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West Pharmaceutical (WST) Q2 Earnings Beat, FY22 View Cut

·6 min read

West Pharmaceutical Services, Inc. WST delivered adjusted earnings per share (EPS) of $2.47 in the second quarter of 2022, up by 0.4% year over year. The figure also surpassed the Zacks Consensus Estimate by 12.8%.

The adjustments include expenses related to amortization of acquisition-related intangible assets and pension settlement, among others.

GAAP EPS for the quarter was $2.48, up by 0.4% year over year.

Revenues in Detail

West Pharmaceutical registered net sales of $771.3 million in the second quarter, up 6.6% year over year. The figure surpassed the Zacks Consensus Estimate by 2.4%.

Organic net sales growth was 13.1% during the reported period.

Per management, the overall top line was driven by strong growth in Proprietary Products organic net sales, which was led by robust demand for West Pharmaceutical’s high-value products (HVPs).

Segment Details

West Pharmaceutical operates through two segments — Proprietary Products and Contract-Manufactured Products.

Net sales in the Proprietary Products segment amounted to $653.7 million, reflecting a year-over-year improvement of 11.3%. Organic sales growth came in at 18.3%. HVPs (components and devices) accounted for more than 70% of segment sales and delivered double-digit organic sales growth. Consumer demand for NovaPure, Envision and Daikyo Crystal Zenith components and self-injection devices led to the upside.

In the reported quarter, net sales at the Contract-Manufactured Products segment fell 13.6% year over year to $117.8 million, primarily due to a fall in sales of components for diagnostic devices. The segment saw 8.9% decline in organic sales.

West Pharmaceutical Services, Inc. Price, Consensus and EPS Surprise

West Pharmaceutical Services, Inc. Price, Consensus and EPS Surprise
West Pharmaceutical Services, Inc. Price, Consensus and EPS Surprise

West Pharmaceutical Services, Inc. price-consensus-eps-surprise-chart | West Pharmaceutical Services, Inc. Quote

Margins

In the quarter under review, West Pharmaceutical’s gross profit rose 2% to $321.5 million. However, the gross margin contracted by 186 basis points (bps) to 41.7%.

Selling, general and administrative expenses fell 12.1% to $81.5 million. Research and development expenses went up 4.3% year over year to $14.4 million. Adjusted operating expenses of $95.9 million decreased 9.9% year over year.

Adjusted operating profit totaled $225.6 million, reflecting an 8.1% uptick from the prior-year quarter. Adjusted operating margin in the second quarter expanded by 42 bps to 29.2%.

Financial Position

West Pharmaceutical exited second-quarter 2022 with cash and cash equivalents of $718.5 million compared with $667.7 million at the end of the first quarter. Total debt at the end of second-quarter 2022 was $252 million compared with $252.5 million at the end of the first quarter.

Cumulative net cash flow from operating activities at the end of second-quarter 2022 was $324.3 million compared with $233.1 million a year ago.

During the first half of 2022, the company repurchased 476,667 shares for $175.7 million under its share repurchase program.

Meanwhile, West Pharmaceutical has a consistent dividend-paying history, with five-year annualized dividend growth being 6.65%.

2022 Guidance

West Pharmaceutical has lowered its full-year 2022 outlook.

Net sales for full-year 2022 are now projected between $2.950 billion and $2.975 billion, lowered from the previously-provided range of $3.050-$3.075 billion. The Zacks Consensus Estimate for the same is currently pegged at $3.04 billion.

Organic sales growth is now estimated to be approximately 11% compared to earlier expectations of 11-12% growth.

West Pharmaceutical now expects a full-year decline in COVID-19 related sales of around 20% compared to prior-expectation of year-over-year growth.

West Pharmaceutical now projects its adjusted EPS to be $9.00-$9.15, lowered from the previous outlook of $9.30-$9.45. The Zacks Consensus Estimate for the same is currently pegged at $9.28 per share.

Our Take

West Pharmaceutical exited the second quarter of 2022 with better-than-expected results. Robust year-over-year uptick in the overall top line and the bottom line is impressive. Strong performance by the Proprietary Products segment and continued strong demand for the company’s NovaPure, Envision and Daikyo Crystal Zenith products are encouraging. Solid double-digit organic sales growth in the Biologics and Generics market units and mid-single digit organic sales growth in the Pharma market unit are other quarterly highlights. Expansion of adjusted operating margin also augurs well for the company.

However, the continued fall in the Contract-Manufactured Products segment is concerning. Lower demand for COVID-19 related products is worrying from the business perspective. Contraction in gross margin does not bode well. West Pharmaceutical lowering its full-year financial outlook also raises apprehensions.

Zacks Rank and Key Picks

West Pharmaceutical currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are Quest Diagnostics Incorporated DGX, Medpace Holdings, Inc. MEDP and Neogen Corporation NEOG.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has an earnings yield of 7.2% compared with the industry’s 3.2%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.

Medpace Holdings, having a Zacks Rank #2, reported second-quarter 2022 EPS of $1.46, which beat the Zacks Consensus Estimate by 8.9%. Revenues of $351.2 million outpaced the consensus mark by 1.3%.

Medpace Holdings has an estimated growth rate of 27.7% for full-year 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 17.3%.

Neogen reported fourth-quarter fiscal 2022 EPS of 18 cents, which surpassed the Zacks Consensus Estimate by 12.5%. Fiscal fourth-quarter revenues of $140.1 million outpaced the Zacks Consensus Estimate by 1.3%. It currently has a Zacks Rank #2.

Neogen has an estimated growth rate of 1.6% for fiscal 2023. NEOG’s earnings surpassed estimates in two of the trailing four quarters, lagged the same in one and broke even in the other, the average being 1.5%.


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