01—Abstract
Summary
Summary of the 10-K filed February 26, 2018. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported net sales of $1,599.1 milliona in 2017, up $90.0 million, or 6.0%, from $1,509.1 million in 2016, including a favorable foreign currency translation impact of $12.2 million.
Operating profit rose to $228.9 millionb from $196.8 million, and net income was $150.7 million, or $1.99 per diluted share, compared with $143.6 million, or $1.91 per diluted share, in 2016. Results were affected by a $48.8 million discrete tax charge tied to the 2017 Tax Act, a $33.1 million tax benefit from share-based payment accounting guidance, and an $11.1 million charge from deconsolidating the Venezuelan subsidiary. The Proprietary Products segment generated $1,236.9 million of net sales, up 3.9%, while Contract-Manufactured Products grew 13.2% to $362.5 million.
Management noted Proprietary Products growth slowed as customers worked down inventory bought in 2016. Sales outside the U.S. were 54.1% of consolidated net sales in 2017. Cash and cash equivalents ended the year at $235.9 millionc, operating cash flow was $263.3 million, and total debt declined to $197.0 million from $228.6 million.
In February 2018, the Board approved a restructuring plan to realign manufacturing capacity with demand, with expected charges of $8.0 million to $13.0 milliond and annualized savings of $17.0 million to $22.0 million once complete. The Company also announced an 800,000-share repurchase program for 2018 and noted that the Waterford, Ireland facility is expected to begin commercial production in the second half of 2018.
02—Key points
Key Highlights
- Net sales of $1,599.1 million in 2017, up 6.0% from $1,509.1 million, with $77.8 million of the increase excluding currency effects.
- Operating profit of $228.9 million, up 16.3%, with operating margin of 14.3% versus 13.0% in 2016.
- Net income of $150.7 million, or $1.99 per diluted share, after a $48.8 million discrete tax charge related to the 2017 Tax Act.
- Contract-Manufactured Products sales grew 13.2% to $362.5 million, driven mainly by the ramp-up of projects that began in late 2016.
- Proprietary Products sales rose 3.9% to $1,236.9 million as customers worked down 2016 inventory purchases.
- Operating cash flow of $263.3 million and year-end cash of $235.9 million; total debt reduced to $197.0 million.
- February 2018 restructuring plan targets $17.0 million to $22.0 million in annualized savings, with charges of $8.0 million to $13.0 million.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, West Pharmaceutical Services kept $0.09.
- Revenue$1.60B100.0%
- Cost of revenue−$1.09B67.9%
- Gross profit$512.9M32.1%
- Operating costs−$287.1M18.0%
- Operating income$225.8M14.1%
- Interest, other & tax−$75.1M4.7%
- Net income$150.7M9.4%
Where FY2017 revenue went
$1.60B- Cost of revenue: $1.09B, 68% of revenue
- SG&A: $246.0M, 15% of revenue
- Net income: $150.7M, 9.4% of revenue
- R&D: $39.1M, 2.4% of revenue
- Interest, other & tax: $75.1M, 4.7% of revenue
Kept 9.4% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 26, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $1.60B$1.51B | +6.0% |
| Cost of Revenue | $1.09B$1.01B | +7.8% |
| Gross Profit | $512.90M$501.40M | +2.3% |
| R&D Expenses | $39.10M$36.80M | +6.3% |
| SG&A Expenses | $246.00M$239.60M | +2.7% |
| Operating Income | $225.80M$195.20M | +15.7% |
| Interest Expense | $7.80M$8.10M | −3.7% |
| Net Income | $150.70M$143.60M | +4.9% |
| EPS (Basic) | $2.04$1.96 | +4.1% |
| EPS (Diluted) | $1.99$1.91 | +4.2% |
| Shares Outstanding (Basic) | 73.90M73.30M | +0.8% |
| Shares Outstanding (Diluted) | 75.80M75.00M | +1.1% |
05—Questions
Frequently Asked Questions
How did West Pharmaceutical perform financially in 2017?
Net sales rose 6.0% to $1,599.1 million and operating profit increased 16.3% to $228.9 million. Net income was $150.7 million, or $1.99 per diluted share, compared with $1.91 in 2016. Results include a $48.8 million discrete tax charge from the 2017 Tax Act and a $33.1 million tax benefit from share-based payment accounting changes.
What drove growth in each business segment?
Proprietary Products net sales increased 3.9% to $1,236.9 million, with higher sales volume contributing 2.2 percentage points and price increases 1.0 point. Contract-Manufactured Products sales increased 13.2% to $362.5 million, primarily from the initial commercial ramp-up of projects that started in the latter half of 2016.
How much of the company's business is outside the United States?
Sales outside the U.S. accounted for 54.1% of consolidated net sales in 2017. The company is exposed to currency fluctuations, multiple tax jurisdictions, and political risks, particularly in South America and Israel.
What restructuring and capital plans were announced after year-end?
In February 2018, the Board approved a restructuring plan to realign manufacturing capacity with demand, with restructuring charges of $8.0 million to $13.0 million, capital expenditures of $9.0 million to $14.0 million, and expected annualized savings of $17.0 million to $22.0 million. The company also announced a share repurchase program of up to 800,000 shares for 2018.
What is the company's financial position and capital return activity?
At December 31, 2017, the company had $235.9 million of cash and cash equivalents, $267.5 million of available borrowing capacity under its Credit Facility, and total equity of $1,279.9 million. During 2017 it paid $39.1 million in dividends and repurchased 800,000 shares for $74.4 million under its 2016-announced program.
06—Continue