01—Abstract
Summary
Summary of the 10-K filed February 28, 2019. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported 2018 net sales of $1,717.4 milliona, up 7.4% from $1,599.1 million in 2017, or 5.6% excluding foreign currency translation effects.
Net income rose to $206.9 millionb, or $2.74 per diluted share, from $150.7 million, or $1.99 per diluted share, in 2017. The 2017 result included a $48.8 million discrete tax charge tied to the 2017 Tax Act, while 2018 included a $14.3 million tax benefit from share-based payment accounting and $7.2 million of restructuring and related charges (net of tax). Operating profit increased to $240.3 million, and operating cash flow rose to $288.6 million.
The Proprietary Products segment drove growth, with net sales of $1,308.6 millionc (up 5.8%) and a gross profit margin of 37.1%. Contract-Manufactured Products net sales were $409.1 million (up 12.9%), but its gross profit margin fell to 14.7% from 17.5%. Sales outside the U.S. were 55.4% of consolidated net sales.
The company disclosed a voluntary recall of its Vial2Bag product line on January 24, 2019, after a $11.3 milliond provision for product returns was recorded as a reduction of 2018 sales. Balance sheet and liquidity were strengthened: cash and cash equivalents reached $337.4 million, working capital rose to $610.7 million, and total debt was $196.1 million against total equity of $1,396.3 million.
Available capacity under the $300.0 million Credit Facility was $268.9 million. The board also approved an 800,000-share repurchase program for 2019, and dividends declared per share rose to $0.58 from $0.54.
02—Key points
Key Highlights
- Net sales rose 7.4% to $1,717.4 million in 2018; excluding currency translation, growth was 5.6%.
- Diluted EPS was $2.74 in 2018, up from $1.99 in 2017, which was depressed by a $48.8 million discrete tax charge.
- Proprietary Products net sales grew 5.8% to $1,308.6 million with a 37.1% gross profit margin; Contract-Manufactured Products sales grew 12.9% to $409.1 million, but its gross margin fell to 14.7%.
- The January 24, 2019 voluntary recall of Vial2Bag products followed an $11.3 million provision for product returns recorded against 2018 sales.
- Cash and cash equivalents increased to $337.4 million, and operating cash flow was $288.6 million.
- Sales outside the U.S. were 55.4% of 2018 consolidated net sales, and the top ten customers accounted for 37.1%.
- The board announced an 800,000-share repurchase program for 2019 and the dividend per share rose to $0.58 for 2018 from $0.54.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, West Pharmaceutical Services kept $0.12.
- Revenue$1.72B100.0%
- Cost of revenue−$1.17B68.2%
- Gross profit$545.4M31.8%
- Operating costs−$305.1M17.8%
- Operating income$240.3M14.0%
- Interest, other & tax−$33.4M1.9%
- Net income$206.9M12.0%
Where FY2018 revenue went
$1.72B- Cost of revenue: $1.17B, 68% of revenue
- SG&A: $262.9M, 15% of revenue
- Net income: $206.9M, 12% of revenue
- R&D: $40.3M, 2.3% of revenue
- Interest, other & tax: $33.4M, 1.9% of revenue
Kept 12% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 28, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $1.72B$1.60B | +7.4% |
| Cost of Revenue | $1.17B$1.09B | +7.9% |
| Gross Profit | $545.40M$512.90M | +6.3% |
| R&D Expenses | $40.30M$39.10M | +3.1% |
| SG&A Expenses | $262.90M$246.00M | +6.9% |
| Operating Income | $240.30M$225.80M | +6.4% |
| Interest Expense | $8.40M$7.80M | +7.7% |
| Net Income | $206.90M$150.70M | +37.3% |
| EPS (Basic) | $2.80$2.04 | +37.3% |
| EPS (Diluted) | $2.74$1.99 | +37.7% |
| Shares Outstanding (Basic) | 73.90M73.90M | 0.0% |
| Shares Outstanding (Diluted) | 75.40M75.80M | −0.5% |
05—Questions
Frequently Asked Questions
What drove the increase in net income in 2018?
Net income rose to $206.9 million from $150.7 million. The 2017 result included a $48.8 million discrete tax charge related to the 2017 Tax Act, and the 2018 effective tax rate was 17.2%, compared with 36.4% in 2017. 2018 also included a $14.3 million tax benefit from the adoption of share-based payment guidance.
What is the status of the Vial2Bag recall?
West issued a voluntary recall of its Vial2Bag product line on January 24, 2019, due to reports of potential unpredictable or variable dosing under certain conditions. The 2018 results included an $11.3 million provision for product returns. Inventory for these devices was $6.5 million at December 31, 2018, and the company believes the returned inventory will be saleable in 2019.
How is the company's debt position and liquidity?
Total debt was $196.1 million at December 31, 2018, compared with $197.0 million a year earlier. Cash was $337.4 million, and $268.9 million was available under the $300.0 million Credit Facility. The company stated it was in compliance with all debt covenants.
Why did the Contract-Manufactured Products margin decline?
Gross profit margin for Contract-Manufactured Products fell 2.8 margin points to 14.7%. The filing attributes this to unabsorbed overhead from plant consolidation, start-up costs for new program launches, an unfavorable product mix, lower profitability on development and tooling agreements, and higher raw material costs, partially offset by sales price increases and production efficiencies.
What is the company's exposure to foreign currency?
Sales outside the U.S. were 55.4% of 2018 consolidated net sales. Foreign currency translation added $28.6 million to 2018 net sales. The company uses forward exchange contracts and designates certain Euro and Yen borrowings as hedges of net investments in foreign operations.
06—Continue