West Pharmaceutical's 2024 Outlook Cautious, Analysts Remain Optimistic

West Pharmaceutical Services Inc’s WST fourth-quarter 2023 adjusted EPS came in at $1.83, up 3.4% Y/Y, beating the consensus of $1.78.

Quarterly sales reached $732 million, up 3.3%, missing the consensus estimate of $739.47 million. Organic net sales growth was 1.4%.

“In 2024, we expect moderated organic sales growth as we manage timing of inventory management, especially with our largest customers. We expect headwinds to be more pronounced during the first quarter and less impactful in subsequent quarters. I am pleased that our February order book for the second half of the year is outpacing typical pre-pandemic levels, coupled with customer optimism of certain breakout drug categories and timing of additional high-value product device capacity, all of which underscore our expectation of a stronger second half organic sales growth,” said Eric Green, President, CEP and Chairman.

In the fourth quarter of 2023, the Proprietary Products Segment’s net sales grew by 1.5% to $593.7 million. Organic net sales declined by 0.3%.

Guidance: West Pharmaceutical forecast fiscal year 2024 sales of $3 billion-$3.025 billion, compared to the consensus of $3.21 billion.

The company sees adjusted EPS of $7.50-$7.75 versus the consensus estimate of $8.76.

The quarter’s revenue fell slightly short of expectations, but the primary concern is the disappointing 2024 guidance, which significantly underperformed market predictions. 

Analysts at William Blair write that the issue seems to be an exacerbation or broadening of destocking, as evidenced by earlier references to a slowdown in restocking trends and the mention of timing issues in inventory management, particularly with major customers. 

Given the negative connotations associated with “destocking” in the bioprocessing industry’s recent challenges, there is a need for proactive communication and clarification from West to assure investors that no further cuts are imminent, analysts add. William Blair keeps the Outperform rating.

Price Action: WST shares are down 13.9% at $351.21 at last check Thursday.

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