01—Abstract
Summary
Summary of the 10-K filed February 22, 2022. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. (NYSE: WST) reported a strong 2021 in its 10-K filed February 22, 2022.
Consolidated net sales rose to $2,831.6 milliona from $2,146.9 million, an increase of 31.9% that the filing attributes largely to the Proprietary Products segment, whose sales grew 40.6% to $2,317.3 million. The filing notes approximately $459 million of COVID-19 related activity in Proprietary Products sales in 2021, versus about $99 million in 2020. Consolidated operating profit increased to $752.3 million from $406.9 million, and net income rose to $661.8 million from $346.2 million.
Diluted EPS was $8.67b, compared with $4.57 in 2020. Adjusted consolidated operating profit was $762.4 million, a non-U.S. GAAP measure that excludes unallocated items. Cash flow and balance sheet strengthened over the year.
Net cash provided by operating activities was $584.0 millionc, and capital expenditures were $253.4 million, reflecting investment to meet customer demand. Cash and cash equivalents ended the year at $762.6 million, and total debt was $253.0 million. The Credit Facility had no outstanding borrowings at December 31, 2021, with $297.6 million of available borrowing capacity.
Working capital increased to $1,147.9 milliond. Shareholder returns included dividends of $0.70 per share in 2021 and $137.1 million of share repurchases. The Board approved a 2022 repurchase program of up to 650,000 shares.
The filing also highlights ongoing risks. Sales outside the U.S. accounted for 57.7% of 2021 consolidated net sales, exposing the company to currency and political risks. The ten largest customers represented 41.4% of net sales.
Management flags reliance on injectable drug delivery, single-source raw materials, LIBOR transition, and Daikyo license agreements expiring in 2027. The company reported effective internal control over financial reporting as of December 31, 2021, and PricewaterhouseCoopers LLP issued an unqualified opinion.
02—Key points
Key Highlights
- Consolidated net sales of $2,831.6 million, up 31.9% from $2,146.9 million in 2020, with Proprietary Products up 40.6%
- Proprietary Products included approximately $459 million of COVID-19 related sales in 2021, compared with approximately $99 million in 2020
- Consolidated operating profit of $752.3 million (26.6% margin) versus $406.9 million in 2020; adjusted operating profit of $762.4 million (26.9% margin)
- Net income of $661.8 million and diluted EPS of $8.67, compared with $346.2 million and $4.57 in 2020
- Operating cash flow of $584.0 million; capital expenditures of $253.4 million; year-end cash of $762.6 million
- Total debt of $253.0 million with no borrowings outstanding under the $300.0 million Credit Facility at year-end; $297.6 million of available capacity
- Quarterly dividend increased to $0.18 per share in Q4 2021; $137.1 million of shares repurchased in 2021 and a 650,000-share program approved for 2022
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2021, West Pharmaceutical Services kept $0.23.
- Revenue$2.83B100.0%
- Cost of revenue−$1.66B58.5%
- Gross profit$1.18B41.5%
- Operating costs−$423.5M15.0%
- Operating income$752.3M26.6%
- Interest, other & tax−$90.5M3.2%
- Net income$661.8M23.4%
Where FY2021 revenue went
$2.83B- Cost of revenue: $1.66B, 58% of revenue
- Net income: $661.8M, 23% of revenue
- SG&A: $362.8M, 13% of revenue
- R&D: $52.8M, 1.9% of revenue
- Interest, other & tax: $90.5M, 3.2% of revenue
Kept 23% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2021filed February 22, 2022Financial Statements
FY2021 against FY2020
| Line item | FY2021FY2020 | Change |
|---|---|---|
| Revenue | $2.83B$2.15B | +31.9% |
| Cost of Revenue | $1.66B$1.38B | +20.1% |
| Gross Profit | $1.18B$767.80M | +53.1% |
| R&D Expenses | $52.80M$46.90M | +12.6% |
| SG&A Expenses | $362.80M$302.00M | +20.1% |
| Operating Income | $752.30M$406.90M | +84.9% |
| Interest Expense | $8.20M$8.20M | 0.0% |
| Net Income | $661.80M$346.20M | +91.2% |
| EPS (Basic) | $8.89$4.68 | +90.0% |
| EPS (Diluted) | $8.67$4.57 | +89.7% |
| Shares Outstanding (Basic) | 74.40M73.90M | +0.7% |
| Shares Outstanding (Diluted) | 76.30M75.80M | +0.7% |
05—Questions
Frequently Asked Questions
How much of West's revenue comes from outside the United States?
Sales outside the U.S. accounted for 57.7% of consolidated net sales in 2021. The filing notes that these operations expose the company to currency fluctuations, multiple tax jurisdictions, and political and regulatory risks, particularly in South America, Eastern Europe, Israel, and the Middle East.
How much did COVID-19 contribute to 2021 results?
The filing states that Proprietary Products net sales in 2021 included approximately $459 million of COVID-19 related activity for vaccines, antiviral treatments, and treatment of underlying COVID-19 symptoms, compared with approximately $99 million in 2020. The company says it cannot predict the pandemic's future impact on results.
Why did the effective tax rate decline in 2021?
The effective tax rate fell to 14.3% from 18.1% in 2020. The filing attributes the decline to a $31.5 million tax benefit from stock-based compensation, which was higher than the $20.8 million in 2020, and an $18.5 million tax benefit from prepaying future royalties from one of its subsidiaries.
What are the main risks to West's dependence on customer demand?
The filing says the company's sales and profitability depend heavily on drug products delivered by injection and on the packaging of those drugs. Other risks include pricing pressure from customers and competitors, consolidation in the pharmaceutical industry, reliance on single-source raw materials, and the Daikyo license agreements, which expire in 2027.
What is West's capital allocation policy?
The company paid dividends of $0.70 per share in 2021 and repurchased 479,000 shares for $137.1 million under its 2021 program. In December 2021 the Board approved a 2022 program to repurchase up to 650,000 shares, expected to be completed by December 31, 2022. The company also has $253.4 million of capital expenditures in 2021, mainly to meet customer demand.
06—Continue