West Pharmaceutical (WST) Q2 Earnings Beat, HVP Drives Sales
West Pharmaceutical Services, Inc. WST reported second-quarter 2023 adjusted earnings per share (EPS) of $2.11, down 14.6% year over year. However, the figure beat the Zacks Consensus Estimate by 8.2%.
The adjustments include expenses related to the amortization of acquisition-related intangible assets.
GAAP EPS for the quarter was $2.06, down 16.9% year over year.
The company’s shares have risen 61.3% year to date compared with the industry’s growth of 15.5%. The broader S&P 500 Index has increased 20.2% in the same period.
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Revenues in Detail
West Pharmaceutical registered net sales of $753.8 million in the second quarter, down 2.3% year over year. The figure, however, beat the Zacks Consensus Estimate by 0.2%.
The company recorded organic net sales growth of 2.5% in the reported quarter.
Per management, the top line reflects declining demand for the pandemic-related products. However, growth in demand, especially from biologic customers, and strong performances in Generics and Pharma market units, buoys optimism. WST also continues to expand high-value product (HVP) manufacturing capacity for supporting accelerating customer demand from recent launches and anticipated drug programs in the coming years.
Segmental Details
West Pharmaceutical operates through two segments — Proprietary Products and Contract-Manufactured Products.
Net sales in the Proprietary Products segment amounted to $618 million, indicating a year-over-year decline of 5.5%, reportedly as well as organically. HVP net sales accounted for more than 70% of the segment’s net sales with strong demand for Westar components and HVP devices.
Generics and Pharma market units of the Proprietary Products segment reflected robust organic growth in the second quarter. However, declining sales related to COVID-19 vaccines led to a double-digit percentage-point decrease in organic net sales for the Biologics market unit. Excluding COVID-19 related sales, all market units had double-digit organic net sales growth.
Net sales at the Contract-Manufactured Products segment increased 15.3% year over year to $135.5 million. Currency translation was a tailwind, boosting sales growth by 100 basis points. The segment saw a 14.3% improvement in organic net sales.
Margins
In the quarter under review, West Pharmaceutical’s gross profit declined 9.4% to $291.4 million. The gross margin contracted 300 basis points (bps) to 38.7%.
Selling, general and administrative expenses rose 8.5% to $88.4 million. Research and development expenses went up 14.9% year over year to $16.5 million.
Adjusted operating profit totaled $185 million, indicating a decline of 18.5% from the prior-year quarter’s level. The adjusted operating margin contracted 490 bps to 24.5%.
Financial Position
West Pharmaceutical exited second-quarter 2022 with cash and cash equivalents of $796.3 million compared with $886.3 million at the end of the first quarter. Total debt at the end of the reported quarter was $207.8 million compared with $208.3 million at the end of the first quarter.
Cumulative net cash flow from operating activities was $307.3 million compared with $324.3 million in the year-ago period.
2023 Guidance
WST raised its 2023 outlook for earnings and revenues.
It projects adjusted EPS of $7.65-$7.80, up from the previously anticipated $7.50-$7.65. The Zacks Consensus Estimate for the same is pegged at $7.73. Higher expectation for EPS also reflects favorable currency impact of 5 cents.
Net sales are projected between $2.97 billion and $2.995 billion, up from the previously guided range of $2.965-$2.99 billion. The Zacks Consensus Estimate for the same is pegged at $2.98 billion. The company expects currency translation to have a positive impact of $20 million on revenues, up from the previous outlook of $15 million.
The organic sales growth estimate has remained unchanged at 3-4%.
Our Take
West Pharmaceutical exited the second quarter of 2023 with better-than-expected results. Although the top line declined, recovery in organic growth is encouraging. The company’s revenue outlook beat market estimates. However, contractions in the gross and operating margins do not bode well.
On a positive note, demand for West Pharmaceutical’s HVP products continued to be strong. Double-digit organic net sales growth in the Pharma and Generic market units is another quarterly highlight. The company expects business performance in the second half of 2023 to be better than the first half, which reflected higher top and bottom-line outlook.
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 Other Stocks to Consider
Currently, West Pharmaceutical sports a Zacks Rank #1 (Strong Buy).
Some other top-ranked stocks in the broader medical space that have announced quarterly results are Abbott Laboratories ABT, Elevance Health, Inc. ELV and Intuitive Surgical, Inc. ISRG.
Abbott, carrying a Zacks Rank of 2 (Buy) at present, reported second-quarter 2023 adjusted EPS of $1.08, which beat the Zacks Consensus Estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Revenues of $9.98 billion outpaced the consensus mark by 2.9%.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.4%.
Elevance Health reported second-quarter 2023 adjusted EPS of $9.04, which beat the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. The company currently carries a Zacks Rank #2.
ELV has a long-term estimated growth rate of 12.1%. Its earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 2.8%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, which beat the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
ISRG has a long-term estimated growth rate of 14.5%. Its earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 4.2%.
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