West Pharmaceutical (WST) Beats on Q4 Earnings, HVP Drives Sales
West Pharmaceutical Services, Inc. WST reported fourth-quarter 2023 adjusted earnings per share (EPS) of $1.83, up 3.4% year over year. The figure also beat the Zacks Consensus Estimate by 2.8%.
The adjustments include expenses related to the amortization of acquisition-related intangible assets.
GAAP EPS for the quarter was $1.83, up 34.6% year over year.
The company’s shares have risen 27.7% in the past year compared with the industry’s growth of 9.5%. The broader S&P 500 Index has increased 22.6% in the same time frame.
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Revenues in Detail
West Pharmaceutical registered net sales of $732 million in the fourth quarter, up 3.3% year over year. The figure, however, missed the Zacks Consensus Estimate by 0.9 %.
The company recorded organic net sales growth of 1.4% in the reported quarter.
Per management, the top-line growth was driven by Proprietary Products' high-value product (HVP) and strong Contract Manufacturing component sales. However, WST’s revenues reflect a lower pandemic-related sales.
Segmental Details
West Pharmaceutical operates under two segments — Proprietary Products and Contract-Manufactured Products.
Net sales in the Proprietary Products segment were $593.7 million, indicating year-over-year growth of 1.5% reportedly but down 0.3% organically. HVP net sales accounted for approximately 75% of the segment’s net sales, with a strong demand for NovaPure and HVP devices like self-injection and administration systems.
The Pharma market units of the Proprietary Products segment reflected weak organic growth in the fourth quarter. The declining sales related to COVID-19 vaccines led to a decline in organic net sales for the Biologics and Generic market unit. Excluding COVID-19-related sales, the Proprietary Products segment had high single-digit organic net sales growth.
Net sales in the Contract-Manufactured Products segment increased 11.6% year over year to $138.3 million. Currency translation was a tailwind, boosting sales growth by 220 basis points. The segment saw a 9.4% improvement in organic net sales.
Margins
In the quarter under review, West Pharmaceutical’s gross profit increased 6.1% to $278.2 million. The gross margin expanded nearly 100 basis points (bps) to 38%.
Selling, general and administrative expenses rose 5% to $90 million. Research and development expenses went up 15.7% year over year to $18.4 million.
Adjusted operating profit totaled $159.9 million, indicating an increase of 0.8% from the prior-year quarter’s level. The adjusted operating margin contracted 60 bps to 21.8%.
Financial Position
West Pharmaceutical exited fourth-quarter 2023 with cash and cash equivalents of $853.9 million compared with $898.6 million at the end of the third quarter. Total debt at the end of the reported quarter was $206.8 million compared with $207.3 million at the end of the previous quarter.
Cumulative net cash flow from operating activities was $537.4 million compared with $493.2 million in the year-ago period.
2024 Guidance
WST issued its 2024 outlook for earnings and revenues.
It projects adjusted EPS in the range of $7.50-$7.75 for full-year 2024. The Zacks Consensus Estimate for the same is pegged at $8.79.
Net sales are projected between $3 billion and $3.025 billion. The Zacks Consensus Estimate for the same is pegged at $3.21 billion. The company expects currency translation to have a positive impact of $8 million on revenues. The organic sales growth estimate was 2-3%.
Our Take
West Pharmaceutical exited the fourth quarter of 2023 with mixed results. The recovery in organic growth is encouraging. However, lower COVID-related sales continue to hurt the top line. The company’s lower-than-market revenue outlook reflects the same. Moreover, contractions in the operating margin do not bode well.
On a positive note, demand for West Pharmaceutical’s HVP products continued to be strong. Strong organic net sales growth in the Pharma, Biologics and Generic market units, excluding COVID-related slaes, is another quarterly highlight.
West Pharmaceutical Services, Inc. Price, Consensus and EPS Surprise
West Pharmaceutical Services, Inc. price-consensus-eps-surprise-chart | West Pharmaceutical Services, Inc. Quote
Zacks Rank and Stocks to Consider
Currently, West Pharmaceutical carries a Zacks Rank #3 (Hold).
Some other top-ranked stocks in the broader medical space are Universal Health Services UHS, Integer Holdings Corporation ITGR and Cardinal Health CAH.
Universal Health Services, carrying a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 4.4% for 2024. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 5.47%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
UHS’ shares have risen 11.9% in the past year compared with the industry’s 17.3% growth.
Integer Holdings, presently carrying a Zacks Rank of 2, has an estimated long-term growth rate of 15.8%. ITGR’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 11.9%.
Integer Holdings’ shares have rallied 44.3% in the past year compared with the industry’s 4.6% growth.
Cardinal Health, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 15.3%. CAH’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 15.64%.
Cardinal Health’s shares have risen 32.2% in the past year compared with the industry’s growth of 9.4%.
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