform in 2015 compared with 2014?
Net sales declined 1.5% to $1,399.8 million, mainly because of foreign currency headwinds of $123.9 million. Excluding currency effects, net sales increased 7.2%. Net income fell to $95.6 million from $127.1 million, largely due to a $50.4 million pension settlement charge and a $10.9 million executive retirement charge.
What drove the decline in operating profit?
Operating profit fell to $128.6 million from $182.0 million. The filing attributes the decline mostly to the $50.4 million pension settlement charge, the $10.9 million charge for executive retirement and related costs, and an unfavorable foreign currency impact of $29.3 million.
How much exposure does the company have to foreign currency?
Sales outside the U.S. accounted for 52.0% of 2015 consolidated net sales. The most significant currencies are the Euro, Singapore Dollar and Danish Krone. The company also cited a February 2016 Venezuelan Bolivar devaluation, with an estimated pre-tax charge of $2.3 million in the first quarter of 2016.
What changes are planned for the company's reporting structure?
Beginning in 2016, the company will replace its Packaging Systems and Delivery Systems segments with Proprietary Products and Contract-Manufactured Products as reportable segments. The Proprietary Products segment combines the Packaging Systems segment with the proprietary products portion of Delivery Systems.
What are the main risks highlighted in the filing?
Key risks include dependence on injectable drug delivery, pricing pressure from customers and competitors, consolidation in the pharmaceutical industry, and reliance on single-source suppliers for critical raw materials. The company also cites licenses from affiliate Daikyo, which expire in 2017 and are expected to be renewed, as important to its business.
06—Continue