01—Abstract
Summary
Summary of the 10-K filed February 20, 2024. Cited figures are marked; the original filing is the authoritative source.
West Pharmaceutical Services, Inc. reported net sales of $2,949.8 milliona for 2023, up 2.2% from $2,886.9 million in 2022, including a favorable foreign currency translation impact of $27.9 million.
Excluding currency effects and the impact of a plant disposal ($11.5 millionb), net sales rose 1.6%. Growth came from Contract-Manufactured Products, where sales rose 15.0% to $552.5 million, while Proprietary Products sales were flat at $2,397.3 million (down 0.4%), with a decline of approximately $320 million in COVID-related sales offset by growth in high-value components and devices. Consolidated operating profit fell 7.9% to $676.0 million, and net income decreased to $593.4 million from $585.9 million in 2022 only because of a $52.2 million pension settlement charge in 2022 that was not repeated; diluted EPS was $7.88 versus $7.73.
The company's adjusted operating profit, a non-U.S. GAAP measure, declined 9.4% to $690.6 millionc, with the adjusted operating profit margin at 23.4% compared with 26.4% in 2022. Cash flow and balance sheet data show net cash from operating activities of $776.5 million, capital expenditures of $362.0 million, and $438.3 million of share repurchases under a $1.0 billion program approved in February 2023. Cash and cash equivalents were $853.9 million at December 31, 2023, and total debt was $206.8 million, of which $134.0 million was classified as current, mainly because the $81.0 million Term Loan and $53.0 million Series B notes mature in 2024.
The company had no outstanding borrowings under its $500.0 milliond Credit Facility, with $497.6 million of borrowing capacity available. Sales outside the U.S. accounted for 58.0% of net sales, and the company reported that its ten largest customers represented 41.4% of consolidated net sales, with one customer accounting for 10.9% or $322.1 million.
Management identified inflation, supply chain constraints, foreign currency volatility, the decline in COVID-related demand, and dependence on injectable drug delivery as key risks. The company stated that it did not have any material legal proceedings, that internal control over financial reporting was effective as of December 31, 2023, and that PricewaterhouseCoopers LLP audited the financial statements and internal controls.
02—Key points
Key Highlights
- Net sales rose 2.2% to $2,949.8 million in 2023, with Contract-Manufactured Products up 15.0% to $552.5 million and Proprietary Products down 0.4% to $2,397.3 million.
- Consolidated operating profit declined 7.9% to $676.0 million, and the operating profit margin fell to 22.9% from 25.4%; adjusted operating profit fell 9.4% to $690.6 million.
- Diluted EPS was $7.88 in 2023, up from $7.73 in 2022, helped by the absence of the $52.2 million pension settlement charge recorded in 2022.
- Proprietary Products faced an approximate $320 million decline in COVID-related sales, offset by growth in high-value components such as Westar, Daikyo and Envision, and in self-injection and administration systems.
- The company repurchased $438.3 million of common stock in 2023 under a $1.0 billion program, and $561.7 million remained available for future repurchases at year end.
- Operating cash flow was $776.5 million and capital expenditures were $362.0 million, supporting additional manufacturing capacity.
- Total debt was $206.8 million, with $134.0 million classified as current, and $497.6 million of borrowing capacity was available under the undrawn $500.0 million Credit Facility.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2023, West Pharmaceutical Services kept $0.20.
- Revenue$2.95B100.0%
- Cost of revenue−$1.82B61.7%
- Gross profit$1.13B38.3%
- Operating costs−$453.2M15.4%
- Operating income$676.0M22.9%
- Interest, other & tax−$82.6M2.8%
- Net income$593.4M20.1%
Where FY2023 revenue went
$2.95B- Cost of revenue: $1.82B, 62% of revenue
- Net income: $593.4M, 20% of revenue
- R&D: $68.4M, 2.3% of revenue
- SG&A: $353.4M, 12% of revenue
- Other operating costs: $31.4M, 1.1% of revenue
- Interest, other & tax: $82.6M, 2.8% of revenue
Kept 20% as net incomeR&D $68.4M · 2.3%Other operating costs $31.4M · 1.1%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2023filed February 20, 2024Financial Statements
FY2023 against FY2022
| Line item | FY2023FY2022 | Change |
|---|---|---|
| Revenue | $2.95B$2.89B | +2.2% |
| Cost of Revenue | $1.82B$1.75B | +4.0% |
| Gross Profit | $1.13B$1.14B | −0.6% |
| R&D Expenses | $68.40M$58.50M | +16.9% |
| SG&A Expenses | $353.40M$316.90M | +11.5% |
| Operating Income | $676.00M$734.00M | −7.9% |
| Interest Expense | $9.00M$7.90M | +13.9% |
| Net Income | $593.40M$585.90M | +1.3% |
| EPS (Basic) | $7.98$7.87 | +1.4% |
| EPS (Diluted) | $7.88$7.73 | +1.9% |
| Shares Outstanding (Basic) | 74.30M74.40M | −0.1% |
| Shares Outstanding (Diluted) | 75.30M75.80M | −0.7% |
05—Questions
Frequently Asked Questions
Why did operating profit decline in 2023 even though net sales grew?
Consolidated operating profit fell $58.0 million, or 7.9%, to $676.0 million. Proprietary Products operating profit dropped $74.3 million, mainly due to the decline in higher-margin COVID-related sales, a decrease of approximately $21 million, net, in COVID-19 supply agreement fees, and inflationary compensation costs. Higher SG&A of $353.4 million, up 11.5%, and a $31.4 million other expense also contributed.
Did net income rise in 2023?
Yes. Net income was $593.4 million in 2023, compared with $585.9 million in 2022. The 2022 result included a $52.2 million pension settlement charge, which was not repeated in 2023. Interest income rose to $28.0 million from $5.1 million, and the effective tax rate was 17.5%, compared with 16.9% in 2022.
How much debt does West Pharmaceutical carry, and when does it come due?
Total debt was $206.8 million at December 31, 2023. Of this, $134.0 million is classified as current, including the $81.0 million Term Loan due December 31, 2024 and the $53.0 million Series B notes due July 5, 2024. The $73.0 million Series C notes are due July 5, 2027. The company had no outstanding borrowings under its Credit Facility and stated that it was in compliance with all debt covenants.
How concentrated is the customer base?
The ten largest customers accounted for 41.4% of consolidated net sales in 2023. One customer individually accounted for 10.9% of consolidated net sales, or $322.1 million, contributing to both the Proprietary Products and Contract-Manufactured Products segments.
What is the company doing with its excess cash?
In 2023 the company repurchased $438.3 million of its common stock under a share repurchase program approved in February 2023 for up to $1.0 billion. It also paid dividends of $57.0 million and quarterly dividends rose to $0.20 per share in the fourth quarter of 2023. The company ended 2023 with $853.9 million of cash and cash equivalents.
06—Continue