01—Abstract
Summary
Summary of the 10-K filed February 28, 2017. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported 2016 net sales of $1,509.1 milliona, up 7.8% from $1,399.8 million in 2015, with growth driven by high-value product offerings.
Consolidated operating profit rose to $196.8 millionb from $128.6 million, while net income increased to $143.6 million, or $1.91 per diluted share, compared with $95.6 million, or $1.30 per diluted share, in 2015. The 2016 results absorbed restructuring and related charges of $26.4 million, and 2015 results included a $50.4 million pension settlement charge. The company reorganized into two reportable segments in 2016: Proprietary Products, with net sales of $1,189.9 million, and Contract-Manufactured Products, with net sales of $320.2 million.
Sales outside the U.S. were 51.1% of consolidated net sales in 2016, and the filing highlights currency translation, which reduced 2016 net sales by $17.5 millionc. Cash and cash equivalents were $203.0 million at year-end, total debt declined to $228.6 million from $298.2 million, and operating cash flow was $219.4 million. Looking ahead, the company announced a share repurchase program of up to 800,000 shares to run from January 1, 2017 through December 31, 2017, and plans to freeze its U.S. defined benefit pension plans as of January 1, 2019.
A new facility in Waterford, Ireland, is expected to begin commercial production in 2018. Management also cites risks including reliance on injectable drug delivery, currency exposure, raw material price volatility, and pricing pressure from customers.
02—Key points
Key Highlights
- Consolidated net sales rose $109.3 million, or 7.8%, to $1,509.1 million in 2016; excluding currency translation effects, net sales increased 9.1%.
- Consolidated operating profit increased to $196.8 million from $128.6 million, and net income per diluted share rose to $1.91 from $1.30.
- Proprietary Products net sales grew 8.3% to $1,189.9 million, and its operating profit rose to $241.9 million from $212.2 million.
- Restructuring and related charges totaled $26.4 million in 2016 under a plan approved February 15, 2016, including $8.9 million in severance charges.
- Total debt fell to $228.6 million from $298.2 million, following the $69.8 million repayment that included the maturity of the Euro note B.
- Net cash provided by operating activities was $219.4 million, and capital expenditures were $170.2 million, including construction of a Waterford, Ireland facility.
- Quarterly dividend increased to $0.13 per share in the fourth quarter of 2016, and a new 800,000-share repurchase program begins January 1, 2017.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2016, West Pharmaceutical Services kept $0.10.
- Revenue$1.51B100.0%
- Cost of revenue−$1.01B66.8%
- Gross profit$501.4M33.2%
- Operating costs−$306.2M20.3%
- Operating income$195.2M12.9%
- Interest, other & tax−$51.6M3.4%
- Net income$143.6M9.5%
Where FY2016 revenue went
$1.51B- Cost of revenue: $1.01B, 67% of revenue
- SG&A: $239.6M, 16% of revenue
- Net income: $143.6M, 9.5% of revenue
- R&D: $36.8M, 2.4% of revenue
- Other operating costs: $29.8M, 2.0% of revenue
- Interest, other & tax: $51.6M, 3.4% of revenue
Kept 9.5% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 28, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $1.51B$1.40B | +7.8% |
| Cost of Revenue | $1.01B$944.00M | +6.7% |
| Gross Profit | $501.40M$455.80M | +10.0% |
| R&D Expenses | $36.80M$34.10M | +7.9% |
| SG&A Expenses | $239.60M$233.00M | +2.8% |
| Operating Income | $195.20M$128.60M | +51.8% |
| Interest Expense | $8.10M$14.10M | −42.6% |
| Net Income | $143.60M$95.60M | +50.2% |
| EPS (Basic) | $1.96$1.33 | +47.4% |
| EPS (Diluted) | $1.91$1.30 | +46.9% |
| Shares Outstanding (Basic) | 73.30M72.00M | +1.8% |
| Shares Outstanding (Diluted) | 75.00M73.80M | +1.6% |
05—Questions
Frequently Asked Questions
How did West Pharmaceutical perform financially in 2016?
Net sales were $1,509.1 million, up 7.8% from $1,399.8 million in 2015. Net income was $143.6 million, or $1.91 per diluted share, compared with $95.6 million, or $1.30 per diluted share, in 2015. Operating profit was $196.8 million, compared with $128.6 million a year earlier.
What factors affected 2016 results?
Results included restructuring and related charges of $17.4 million net of tax, a $2.7 million charge related to the devaluation of the Venezuelan Bolivar, and a $1.3 million pension curtailment gain net of tax. Foreign currency translation reduced net sales by $17.5 million compared with 2015.
How much exposure does the company have to international markets?
Sales outside the U.S. accounted for 51.1% of consolidated net sales in 2016. The company also cited exposure to the Euro, Singapore Dollar, Danish Krone, and Japanese Yen through its 25% interest in Daikyo, and it uses hedging arrangements to manage some of these currency risks.
What is the company's capital return policy and outlook?
The company paid cash dividends of $35.8 million ($0.49 per share) in 2016 and declared a quarterly dividend of $0.13 per share in the fourth quarter of 2016. A share repurchase program authorizing up to 800,000 shares began January 1, 2017 and is expected to be completed by December 31, 2017.
What are the main risks identified in the filing?
Key risks include reliance on customers' injectable drug products, currency fluctuations, pricing pressure from customers and consolidation in the pharmaceutical industry, raw material and energy price volatility, reliance on single-source suppliers, and healthcare reform. The filing also notes dependence on the Daikyo license agreements, which expire in 2027.
06—Continue