West Pharmaceutical (WST) Q3 Earnings Miss, FY22 View Revised

West Pharmaceutical Services, Inc. WST delivered adjusted earnings per share (EPS) of $2.03 in the third quarter of 2022, down by 1.5% year over year. The figure missed the Zacks Consensus Estimate by 4.3%.

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

Our projection of adjusted EPS was $2.13.

GAAP EPS for the quarter was $1.59, down by 31.2% year over year.

Revenues in Detail

West Pharmaceutical registered net sales of $686.9 million in the third quarter, down 2.8% year over year. The figure lagged the Zacks Consensus Estimate by 5.9%.

The third-quarter revenue compares to our estimate of $730 million.

Organic net sales growth was 4.3% during the reported period. This compares to our estimate of growth of 10%.

Per management, the overall top line was hampered by various constraints, despite registering sustained growth in non-COVID-19 demand. West Pharmaceutical also recorded lower-than-expected overall high-value product (HVP) net sales due to delays in expansion projects, customer delivery timing and mix-shift-related productivity impacts.

Segment Details

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

Net sales in the Proprietary Products segment amounted to $567 million, reflecting a year-over-year decline of 1.7%. Organic net sales growth came in at 5.5%. HVP net sales (components and devices) accounted for more than 70% of segment net sales and delivered mid-single-digit organic net sales growth. Consumer demand for NovaPure, Envision and Westar components and self-injection devices led to the upside in HVP net sales.

This figure compares to our segmental projection of $608.3 million for the third quarter.

In the reported quarter, net sales at the Contract-Manufactured Products segment fell 7.5% year over year to $120 million, primarily due to a fall in sales of components for healthcare diagnostic devices. The segment saw a 1.2% decline in organic net sales.

This figure compares to our segmental projection of $121.7 million for the third quarter.

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 fell 7% to $268 million. The gross margin contracted by 178 basis points (bps) to 39%.

We had projected a 40.8% of gross margin for Q3.

Selling, general and administrative expenses fell 27.9% to $66.3 million. Research and development expenses went up 3.8% year over year to $13.6 million. Adjusted operating expenses of $79.9 million decreased 23.9% year over year.

Adjusted operating profit totaled $188.1 million, reflecting a 2.7% uptick from the prior-year quarter. Adjusted operating margin in the third quarter expanded by 145 bps to 27.4%.

The adjusted operating margin, according to our model, was 27.7% for Q3.

Financial Position

West Pharmaceutical exited third-quarter 2022 with cash and cash equivalents of $729 million compared with $718.5 million at the end of the second quarter. Total debt at the end of third-quarter 2022 was $209.4 million compared with $252 million at the end of the second quarter.

Cumulative net cash flow from operating activities at the end of third-quarter 2022 was $493.2 million compared with $423.2 million a year ago.

During the first nine months of 2022, the company repurchased 563,334 shares for $202.9 million under its share repurchase program.

Meanwhile, West Pharmaceutical has a consistent dividend-paying history, with five-year annualized dividend growth being 6.23%. The company’s management announced a fourth-quarter 2022 dividend of 19 cents per share, representing the 30th consecutive annual increase in West Pharmaceutical’s dividend.

2022 Guidance

West Pharmaceutical has revised its full-year 2022 outlook.

Net sales for the full-year 2022 are now projected between $2.830 billion and $2.840 billion, lowered from the previously-provided range of $2.950 billion and $2.975 billion. The Zacks Consensus Estimate for the same is currently pegged at $2.97 billion.

Organic sales growth is now estimated to be approximately 7% compared to the earlier expectation of 11% growth.

West Pharmaceutical expects a full-year decline in COVID-19-related net sales of approximately $85 million, unchanged from prior guidance.

West Pharmaceutical now projects its adjusted EPS to be $8.15-$8.20, lowered from the previous outlook of $9.00-$9.15. The Zacks Consensus Estimate for the same is currently pegged at $9.08 per share.

Our Take

West Pharmaceutical exited the third quarter of 2022 with lower-than-expected results. Dismal top and bottom-line performances and decline in both segmental revenues are concerning. Lower demand for COVID-19 related products is worrying from the business perspective. The contraction in the gross margin does not bode well. West Pharmaceutical lowering its full-year financial outlook for revenues and EPS also raises apprehensions.

On a positive note, West Pharmaceutical’s Proprietary Products segment registered growth in its organic net sales, which is encouraging. Continued strong demand for the company’s NovaPure, Envision and Westar products is encouraging. Mid-single-digit organic net sales growth in the Biologics and Generics market units and low-single-digit organic net sales growth in the Pharma market unit are other quarterly highlights. The expansion of the adjusted operating margin also augurs well for the company.

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 Elevance Health Inc. ELV, Medpace Holdings, Inc. MEDP and Centene Corporation CNC.

Elevance Health, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $7.53, which beat the Zacks Consensus Estimate by 6.1%. Revenues of $39.63 billion outpaced the consensus mark by 1.3%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Elevance Health has an estimated long-term growth rate of 12%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average being 4.1%.

Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 29.7% for the full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.

Centene Corporation, carrying a Zacks Rank #2, reported third-quarter 2022 adjusted EPS of $1.30, which beat the Zacks Consensus Estimate by 6.6%. Revenues of $35.87 billion outpaced the consensus mark by 1.1%.

Centene Corporation has an estimated long-term growth rate of 14.2%. CNC’s earnings surpassed estimates in all the trailing four quarters, the average being 5.2%.

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