West Pharmaceutical Services, Inc. (NYSE: WST) today announced its results for the third quarter of 2009. Summary comparative results were as follows:
($millions, except per-share data) Three Months Ended September 30 2009 2008 Net Sales $258.9 $256.2 Gross Profit 71.7 66.0 Reported Operating Profit 25.9 17.9 Adjusted Operating Profit (1) 22.0 19.7 Reported Diluted EPS $0.50 $0.40 Adjusted Diluted EPS(1) $0.45 $0.37 (1) See "Restructuring and Other Items" section of the release and "Supplemental Information and Notes to Non-GAAP Financial Measures" in the tables following the text of this release.
Consolidated sales were 1.0% higher in the quarter when compared to the prior year period including $8.2 million, or 3.3 percentage points, of adverse effects of foreign currency translation. Excluding currency translation effects, consolidated sales were 4.3% higher than in the prior year quarter, with component sales for H1N1 flu vaccinations contributing substantially. The resulting growth in the Pharmaceutical Systems segment more than compensated for lower sales in the Tech Group segment.
Consolidated gross profit margin was 27.7% in the quarter, compared to 25.7% in the third quarter of 2008. The two margin point increase includes the combined effect of overall higher selling prices and lower raw material costs, net of higher depreciation charges. As a result of improved margins, gross profit increased $5.7 million, to $71.7 million in the current quarter, net of $1.8 million of adverse foreign currency translation.
Adjusted Operating Profit grew by 11.7% compared to the prior year period. The effect of the consolidated gross margin improvement was muted by $2.8 million in higher U.S. pension expense and $0.7 million of unfavorable foreign currency translation, net of $0.6 million in lower stock-based compensation expense.
The Company announced plans to restructure certain business operations, which will result in the elimination of approximately 100 jobs, and to re-evaluate certain business initiatives and assets. These will result in total charges in the range of $8.0 million to $10.0 million. Approximately $7.0 million of charges are expected to be included in the Company's reported results for the fourth quarter of 2009. The restructuring is expected to result in annual savings of approximately $6.0 million in 2010 and approximately $8.0 million annually thereafter.
Executive Commentary
"The growth that we are seeing in sales of packaging components and systems, excluding currency translation, is the best indicator we have that inventories in the supply chain are at or near the low point for this cycle," said Donald E. Morel Jr., Ph.D., the Company's Chairman and Chief Executive Officer. "Demand for flu vaccine added to that growth and should continue to contribute through the next two quarters, during which we expect overall demand to firm. In the Tech Group, sales under existing manufacturing contracts remain sluggish. The restructuring plan we announced today will improve operating efficiencies in both business segments, enhancing our strategic focus on maintaining and building our proprietary injectable drug delivery product portfolio. The Tech Group will continue to provide critical engineering and manufacturing support to those development efforts, which we believe will accelerate West's growth in the longer term."
"In revenue terms, this third quarter was relatively strong compared to the first half of the year. We expect the unusual seasonality of 2009 to continue and that fourth-quarter sales will be the strongest of the year, despite some continued weakness in the Tech Group. Our revised guidance is for 2009 Adjusted Diluted EPS of between $2.08 and $2.13. We expect the overall improvements we've seen during the last four months to continue through the fourth quarter and into 2010, and are forecasting revenue growth of between 3% and 5% for next year, excluding the effects of currency translation."
Obesity crisis in the U.S. expected to worsen by 2050