West Pharmaceutical Services, Inc. WST reported third-quarter 2024 adjusted earnings per share (EPS) of $1.85, which beat the Zacks Consensus Estimate of $1.51 by 22.5%. However, the bottom line decreased 14.4% year over year.
The adjustments include expenses related to the amortization of acquisition-related intangible assets.
GAAP EPS for the quarter was $1.85, down 13.6% year over year.
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Revenues in Detail
West Pharmaceutical registered net sales of $746.9 million, down 0.1% year over year. The figure, however, beat the Zacks Consensus Estimate by 5.1%.
The company recorded an organic net sales decline of 0.5% in the reported quarter.
The top-line decline was primarily led by lower sales of Generics and Biologics market units. However, this was mostly offset by growth in Pharma market unit and contract manufacturing.
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
WST’s unfavorable impact on sales during the second quarter of 2024 due to an elevated level of customer destocking across its business units seemed to have resolved, as there was minimal impact on sales in the reported quarter. The company expects return to growth in the fourth quarter.
Segmental Details
West Pharmaceutical operates under two segments — Proprietary Products and Contract-Manufactured Products.
Net sales in the Proprietary Products segment were $601.4 million, indicating a decline of 0.2% year over year and 0.5% on an organic basis. HVP net sales, which accounted for more than 75% of the segment’s net sales, were driven by customer demand for self-injection.
Sales of the Proprietary Products segment's Pharma market units reflected a mid-single-digit percentage point organic growth during the quarter, driven by higher sales of NovaBrand products and Administrative Systems. However, the Generic market unit registered a mid-single-digit percentage point decline in sales due to lower volumes of NovaBrand products. The Biologics market unit recorded a low-single-digit organic sales decline, owing to lower sales of FluroTec, Westar and NovaPure products.
Net sales in the Contract-Manufactured Products segment increased 0.4% year over year to $145.5 million. Currency translation was a headwind, hurting sales growth by $0.7 million.
Margins
West Pharmaceutical’s gross profit decreased 8.2% to $264.7 million. The gross margin contracted nearly 320 basis points (bps) to 35.4%.
Selling, general and administrative expenses declined 6.2% to $83.5 million. Research and development expenses went down 5.5% to $15.5 million.
Adjusted operating profit totaled $160.6 million, indicating a decrease of 11.2% from the prior-year level. The adjusted operating margin contracted 270 bps to 21.5%.
Financial Position
West Pharmaceutical exited third-quarter 2024 with cash and cash equivalents of $490.9 million compared with $446.2 million at the end of the second quarter. Total debt at the end of the reported quarter was $202.6 million compared with $205.8 million at the end of the previous quarter.
Cumulative net cash flow from operating activities totaled $463.3 million compared with $537.4 million in the year-ago period.
2024 Guidance
WST raised its 2024 outlook for earnings as well as revenues.
It now expects adjusted EPS to be in the range of $6.55-$6.75 compared with the previous guidance of $6.35-$6.65. The Zacks Consensus Estimate for the same is pegged at $6.42.
Net sales are now projected to be between $2.875 billion and $2.9 billion compared with the previous guidance of $2.87-2.9 billion. The Zacks Consensus Estimate for the same is pegged at $2.87 billion. The company expects currency translation to have a negative impact of $1 million on revenues compared to the previous guidance of $5 million. The organic sales decline estimate is 1.5-2%.
Our Take
West Pharmaceutical exited the third quarter with better-than-expected results. Although the decline across its Generics and Biologics business units is concerning, the company’s significant recovery from customer destocking impact during the second quarter looks promising. The fourth quarter results are likely to reflect strong recovery, with year-over-year quarterly sales improvement. This is reflected in WST’s updated outlook for the year.
The company also expects a currency headwind to have a lesser impact on organic revenue growth than previously expected. This is due to favorable currency movements during the third quarter.
Shares of WST were up 10% during pre-market trading following its promising quarterly performance as well as a better outlook for 2024. The company’s shares have lost 18.7% year to date compared with the industry’s decline of 2%. The broader S&P 500 Index has increased 21.5% in the same time frame.
Although the company’s quarterly revenues are likely to improve in the fourth quarter, total sales in 2024 are likely to be 2.7% lower than in 2023. Earnings for 2024 are expected to decline 20%. Meanwhile, the contraction in gross and operating margins does not bode well for the company. The majority of this contraction is due to the rising cost of materials, which is likely to continue in the fourth quarter.
Zacks Investment Research
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Zacks Rank and Stocks to Consider
Currently, West Pharmaceutical carries a Zacks Rank #4 (Sell).
Some better-ranked stocks from the same medical industry are Globus Medical GMED, AngioDynamics ANGO and Avanos Medical AVNS, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Globus Medical has an estimated long-term growth rate of 12.7%. GMED’s earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 12.1%. Its shares have risen 38.7% year to date compared with the industry’s 6.1% growth.
AngioDynamics has an estimated growth rate of 38.2% for 2025. ANGO’s earnings surpassed estimates in three of the trailing four quarters and missed once, delivering an average surprise of 31.71%.
AngioDynamics’ shares have lost 19.2% year to date against the industry’s 6.1% growth.
Avanos has an estimated growth rate of 31.2% for 2025. AVNS’ earnings surpassed estimates in three of the trailing four quarters and missed the same in one, delivering an average surprise of 5.7%.
Avanos’ shares have risen 5.3% year to date compared with the industry’s 5.1% growth.
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