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West Pharmaceutical (WST) Q1 Earnings Beat, Order Book Strong

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West Pharmaceutical Services, Inc. (WST - Free Report) has delivered adjusted earnings per share (EPS) of $1.98 in the first quarter of 2023, down 13.9% year over year. However, the figure beat the Zacks Consensus Estimate by 18.7%.

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

Our projection of adjusted EPS was $1.64.

GAAP EPS for the quarter was $1.85, down 19.2% year over year.

The company’s shares have gained 51.8% so far this year compared with the industry’s growth of 8.4%. The broader S&P 500 Index has moved up 6.2% in the same period.

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Revenues in Detail

West Pharmaceutical registered net sales of $716.6 million in the first quarter, down 0.5% year over year. The figure, however, beat the Zacks Consensus Estimate by 2.8%.

First-quarter revenues compare favorably with our estimate of $700.6 million.

Organic net sales growth was 2.3% in the reported period. Our model estimated organic growth to be 7.8%.

Per management, the company’s 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. It also continues to expand high-value product 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 $583.1 million, indicating a year-over-year decline of 3%. The organic net sales decline was 0.1%. HVP net sales (components and devices) accounted for more than 70% of the segment’s net sales and delivered a low-single-digit organic net sales decline. A decrease in COVID-related HVP sales led to a decline in overall HVP sales.

Generics and Pharma market units of the Proprietary Products segment reflected robust organic growth in the first 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.

In the reported quarter, net sales at the Contract-Manufactured Products segment gained 12.5% year over year to $133.5 million. The segment saw a 14.4% improvement in organic net sales.

Margins

In the quarter under review, West Pharmaceutical’s gross profit fell 4.7% to $271.3 million. The gross margin contracted 200 basis points (bps) to 38%.

Selling, general and administrative expenses gained 3.1% to $86 million. Research and development expenses went up 17.1% year over year to $17.1 million.

Adjusted operating profit totaled $158.7 million, indicating a decline of 16.1% from the prior-year quarter. The adjusted operating margin in the first quarter contracted 350 bps to 22.4%.

Financial Position

West Pharmaceutical exited first-quarter 2022 with cash and cash equivalents of $886.3 million compared with $894.3 million at the end of the fourth quarter. Total debt at the end of first-quarter 2023 was $208.3 million compared with $208.9 million at the end of the fourth quarter.

Cumulative net cash flow from operating activities at the end of first-quarter 2023 was $138.1 million compared with $151.2 million a year ago.

Meanwhile, West Pharmaceutical has a consistent dividend-paying history, with five-year annualized dividend growth of 6.43%. Management announced a third-quarter 2023 dividend of 19 cents per share, representing the 30th consecutive annual increase in West Pharmaceutical’s dividend.

2023 Guidance

West Pharmaceutical raised its 2023 outlook for revenues and earnings.

Net sales for 2023 are projected between $2.965 billion and $2.990 billion, up from the previously mentioned $2.935-$2.960 billion. The Zacks Consensus Estimate for the same is pegged at $2.95 billion.

The organic sales growth estimate has been unchanged at 3-4%.

West Pharmaceutical expects COVID-related net sales of $60 million for 2023, down from the $85 million stated earlier.

West Pharmaceutical projects adjusted EPS of $7.50-$7.65, up from the previously stated $7.25-$7.40. The Zacks Consensus Estimate for the same is pegged at $7.42 per share.

Our Take

West Pharmaceutical exited the first 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, the 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 are other quarterly highlights.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the broader medical space that have announced quarterly results are Intuitive Surgical (ISRG - Free Report) , Chemed (CHE - Free Report) and Edwards Lifesciences (EW - Free Report) , 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.

Intuitive Surgical reported first-quarter 2023 adjusted EPS of $1.23, beating the Zacks Consensus Estimate of $1.19 per share. Revenues of $1.7 billion outpaced the consensus mark by 6.9%.

Intuitive Surgical has a long-term estimated growth rate of 13%. ISRG’s earnings surpassed estimates in two of the trailing four quarters and missed the same twice, the average surprise being 1.86%.

Chemed reported first-quarter 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 0.2%. Revenues of $560 million outpaced the consensus mark by 2.6%.

Chemed has a long-term estimated growth rate of 8.8%. CHE’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.12%.

Edwards Lifesciences reported first-quarter 2023 adjusted earnings of 62 cents per share, beating the Zacks Consensus Estimate by 1.6%. Revenues of $1.46 billion surpassed the Zacks Consensus Estimate by 4.7%.

Edwards Lifesciences has a long-term estimated growth rate of 6.8%. EW’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 1.69%.

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