West Pharmaceutical Services Lowers Full-Year Outlook Citing Customer Inventory Control; COVID-19 Headwinds Abating and GLP-1 Represents Future Growth Driver
West Pharmaceutical Services has announced its financial results for the third quarter of 2023 with total sales of $747.4 million resulting in 8.8% growth compared to the previous year. Organic net sales growth accounted for 5.7% of this increase. The street had been anticipating total revenue of $750.3 million. The company saw COVID-19 related sales decline by $78 million year over year impacting growth.
The Proprietary Products segment reported net sales growth of 6.3% to reach $602.5 million. Notably, organic net sales growth, excluding changes in currency translation and the impact of a recent divestiture, was 3.2%. Currency translation contributed to a 250-basis point increase in net sales growth. The high-value product (HVP) component represented over 75% of segment net sales and generated mid-single digit organic net sales growth. This growth was driven by customer demand for HVP components such as FluroTec®, Daikyo®, and Envision®, as well as HVP devices such as self-injection systems and administration systems. The Generics market unit demonstrated high-single digit organic net sales growth, while the Biologics and Pharma market units achieved low-single digit organic net sales growth. The company noted that they saw an increase in inventory management trends by customers beginning in September and October that impacted growth. One area of future growth noted by management in the proprietary segment was the growth in GLP-1 drugs where the company manufactures auto-injectors for administration.
The Contract-Manufactured Products segment reported net sales growth of 20.8%, reaching $144.9 million. The organic net sales growth for this segment was 17.4%, with currency translation contributing a 340-basis point increase in net sales growth. The segment’s performance was driven by increased sales of components for drug-injection devices and healthcare diagnostic devices.
Adjusted-diluted EPS for the same period reached $2.16, reflecting a substantial growth of 6.4%. Street forecasts had been calling for adjusted earnings of $1.86 per share. Operating cash flow for the first nine months of 2023 amounted to $537.4 million, reflecting a 9.0% increase. During this period, capital expenditures reached $253.3 million, indicating a 33.5% increase from the previous year. Free cash flow (operating cash flow minus capital expenditures) reached $284.1 million, which was a decline of 6.4%.
In light of its recent performance, West Pharmaceutical Services is updating its full-year 2023 guidance. The net sales guidance has been revised to a new range of $2.950 billion to $2.960 billion, compared to the previous range of $2.970 billion to $2.995 billion. The adjusted-diluted EPS guidance has also been adjusted to a new range of $7.95 to $8.00, compared to the prior range of $7.65 to $7.80.
Eric M. Green, President, Chief Executive Officer, and Chair of the Board at West Pharmaceutical Services, commented on the company’s strong performance, saying, “We had a solid quarter of organic net sales growth, driven by our Proprietary Products’ high-value product (HVP) and strong Contract Manufacturing components. We are observing a slowdown in restocking trends by large Pharma and Generic customers, which is reflected in our revised guidance. As we look to the fourth-quarter 2023, we anticipate double-digit base, non-COVID-19-related organic sales growth, fueled by strong HVP component demand with certain customers and therapeutic categories.”