- Adjusted Diluted EPS (1) was $0.42 -
- Annual Guidance Narrowed to $2.05 to $2.18 Adjusted Diluted EPS(1) -
- Conference Call Scheduled for 9 a.m. Today -
LIONVILLE, Pa., April 30 /PRNewswire-FirstCall/ -- West Pharmaceutical Services, Inc. (NYSE: WST) today announced its results for the first quarter of 2009. Summary comparative results were as follows:
($millions, except per-share data ) Three Months Ended
March 31
2009 2008
Net Sales $242.4 $270.7
Gross Profit 69.3 83.5
Reported Operating Profit 21.2 38.1
Adjusted Operating Profit (1) 21.9 37.8
Reported Diluted EPS $0.46 $0.76
Adjusted Diluted EPS(1) $0.42 $0.72
(1) Reported first quarter results in each year included
restructuring charges and discrete tax benefits and, in 2008,
income from a contract settlement. See the corresponding notes
under 'Supplemental Information and Notes to Non-GAAP Financial
Measures' in the tables following the text of this release.
Consolidated sales were 10.4% lower in the quarter when compared to the prior year period, of which 7.5 percentage points, or $20.3 million, were due to the adverse effects of currency on the translation of foreign sales into U.S. dollars. The balance was attributed to customers' inventory reductions in both healthcare and consumer goods markets and regulatory interruptions at customer facilities.
Consolidated gross profit margin was 28.6% in the quarter, compared to 30.8% in the first quarter of 2008. Higher manufacturing costs, including raw materials and depreciation, were partially offset by higher selling prices. Raw material costs remained high compared to the prior year period despite lower market prices for relevant commodities, including petroleum. In Pharmaceutical Systems, significant quantities of those materials are purchased under contractual terms that defer the full impact of changes in underlying commodity prices by up to four months. In the Tech Group, however, purchasing agreements for petroleum-based plastic resins do not provide for a similar delay, but contract manufacturing agreements with customers generally provide for changes in resin costs to be passed directly through to customers.
Consolidated results were also lower by $2.6 million due to an increase in U.S. pension expense as a result of 2008 investment losses in the pension fund. Other increases in SG&A were substantially offset by the favorable effects of foreign currency translation on foreign subsidiaries' costs and by lower management incentive and stock-based compensation costs. Foreign currency translation and higher pension expense reduced earnings by a combined $0.10 per diluted share from the first quarter of 2008.
Executive Commentary
'As anticipated, our first quarter results reflect broader economic conditions and other uncertainties that are more particularly relevant to healthcare,' said Donald E. Morel Jr., Ph.D., the Company's Chairman and Chief Executive Officer. 'Over and above normal period to period variability, the results for this quarter and our expectations for the year continue to suggest slower near-term growth, with many of our customers looking for opportunities to streamline their supply chains.'
'We continue to carefully monitor our backlog, defer capital expenditures where appropriate, and manage our production capacity and discretionary spending closely,' said Dr. Morel. 'We expect several of the factors that impacted our first quarter results to improve as the year goes on, including raw material costs, pricing tied to contract anniversary dates, and currency, if the dollar is reasonably stable. Our lean manufacturing programs should begin to contribute to margins, while higher pension costs will persist. We expect some sales weakness to continue through the second quarter and have reduced our annual revenue expectations marginally, about 1%, and accordingly are re-setting the upper limit of our earnings expectations at $2.18 per share.'
'For the longer term, we continue to be optimistic. Excluding currency, in a very broad and deep recession our first quarter sales were down less than 3% from the first quarter of 2008. West's operating cash flows remain strong and are sufficient to fund our expansion and development plans. We are committed to maintaining a solid balance sheet. We are investing in order to participate more fully in attractive global markets, particularly in Asia, and are developing new products and technologies for the containment, closure, and safe administration of high-value biologic drugs. For example, West received marketing clearance for our NovaGuard(R) safety needle system last week. We believe that, with our existing products, expanded geographic markets, and key product development projects, our prospects for sustained long-term growth are essentially unchanged.'
Pharmaceutical Systems Segment
Pharmaceutical Systems segment sales were $183.2 million and operating profit was $27.4 million in the first quarter of 2009, compared to $207.5 million in sales and $43.6 million of operating profit in the comparable 2008 quarter. Unfavorable foreign currency translation accounted for $18.5 million, or 9.0 percentage points of the 11.7% in lower sales and $2.1 million of lower operating profit. Measured at constant exchange rates, international sales were fractionally lower, while North American sales declined by $3.5 million.
Sales results varied significantly across product lines, but were hurt overall by the effects of customers' inventory reductions and regulatory issues. Sales of pharmaceutical packaging, including vial and IV closures and seals, were 2.3% lower in the quarter when measured at constant foreign exchange rates. Results for value-added products, including those incorporating Westar(R) processing, FluroTec(R) and Teflon(R) coatings, and specialty seals, were substantially unchanged. Sales of safety and administration systems and devices declined as a result of a customer-driven delay. Disposable device component sales were approximately 5.3% lower on a constant currency basis.
Gross profit in the current quarter was $59.8 million, $15.1 million lower than in the 2008 quarter, and gross margin declined 3.4 percentage points, to 32.7%. The decline in gross profit was attributed primarily to lower sales volume and to $4.4 million of adverse currency translation. The margin decline reflects lower capacity utilization and higher production costs, net of price increases, which included increased labor, utility and depreciation, as well as higher raw material costs, notably for oil-based materials. Consequently, the first quarter results do not include a measurable benefit from the recent decline in oil prices from the record levels of 2008 and, in aggregate, material costs reduced gross profit by $1.8 million when compared to the first quarter of 2008.
Pharmaceutical Systems SG&A costs increased by $2.4 million, net of $2.2 million of favorable currency translation effects. $1.5 million of increased compensation costs were due to hiring for information systems and other necessary technical and manufacturing support functions, and to annual salary increases and higher incentive compensation costs. Severance costs associated primarily with the consolidation of laboratory facilities added $0.9 million, and the ongoing upgrade of information technology systems in the U.S. added $0.5 million in depreciation. R&D costs were $0.9 million lower than in the prior year period as certain projects were completed and moved into operations.
Tech Group Segment
Tech Group segment sales were $62.3 million in the first quarter, down from $66.4 million in the prior year period. Currency translation accounted for $1.8 million of the decline. An additional $1.5 million was due to passing substantially all of the savings from lower plastic resin costs directly through to customers, which reduced revenue without impacting gross profit. Other factors contributing to the decline were the loss of consumer products revenue from business that was not transferred to other facilities from the recently sold Mexico facility, and slower sales of certain medical devices, which were higher in the prior year quarter due to a customer's temporary increase in orders in connection with a planned manufacturing transfer. Those declines were partially offset by higher contract manufacturing revenue from pen injector systems and components.
Despite lower sales, gross profit grew to $9.5 million from $8.6 million in the first quarter of 2008, and gross profit margin improved 2.3 percentage points from the same period last year, to 15.2%. Improvements were associated with a stronger product mix, including relatively higher medical device sales in Europe, better utilization of remaining facilities in the wake of restructuring efforts, and continuing improvements in efficiency and output from the Michigan production facility. Operating profit increased by $0.9 million as a result of the increased gross profit and SG&A and research costs that were substantially unchanged from the prior year period.
Corporate and Other
U.S. pension expense increased by $2.6 million in the first quarter, to $4.1 million, as a result of the effects of substantial 2008 investment losses in the plan, which first impacted the measurement of pension expense in 2009. Similar quarterly increases are expected during the remainder of the year.
Stock-based compensation expense declined by $1.0 million compared to the prior year quarter due primarily to the effects of changes in the Company's share price, which declined during the current quarter and increased during the same period last year.
