01—Abstract
Summary
Summary of the 10-K filed February 24, 2020. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. (NYSE: WST) reported net sales of $1,839.9 milliona for 2019, up 7.1% from $1,717.4 million in 2018, or 10.0% excluding foreign currency translation effects of $52.2 million and $3.3 million of incremental sales from a recent acquisition.
Net income rose to $241.7 millionb, or $3.21 per diluted share, from $206.9 million, or $2.74 per diluted share, with consolidated operating profit up 23.4% to $296.6 million. Growth was led by the Proprietary Products segment, where net sales rose 6.9% to $1,398.6 million and gross margin improved to 38.6%, while Contract-Manufactured Products net sales rose 7.9% to $441.5 million. Operating cash flow increased to $367.2 million from $288.6 million.
The balance sheet strengthened over the year, with cash and cash equivalents of $439.1 millionc, total assets of $2,341.4 million and total equity of $1,573.2 million. Total debt rose to $257.3 million, driven by a $90.0 million Term Loan, and the company increased its ownership in Daikyo from 25% to 49% in exchange for $85.1 million in cash and $4.9 million in treasury stock. Proprietary Products order backlog grew to $587.9 million at December 31, 2019, from $407.3 million a year earlier.
Investors should also note that the filing identifies a voluntary recall of the Vial2Bag product line, ongoing currency exposure (55.7% of 2019 net sales came from outside the U.S.), and continued reliance on single-source raw material suppliers. The company repurchased 800,000 shares for $83.1 milliond in 2019 and announced a program to repurchase up to 848,000 shares in 2020. Quarterly dividends rose to $0.16 per share in the fourth quarter of 2019, and total 2019 dividends declared were $0.62 per share.
02—Key points
Key Highlights
- Consolidated net sales rose 7.1% to $1,839.9 million; excluding $52.2 million of unfavorable currency translation and $3.3 million of acquisition sales, growth was 10.0%.
- Net income increased to $241.7 million ($3.21 per diluted share) from $206.9 million ($2.74 per diluted share), with 2019 results including a $10.3 million stock-based compensation tax benefit.
- Proprietary Products net sales grew 6.9% to $1,398.6 million, with gross profit margin rising to 38.6% from 37.1%.
- Proprietary Products order backlog increased to $587.9 million at December 31, 2019, from $407.3 million at December 31, 2018.
- Operating cash flow rose to $367.2 million from $288.6 million, and cash and cash equivalents ended the year at $439.1 million.
- The company increased its Daikyo ownership from 25% to 49% for $85.1 million in cash and $4.9 million in treasury stock.
- Total debt increased to $257.3 million, including a $90.0 million Term Loan, and the company repurchased 800,000 shares for $83.1 million in 2019.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2019, West Pharmaceutical Services kept $0.13.
- Revenue$1.84B100.0%
- Cost of revenue−$1.23B67.1%
- Gross profit$605.7M32.9%
- Operating costs−$309.1M16.8%
- Operating income$296.6M16.1%
- Interest, other & tax−$54.9M3.0%
- Net income$241.7M13.1%
Where FY2019 revenue went
$1.84B- Cost of revenue: $1.23B, 67% of revenue
- SG&A: $272.7M, 15% of revenue
- Net income: $241.7M, 13% of revenue
- R&D: $38.9M, 2.1% of revenue
- Interest, other & tax: $54.9M, 3.0% of revenue
Kept 13% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2019filed February 24, 2020Financial Statements
FY2019 against FY2018
| Line item | FY2019FY2018 | Change |
|---|---|---|
| Revenue | $1.84B$1.72B | +7.1% |
| Cost of Revenue | $1.23B$1.17B | +5.3% |
| Gross Profit | $605.70M$545.40M | +11.1% |
| R&D Expenses | $38.90M$40.30M | −3.5% |
| SG&A Expenses | $272.70M$262.90M | +3.7% |
| Operating Income | $296.60M$240.30M | +23.4% |
| Interest Expense | $8.50M$8.40M | +1.2% |
| Net Income | $241.70M$206.90M | +16.8% |
| EPS (Basic) | $3.27$2.80 | +16.8% |
| EPS (Diluted) | $3.21$2.74 | +17.2% |
| Shares Outstanding (Basic) | 74.00M73.90M | +0.1% |
| Shares Outstanding (Diluted) | 75.40M75.40M | 0.0% |
05—Questions
Frequently Asked Questions
How did West Pharmaceutical perform financially in 2019?
Net sales increased 7.1% to $1,839.9 million, and net income rose to $241.7 million, or $3.21 per diluted share, compared with $206.9 million, or $2.74 per diluted share, in 2018. Consolidated operating profit increased 23.4% to $296.6 million.
What drove growth in the Proprietary Products segment?
The filing attributes growth to high-value product offerings, including Daikyo components, ready-to-use seals, stoppers and plungers, NovaPure components, Crystal Zenith products, self-injection systems and FluroTec-coated components. Segment gross profit margin improved to 38.6% from 37.1%.
How much of the company's business is outside the United States?
Sales outside the U.S. accounted for 55.7% of consolidated net sales in 2019. The company notes that this exposes it to currency fluctuations, multiple tax jurisdictions and regulatory and political risks, particularly in South America, Israel and the Middle East.
What capital return actions did the company take?
In 2019 the company repurchased 800,000 shares for $83.1 million and paid $45.1 million in dividends. It also announced a 2020 repurchase program of up to 848,000 shares, expected to be completed by December 31, 2020, and declared a fourth-quarter 2019 dividend of $0.16 per share.
What were the notable risks or one-time items in 2019?
The filing discloses a voluntary recall of the Vial2Bag product line, issued January 24, 2019, which led to a net provision of $5.4 million for inventory returns during 2019. Other items included a $1.0 million charge for Argentina's currency devaluation, $4.7 million in tax recoveries on previously paid international excise taxes, and restructuring charges of $4.9 million.
06—Continue