West Pharmaceutical Q1 Earnings Beat, HVP Sales Weak

West Pharmaceutical Services, Inc. WST reported first-quarter 2024 adjusted earnings per share EPS of $1.56, which beat the Zacks Consensus Estimate by 20.9%. The bottom line, however, was down 21.2% year over year.

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

GAAP EPS for the quarter was $1.55, down 16.2% year over year.

The company's shares have risen 8.1% in the past year compared with the industry's growth of 4.9%. The broader S&P 500 Index has increased 25.5% in the same time frame.

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Revenues in Detail

West Pharmaceutical registered net sales of $695.4 million in the first quarter, down 3% year over year. The figure, however, beat the Zacks Consensus Estimate by 3.3%.

The company recorded an organic net sales decline of 3% in the reported quarter.

Per management, the top-line decline was driven by Proprietary Products' lower high-value product (HVP) sales and weak Generic product sales. However, higher Contract Manufacturing component sales and continued demand for NovaPure and self-injection device platforms partially offset the decline.

Segmental Details

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

Net sales in the Proprietary Products segment were $559.5 million, indicating a decline of 4% year over year as well as on an organic basis. HVP net sales, which accounted for approximately 72% of the segment's net sales, registered an organic decline of low-single-digit percentage points.

The Pharma market units of the Proprietary Products segment reflected a high-single-digit percentage point organic decline in the first-quarter sales. The Generic market unit registered a double-digit percentage point decline in sales. However, low-single-digit organic sales growth for the Biologics market unit partially offset the decline in the Pharma and Generic market units.

Product-wise, the company witnessed continued growth for its NovaPure and self-injection device platforms, along with higher sales for Daikyo Crystal Zenith components, which were more than offset by declines in FluroTec, Westar and standard components.

Net sales in the Contract-Manufactured Products segment increased 1.8% year over year to $135.9 million. Currency translation was a tailwind, boosting sales growth by 50 basis points. The segment saw a 1.3% improvement in organic net sales.

Margins

In the quarter under review, West Pharmaceutical's gross profit decreased 15.1% to $230.2 million. The gross margin contracted nearly 480 basis points (bps) to 33.1%.

Selling, general and administrative expenses rose 0.8% to $86.7 million. Research and development expenses went up 2.9% year over year to $17.6 million.

Adjusted operating profit totaled $123 million, indicating a decrease of 25.4% from the prior-year quarter's level. The adjusted operating margin contracted 530 bps to 17.7%.

Financial Position

West Pharmaceutical exited first-quarter 2024 with cash and cash equivalents of $601.8 million compared with $853.9 million at the end of the fourth quarter. Total debt at the end of the reported quarter was $206.2 million compared with $206.8 million at the end of the previous quarter.

Cumulative net cash flow from operating activities totaled $118.2 million compared with $138.1 million in the year-ago period.

2024 Guidance

WST raised its 2024 outlook for earnings but maintained the same for revenues.

It projects adjusted EPS in the range of $7.63-$7.88 for full-year 2024, compared with the previous guidance of $7.50-$7.75. The Zacks Consensus Estimate for the same is pegged at $7.62.

Net sales are projected between $3 billion and $3.025 billion. The Zacks Consensus Estimate for the same is pegged at $3.01 billion. The company expects currency translation to have a positive impact of $8 million on revenues. The organic sales growth estimate is 2-3%.

Our Take

West Pharmaceutical exited the first quarter of 2024 with better-than-expected results. The recovery in organic growth is encouraging. However, lower COVID-related sales continue to hurt the top line. The company's lower-than-market revenue outlook reflects the same. Moreover, contractions in the operating margin do not bode well.

On a positive note, demand for West Pharmaceutical's HVP products continued to be strong. Robust organic net sales growth in the Pharma, Biologics and Generic market units, excluding COVID-related sales, is another quarterly highlight.

Zacks Rank and Stocks to Consider

Currently, West Pharmaceutical carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are IDEXX Laboratories, Inc. IDXX, Becton, Dickinson and Company BDX, popularly known as BD, and Ecolab Inc. ECL.

IDEXX, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 11.6%. IDXX's earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 8.3%. 

IDEXX's shares have risen 2.9% compared with the industry's 3.9% growth in the past year.

BD, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 9.4%. BDX's earnings surpassed estimates in three of the trailing four quarters and met once, delivering an average surprise of 4.6%.

BD's shares have lost 11.1% against the industry's 4.9% growth in the past year.

Ecolab, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 13.3%. ECL's earnings surpassed estimates in each of the trailing four quarters, delivering an average surprise of 1.7%.

Ecolab's shares have rallied 33.8% against the industry's 9.3% decline in the past year.

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