WST - Earnings call transcript Q4 2017 | West Pharmaceutical Services, Inc.

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Operator

Good day, ladies and gentlemen, and welcome to the Q4 2017 West Pharmaceutical Services Earnings Conference Call. [Operator Instructions]. I would now like to turn the call over to Quintin Lai, Vice President of Investor Relations. Please go ahead.

Quintin Lai

Thank you, [indiscernible]. to quarter welcome XXXX full and call. conference morning, West's and fourth year Good financial morning the results has our issued We this in at Investor located been and the section website on company's www.westpharma.com. posted release the morning full will our Federici, year on business XXXX. results, CFO, financial a update review and an Eric provide and you outlook This CEO, our Bill Green give for the of copy our slide There's the accompanies of a that that and on presentation presentation a Investor's call section website. available is today's X Slide harbor On the is statement. safe made presentation by law. the US management in Statements on this securities contain meaning and call federal the within forward-looking statements of These statements estimates expectations, are current on based and assumptions, forecasts. beliefs and management's company There can results the are are future factors predict. company's influence that control to or of beyond many the that the ability or or implied these results and uncertainties, Because past differ materially or those expressed risks statement. of actual forward-looking known unknown results from in any could

could to which of XX-Q a release reports. the subject to refer X-K please further to regarding any which non-exclusive company company's the in differ is list and expectations, disclosures makes cause the For today's well actual as risk our results it factors as XX-K, press from

management morning's I including: reference margin adjusted financial Eric? will most release. CEO comparable are today's in non-GAAP this financial Green. President West's diluted to EPS. measures, conformity adjusted in prepared over and In Eric the results to measures financial turn earnings and during profit, adjusted addition, the of to limitations GAAP provided now call sales non-GAAP to the call, currency, constant profit in make operating operating Reconciliations and

Eric Green

everyone us morning Good and thank Quintin. morning. joining you, you this Thank for Great.

patterns QX market morning issued release typical to press and Generics units. the seen Biologics our more this performance our for returned you've As growth

organic would to a was the shutdowns, from Fourth sales related impact, balanced in grew that $X.XX; that quarter. strong related we XXXX EPS XXXX have for Venezuela US and this impacts by diluted While Pharma adjusted quarter impacted hurricane reform we from this the manufacturing contract by also If a legislation XX%. our been charge quarter exclude we de-consolidation excluding very EPS team. of quarter fourth the by our decline was growth tax business tax estimate in X% saw operations discrete by reduced

As we to turn we see year expansion. The operating expect markets margin sales to above growth in another XXXX, serve at market growing we have unit profit of to growth. been X% underlying X% and

the has growth Our outperformed consistently annual revenue market. rate

the manufacturing technical We to This products and the continue leverage our growing services. differentiates and West contract demand focus scientific our for leadership remains organically. Along with that business industry. and high-value for our the

full to of detail turn market on QX Slide for unit year now the and performances Let's our the X.

QX. demand market led by adoption in noted as As well our to double-digit Biologic products a saw West as we earlier, Biologics offerings growth the product our of Westar customers and unit continue high-quality to components. in return growth was NovaPure

and West and entity deliver expertise are XXXX. our new customers molecules. rely wrap around technical to partner of such in new service maintain participation and Biologic our Both West small XXX% for that regulatory and on and encouraged FDA molecular on the contain We these product Daikyo as high-quality large biologics exciting offerings approvals

Biologics the West market strong. While participation in is space

for is we periods, Customers launches occur. Our in build destocking XXXX. and which quarterly and experience often growth fluctuations with linear follow shows saw always this that not stock up

helps which in our Our needs turn and a been our commercial of customers understanding with working better teams planning. demand timing, to get their have

and the full we'll to as in year we ramp first growth the For look Biologics meaningful XXXX. that example, have a the progress. continue year a positive will of see quarter up tough know comp in trends Meanwhile

to single in growth to of high expect full year XXXX We see biologics double-digit our growth. unit market

due market Our Full flat to discussed year unit prior finish had sales several XXXX in year customers. destocking growth single previously were a versus QX. year. Posting high generics to the digits inventory good by

also speed markets anticipate year say regulatory these and pleased needs. AccelTRA most customer that to to return the and us to some experienced feel and of a of a these meets their we growth we last pattern might sales are I'm issues. XXXX. need in our continue sustained communicate we've Generics due program more recall in consistent You both that customers to simplicity for software and behind issues

over XX West In customers drug addition generic for. of We course known that launched moving product With companies and were have compatibility. of forward This sampled with the the to the year. offering. this for several was the customers than is high-quality now unique XXXX more largest program in testing

We expect year market full growth to growth in unit return generics mid-to-high single-digit XXXX. rates to see our in

the unit. the market pharma first QX Following below strong of half very in for prior of period. half With year Sales our sales the back year moderated. XXXX the

mid-single organically full grew with our in long-term on pharma For the which XXXX digits year expectations is basis. a line

manufacturing this growth. of has five the throughout over muted faster detail long-term we XXXX, grow our On products tough it we to sales we XXXX to by underlying years. where come our to XX% for to due I'll to unit unit QX the is stated Slide pharma will key show Bill adoption I Looking double-digit high-value serves. a back more go saw expect former total detail comp around the to past talk from product as But With market than strategy seen annually. drug our QX continue growth. in about products X, business to Venezuela deconsolidation our grow high-value in our In growth a revisit somewhat first we've timeframe our impressive proprietary earlier his which want in our operations. And contract I including market discussion. business finally, into results moment. this

this of for away is to there we best-in-class addition, high-value continue a deal our take in volume products. growth grow is basis XXX that thing to from In slide experienced important us most room still The to of points XXXX. great

more the packaging ever the than And for devices. delivery generation of and regulatory units. With success all XXXX, products introduction with next demanded market had Injector. customers SelfDose expanded high-value across with injectable portfolio backdrop medicines we good now are the SmartDose of the In seeking

Exhibitor at was In the PharmaPack the awarded Innovation Meeting Annual just fact, Award SelfDose in week. Paris last

we future improved As growth administration products. we Slide of our in three high-value worked from system come area product On products, also and of and Advancing adoption volume R&D for launches. in new devices price focus X, will areas and and XXXX. highlight this delivery core, the

core team Our innovation our XXXX. advanced and technology offerings in

the market and Shields with cap. SA the partners demand directly to designed customers product for West Rigid that Daikyo, system. like to we customer All meet response high quality. LyoSeal Together our our our Pro the in will While to introduced into needs. Needle high-value unmet XXXX expect offerings introduce NovaGuard products additional new safety at products in broaden

delivery in we're In next especially XXXX business. double-digit also drug our to expand our generation working the administration growth to in within United addition and business expand platform our reconstitution and product drug this with the SelfDose offerings of States. portfolio SmartDose With in helping

launch organic this expand sales points expect improved additional new more to and over in new areas contributed expect the We and in for offering five invest production products this the in increased capacity in to than Together and XXX of geographic growth these past launched basis beyond. years products XXXX. XXXX markets, in trend XXXX focused into continue

on back the turn Let's now side manufacturing our of to contract business Slide X.

manufacturing the in as contract product proprietary high-value we're working to offerings from our the segment business Just transition business. in standard to

Our towards team has been products. transition on to consumer the increase products an in healthcare a our of focus from journey away business

grown from and you on five customers. As double-digit our five drug delivery has by healthcare diagnostic Resulting the see over in primarily the past X% quarters slide, the business growth come This consecutive years. of we've growth. annually

business. have have the we business, we healthcare deemphasizing growing been While also consumer been our

decreased you over see X% sales annually in late our In consumer of the As production longstanding moved have customers five in-house. years. last XXXX, chart consumer one the by

use from the of customers. XXXX. of increase this customers which our and we resulting X, grow expect consumer capacity areas we mid-single we some to with expertise result, business healthcare production number have On digits Slide of to Even engage a contract reduced As our the for manufacturing lines demand West. a our highlighted in supply will impact, the in

enables insight support a technical us deep to variety Our wide of products. complex

leading We market are have elastomers that impact drug delivery expertise we the on the unique also within of and devices.

plant December great doubled for our one Our We of and plant is this meet has facility space to Ireland increase operational of example which the XXXX later is continuous Waterford, a focus glucose in been Dublin, be core offering The sheeting in expansion commercial alignment. nice initiate production a and in Ireland the our strategic includes on manufacturing demand. year nearly Dublin manufacturing already profitable. devices this is and monitoring at year. to in new insulin The complement operations will expertise

over drive want and to X, leading the by highlighting our I year to to our working In On our Before customers. discussing quality XX environment safer and XX% for some global operating in I some Bill. Slide turn spend have strong supply the the we first under operations. of the accomplishments progress we're global made in teams unified things operations time team With better strategy. chain for a members. times Improve better sites more team the lead through XXXX, reduced service worked team's service customers. to of levels than

and upon to plan times improve further metric We XXXX. continue to reduce this in important even

results, quality delivering less In XX per in line highest commitment industry. out-of-spec the better seeing billion. quality to than we're addition, with the delivering In parts our

across accelerated also global have the We process excellent network. plant improvements

run products to investments commercial ongoing our manufacturing strategy, ensure streamline within organic of margin. operations long-term range. operations a restricting changes make the X% can and So our in sales business growth R&D conjunction our related drive and us Directors grow enable network executing value global efficiently. to together plant and will and and we contract continues that deliver to program expand to approved In with has the These X% customers with the to proprietary growth high-value back more strategies healthcare business will Board

to to Federici financial outlook. Now Bill? color on provide long-term our our provide on details and who Bill will CFO, our more I'll over turn performance

Bill Federici

you everyone. fourth our Thank morning, this good quarter morning. issued results We and Eric

Our charge deferred reduction unremitted Repatriation resulted Tax of effects tax our the offshore reform and US of in QX results include which earnings on assets. discrete US reflect tax to the a the

Fourth XX. year. special non-GAAP in earned per is QX, prior XX diluted and through A quarter the on both share quarter $X.XX of XXXX measures items Slide effects of the we reconciliation versus $X.XX Excluding XXXX. provided were earnings this these from

growth. X.X% Turning constant to Consolidated increase. announcement our sales million, were sales, currency. of to XX to sales fourth over X.X% High-value product a an increase the the increase quarter increase price were XXXX of Slide $XXX.X same fourth equally All quarter. components million, the $XXX.X XXXX. X.X% mix sales and year Sales references shows over volume prior quarter QX consolidated sales increased contributed Proprietary the sales product quarter versus sales. to sales increases

high-value X% full product approximately the XXXX versus XXXX. For increased year sales

a and SmartDose product versus Biologics sales full development our sales single-digit XX% high the over million prior government But market sales million, increased were year our $XXX.X as year quarter market were Our CZ in sales generics manufactured Combined the and increases unit by Contract single-digit prior unit expanded quarter. segment XXXX. facility. ramped in growth. increase double-digit sales our low $XX for decline pharma year and XXXX, activity up saw the activity recently in XX% customers the contract a

quarter, we efficiencies QX, gross provided achieved Waterford, margin margin our expanded of XX, achieved margin is Dublin of X.X than planned up high-value price margin of Proprietary XXXX a profit newer The modest increases material the XXXX. products in than XXXX. gross As prior consolidated and the fourth lower products fourth efficiencies XX.X% sold, quarter the margin. more headwinds activity overheads costs labor, and created which XX.X% margin savings in offset continued Product points planned year quarter XX.X% sales fourth X.X Slide observed XX.X% gross by overhead the ramp were Contract was of in margin our like sales the on and was favorable lead versus including Kinston quarter of fourth facility. XX.X% growth to and and in our mix, points lean impact quarter of Manufacturing under due for Scottsdale our higher and the higher newly facilities than mid-single-digit

on The SG&A million lower quarter. by primarily to QX, on programs to Slide levels offset prior lower salary incentive XXXX compared and XX, staffing decreased due pension year consolidated increases. expense reflected the $X decrease comp is expense, achievement As by

cash a our X.X key As of year QX, expense flow percentage than sales shows XX the less percentage SG&A period. Slide was XXXX metrics. prior points

the full of to the products for Capital were Our approximately including additions operating roughly spend facility. XX% roughly Waterford $XXX XXXX, of XXXX was improved million operating our XXXX in $XXX $XX year than primarily $XX efforts flow and our was due cash made new million in results. capital million expansion manufacturing more our million

expect approximately of XXXX. We balance additions also in XX information. $XXX provides sheet summary Slide capital million some

sheet our that Our future be continues business balance to and will liquidity. necessary confident provide strong we're

less our on Our $XXX of at was deferred undistributed was end year million Roughly our rate. year cash at of US tax is year than million reduced reduction bill in headquarters income The balance. loan. higher to December tax A is mandated cash million, than repayment GAAP balance a XX% approximately $XX Debt year $XX that earnings end million and deemed a term XXXX at the federal million, included end foreign invested due late on $XX tax prior into QX, law assets of based signed repatriation our tax discrete last XXXX $XXX tax reform the overseas. our charge results. of

end. our As at our balance which capital of capital to and the working million million terms $XX basis. than $XXX on end, exceeds a yearend, prior continue year total extended such we're pressure capital. year on our delevered higher Working as net debt push invested to puts at debt cash payment totaled balance Customers

in our continue We've our morning's levels We XXXX with manage investments. and internal work capital as to our release. working well our full as year to guidance issued inventory customers suppliers this

is exchange of an rate summarized based XX, Euro. our on is As $X.XX per guidance on guidance Slide

More most a Euro. earnings US. If actual translated currencies generating currency be rate. results half outside at to trend our weakened than translation revenues notably tailwind were has this Our XXXX. per Euro versus a $X.XX Dollar at will of XXXX holds, in US the international number

effect. in change approximately $X.XX Euro-Dollar every reminder rate a EPS exchange $X.XX has As the annual

tax effective roughly in the result tax will to new decrease legislation. rate expect We X percentage by US our a as X points

We will expect effects rate from XX% tax approximately excess tax excluding benefits the our be XXXX effective exercises. of option

on mix products. sales highly driven rate large the dependent is of effect of tax the is which high-value Our geographic in earnings by

EPS XXX,XXX $X.XX program. expect $X.XX includes, In to exercises tax resulting from recorded $X.XX. repurchase board be from XXXX XXXX benefit Our guidance option option a Whereas excess we QX, our share QX, about to benefit of approved benefit exercises. $X.XX from we XXXX

certain headwinds inventory adversely our XXXX management be We absorption of results facilities. our expect newest to our will which QX. of continue QX, create and under impacted and we by In in overheads earnings will customer for XXXX deconsolidated Venezuelan subsidiary sales

will In product bring opted consumer addition, impacted adversely in-house. by one XXXX large to be the that customer contract manufactured

the these the approximately facilities for to prior combined million under quarter. by Additionally, newer year $X.XX increase an from versus represent $X of overheads of impact expected is in items QX XXXX. The absorption QX, tailwind

do of stock benefit. these expect We not XXXX We the QX, growth the tax offset expect than in XXXX all income occurred in reduction from the technology will XXXX. year-over-year that QX, operational our items license mix comp and efficiencies other any

comps half in growth XXXX manufactured pharma unit our unit first half. these accelerating a units. throughout market half in first our for expect of to market compared growth both XXXX generics units, XXXX the up average grew of Setting our market contract and market excess XXXX, norms. the our tight of we throughout above well During and had stronger With of second biologics

these been items of XXXX have considered our in guidance. All

our year of $X.XX $X.XX on full diluted share. deliver to per expect to We earnings guidance XXXX

tax diluted XXXX. XX% comp, of represents in an XX% EPS over stock-based benefit Excluding the between increase this from and

of release. the now of I Our or in to fully $X $XX the to like Eric turn Eric? charge Green. million over $XX annualized to back call morning's outlined the million guidance million this $XX to excludes savings restructuring expected completed million

Eric Green

we're Thank you Bill. strategy. conclusion in In market long-term making lead progress executing our

our groups. the Our has an that our of delivering needs underlying dynamics commercial developed team unique product of discrete service understanding tailored of even is meet customer industry market and the and greater offerings

a committed strong quality, and growth and West. working meet is and delivery of year innovation network look integrated pipeline our that Operator, market customers our Our global is for We safety operations growth. team to our driving to to In forward remain service technology manufacturing streamline to future team fuel questions. room building will we're make take is our long-term improved to and to ready and products of needs. customer Thank for outlook to another containment above you. investments

Operator

[Operator Jefferies. Instructions] from is our first question with Dave Windley

Your line is now open.

Dave Windley

And line on the Eric FYI. concluding called start. me. think I my least there they your remarks just choppy. went At on the of pretty audio I'll end

Eric Green

Sorry.

Dave Windley

interference stuff. sounds type It Blackberry the like old

unit single-digit only just little sales units. by So the there that biologics, and net by the anyway, and not of and something customer high time then understanding bit size thinking question X.X% performance market hard a as taking wanted pharma double-digit having the around I I is together. first, with start single-digit low how about about by offset those account guess think questions I clarifying of relative to into a I'm to generics nets that I'm growth, unit

Bill Federici

Bill. Hi Dave, it's

I you're correctly. thinking think it about

to The low have those business business the you was and high of said for business the slightly that relatively single biologics as are pharma remember of which single-digit growth different units actually and double-digit largest decline. those You the is is size generics. the for

together you when add get So those proprietary. you all X.X% to in of things your

will growth QX items are and there those our the Venezuela that the products take Eric are that market product by proprietary when you was pulled a in X.X% issue somewhere if effecting in There There said those range. the some Now X% on on was that some destocking customer, the rate special were the going as and for you the was that be by impacting the call. that are so proprietary remember organization then inventory customers. impact from

Quintin Lai

may let's you caller. next up you. come the we if the for just be and you the maybe will line back Dave, think I here. losing go clear Dave, in can Operator, to queue

Operator

is next Our question from with Fargo. Tim Wells Evans

now Your open. line is

Tim Evans

anymore? can do it is much did can get it something much deconsolidate exactly in then revenue where we so it XXXX how you what Why for walk lastly, to the moves comp? and Bill, you you did XXXX did don't happened just something have somewhere exactly Venezuela? Is the everyone QX, how in it where this the just in understand QX, facility? volume or volume through do else And

Bill Federici

great. Okay,

suffering a lack So very cash know in ability getting from and of you country the high Venezuela of has as inflation out very, been that of country.

So that serve many, companies that we many there. subsidiaries. year point bailed subsidiary our control and since first through companies in the that their a at cash have but we and - we could, point all out almost in of of been Venezuela that the in as a deconsolidated we on received hung we no the time on to hung when as through time of was asset, XXXX ability We our deemed our had quarter, had of have lot any payments country long longer

with any from customers, that. point we of income American anyway no operations. forward expense that are our what of rules and serving South million to longer is that was GAAP we We're under our a a of means, $XX that required them to parts about Venezuelan many those other So it subsidiary have deconsolidate, we charge charge deconsolidation took from relative associated or

business have not elsewhere. or than have lost out gone diverted customers So customers we've of other who

these customers others to that asked of us operations. our American and South sell through Some Brazil of

not se. we business the So per have lost

XXXX none of XXXX, the QX, that in sales fourth XXXX actual $X.X had sales In million quarter. than XXXX's in of financial of less QX. versus we was terms XXXX, the have QX quarter the the Venezuela will first fourth in differential XXXX in In we $X.X of quarter results million

Tim Evans

I this the where So in, right. guess is confusion comes

zero America, that if XXXX? sites moved is you effectively business of why it of been million So QX, $X sales QX, in in had to in and XXXX some other South is

Bill Federici

It's a demand issue.

the in - stocked We selling had So inventory there's have QX, up we we of that on with that a a are when ordering customers existing in are but serving lot ground. don't a of whole been not We inventory time have tremendous will - you area and them. that been them have be amount. the we've been period made some through has $X been - million up and lot

Tim Evans

go large is customers? mostly this pharma to And that standard products

Bill Federici

Standard Yes. products customers. that to pharma large go

Tim Evans

Okay, committed hear out didn't the it for I you orders usually I that. or? call miss proprietary Did

Bill Federici

mutual XXXX. is it's million in the No, than $XXX roughly currency same which basis a X% on period higher

Tim Evans

Okay, do? accounting. $X.XX QX you'd it dynamics lastly. through there the to But going think net for said What offset you of then year-over-year said of you headwind. stock that was walk Can EPS? you does be the I comp all except

Bill Federici

Okay, take pieces. so when into you think them about let's two

in compensation XXXX comp first. stock the $X.XX. So stock will expense go The QX, was

for number We two smaller a are lot XXXX. reasons in projecting

first benefit those is the from stock third now about tax that is that, The not derive will you'll less. a derive stock company option a actual XX%. rate will exercises XX%, reason The as we from - be

our - the a money options they're had gone number in the expire, either XXXX a lot system. of we of so ready because have those getting that option already have exercises through of to deep in large Secondly,

So several years. option be we over of next the smaller we a a of, earned benefits pool have to expect smaller pool

$X.XX So XXXX. our production from [ph] to sizes the $X.XX - option in for our is estimate only tax QX, benefit

put and take So that that aside.

Okay.

Tim Evans

Yes.

Bill Federici

first decline. the is that Because

that that $X.XX, that. the we delta the to will excess that believe the our not overcome space The of one and versus in the talked XXXX at QX, overheads help able We growth fully you in that will of impact $X.XX $X.XX between operations, that $X.XX is, efficiencies versus XXXX happen $X.XX. favorable under mix and impact of quarter about product coming about and our second consumer believe tax benefits we net to these of will when impact, absorbed our the the Venezuela offset we generics And the their from first biologics some will QX, be look but expect do back. operational we XXXX customer us be

Tim Evans

clear $X.XX about just XXXX. lower than be to QX, very $X.XX So to

Bill Federici

Correct.

Tim Evans

it to turn Okay, that's right All good. others. Thanks. over

Quintin Lai

If the Operator, can back we back go to Dave? on line. he's

Operator

Yes.

question with Windley Our Dave from is next Jefferies.

Your line is now open.

Dave Windley

look you back clarify to phone, on couple my get things. a I off the question wanted transcript, call first continue I'll I to - of answer your but so to the cell

So XXX points. you guys said basis

I in Should volume about Is in products I high-value XXXX. points? that XX% growth high-value XXX think the that Eric mix of think in continuing frame talked about XXX is XX% points that work means? what the shift of standard, that in at basis basis like

Eric Green

XXX It's basis. point shift on a correct. unit basis That's from standard to high-value per correct. products That's

Dave Windley

am to low, Yes comparison mix the that but about isolation I with of product XXXX I'm front. would have I that the see thinking certainly guess because bit on want tougher that shift the I have thought would been continue, have years. and year-over-year a was would inventory little prior I etc., year of a to thought weak of that high product destocking growth and so, I relatively comps some vale by kind high-value an

Eric Green

you a you when shift of volume was about a There which XXXX. the at for that the at the this high-value of XX% behavior. had in component products is back standard that units impact about the so for when absolutely particular look some year, between XXX% drive Yes, market we different XXXX take - would of look into going component, volume

particular of part difficulty] be [technical [indiscernible]. you So smaller all the and tend to that they quality much materials NovaPure the to offering, higher customers give units but biologics

Dave Windley

you one. I helpful. NovaPure, another then was with that mentioned think Westar maybe that's And Okay, continuing as

the large time I injectable curious for what ago points a maybe that - right basis a But period fairly time that one - believe of that, quarters the as I that update customer you that's couple to while a your cadence shift higher being a high-value multi-year made level substantial of a think actually transition that's and customer could to highlighted I'm with over accelerate biopharma see decision period that how products happening. effort. high of had guess You bit little understanding is on roughly decision big product portfolio a that to of large having the would year, a that be that like make the a will it transition XXX

Eric Green

point. good a That's

is volume particular two, be year we're little with bit we one in a track and transition should [indiscernible] it little customer doing to process in their the that documentation. on so But be A you've do this name. acceleration. onsite also and approximately So customer, validation over requires completely. less It won't two-year seen which our more year

We're with the their well other occurring this to transition on our We help quite track. we're customers from seeing discussions and portfolio So with do products will pharmas. standard think high-value conversion this with particular to we're pleased other by conversion. us of large existing

XXXX So we're uptick moving on into little we we be beyond track. There could high-value due and of units the talk number as as about transition. look to products a that potential standard from to step of

Dave Windley

side on the opportunistic a levels are of be particularly that I'll net there things. thoughts that you now is I'm wondering I a net you're small. What zero, seem the cash guess debt. about and that comfortable you're of repurchase emphasized kind more and share drop. and recent little debt position bit one you based to aggressive last basically pattern in Okay on Bill But of opportunity major an

have you're a CapEx end to in debt. going Now position low the don't that trended range is a P&L and you cash you're where is of generate growing, more of lot on flow or your your

Eric Green

north that and you year, that. - investing you when I'll in was in absolutely of so invest the they're believe, And underutilized of CapEx - point approach below spend of is to that's because facilities XXX results is growth mentioned. looking around the organic projects when to global comfortable network into taking this number organic the start excited - but it's at are a kind XXXX that and state-of-the-art sort we'll look do you're of roughly in we use transfer continue we regards prior to talking couple are comment little our operations correct, sites, feel a very those at good of they're seeing We're of around we million we've because focus that. $XXX so bit more at there in our in cash but customers about have growth, of approach that with

area put around group. we're to more is, the that innovation, is team's emphasis second our starting The aligned technology now around that

You'll technologies the as type that to three is sales really and that's we double-digit next we're look in the comment, still to see X% invest at happening on continue type and acquisitions of that will One payout with last in to the trying five percent to very We're we while innovation drive the vision growth. both pipeline to our know continue XXX% devices the a area use number medicines. that of working encouraged in years. I'll portfolio Bill tuck-in of of we're below integrated bolt-on real delivery broaden for to as about and complete debt to containment talk let bring you fold. and and quickly dividends. opportunities injectable buyback how the don't leverage cash around have through we ways in on the We or portfolio also share really and

Bill Federici

absolutely is right. Eric

just an you for hope we XXXX for Dave the now items the year two in there mix other as on you that buyback pay we know the basis in and dividends, XX annual we're share it's XXX,XXX range effect. do are, The know million-ish

state de-levered there that of We thoughts network. not bolt-on but as we're about perspective debt were invest debt that see now. in as right we there Yes, strategic from you're a in mentioned our to right we're and certainly if not happen just adverse if I We debt adverse. out opportunities terms In will to delevered Eric a debt. be do we're and said, our to or elsewhere opportunities were

Dave Windley

you. thank drop Okay, out. I'll

Operator

question is with Knight Our Janney. Paul next from

Your open. line now is

Paul Knight

Puerto that is Rico to and say care Is is behind of we so speak? can behind us, taken us. guess now I that de-stocking done So

Eric Green

Puerto importing it's behind Yes, Puerto Rico Paul a And our island this real about good just us. Puerto I our Rico question. customers at is would comment is we're operating Rico, point. the and site on of quick

truly So we is us. believe that behind

builds, of we've to Rico as able know, actually continue with performance. our site there levels. de-stocking, the were normalized been regards In customer situation will we fact, it's We on and side Puerto out how invest to to In producing inventory was because do generics in de-stocking. per really you the see I'm top they of one sites come pleased our

build they're little launch that We're there. they'll help we comfortable a molecule and there But down be very bit the we'll to Paul for us. tend and will We When to very pipeline about visibility. should them, molecules see us on that up launches. product is part new healthy fluctuations positive Biologics see come to so be pretty based to we know more the have inventory. is, biologics, of you well

This operations, talk they they their and pleased. less say hear very type I improvements now thing are last to activities. been customers reduction of on And it, noted there's significant. So times, heads at continue Paul reduce We announced I head about XX% our do have where own customers would own they've to add. to commercial how working the is safety And stock facilities. do have their one capital de-stocking lead drive

good as but oscillations it's happening very reason very some quarters, have that's we're a a we'll we long-term why position. think and go I few good for for in So next

Paul Knight

give an etc.? and involvement can you update us on Crystal there the Okay Zenith. then customer What's

Eric Green

Yes strong. as far as - of the remains level interest the number

either that are in X. in have or Phase projects We X, X various

We the that point. early have discovery at on development are in phase this several really

level really going we that area it's you though, it niche because is after So a the display, remains interest have all glass. won't strong. focused it tell been I'll

because our especially that size, space the in this exploring that in we the at we're variability scale have can actually customers our some and point So we in we're time. option pleased the of is that larger provide so seeing biologics pharma

Paul Knight

where going And us on and margins year-over-year? color growth up Bill, you are QX give then could little a last

Bill Federici

the we for will full expect increase be to margins. able that year We

headwinds those lined those we have will I of We as suggested things. and Paul all out

So the the consumer from I impact, that mentioned operational overhead we able with our and as should customer absorption under to issues growth impact be mix offset Venezuela and efficiencies.

be we'll So comfortable - year that on that margins. the expanding we feel very for full very,

because so headwinds talking very, The the first that feel again of we be the comfortable very with year faced, quarter that through full pronounced outlook. happens we we to were

The continue to first be margin will be to quarter continue will soft. be

Paul Knight

thanks. Okay,

Operator

is Dana Goldman Sachs. question Our with next from Flanders

open. Your is line now

Dana Flanders

as comps, some guys if then Did just tough it. lapping head XXXX and here first as guys we this the were give you My that apologies quarter? we at XXXX. I organic should missed XXXX you we And to product growth high-value one look expect into I accelerate know

Bill Federici

first. first answer I'll so question, Yes

biologics the our For we XXXX, half highlighted back. and quarter products the see I as back as for fourth product right that we'll year growth high-value around X%, And come was of generics the the accelerating mentioned in mentioned in script.

low high-value the believe more high in So our growth we will we for we year, expect to singles doubles. that normal have products

Dana Flanders

just program EPS of about then course more included just And here. quickly know of that restructuring modest second weighted? is one announced over magnitude I XXXX the guidance. we you How great. think savings XXXX, should the Okay, my not in

Bill Federici

absolutely. Yes,

So the etc. environment to difficult the network. with very, and protocols product question. is for validation is you thank that it a There In the regulated operate in, customer Dana move around we very

we long to these category time. So months when the Historically take see in a things those that's for talk we XX expect savings. to XX why

towards We you and works, back only start the of can my and are once then to which the believe happen is savings guess actually take we activities will you will half the those charge know the you XXXX. it way get exited see

and annual bit amount but in will an XXXX, So through the they back of will the substantial savings be little a of a not most that maybe certainly XXXX It beyond. come in effect. half and

Dana Flanders

That Okay, Thank from great. you it very me. much. was

Operator

is from with question next Larry Solow Our Securities. CJS

open. now is line Your

Larry Solow

questions just my answered, a clarifications. been have of few Most

although little like on So It back a you you're half bit just get in building not take on you to the on savings. QX. may net sounds back

right? for anything building not actual You're XXXX, it guidance your in

Bill Federici

Right.

Larry Solow

get Okay to probably that XX, by the we'll and it math. full or some that like impact the total so that $X.XX we'll sounds get annualized XXXX. it that like then looks $X.XX And of of full impact, but

Bill Federici

Yes, absolutely.

Larry Solow

lead of on backlog side. on flat. the little sort a reduction the - and improved capacity, times. success Great Obviously Backlog XX%

your good had that maybe somewhat of backlog of is a view sort normalized? as we, no longer should that improved years orders. I is now this supply couple your is Going capacity How forward before we ago should surge or like of looks capacity was an indicator you as it

Eric Green

reduction. a mean nine, cases I reduced ten of because weeks the lead significantly. Larry each question times been in good of some it's talking have matter

actually Our ordering in customers are much not as advance.

take giving a look if So example. at I

If you just take up again the a delivery look business at end clear about of the growth The to January. backlog XX%. though. is QX be to isn't The backlog growth of of sub-segment entire the for

from is from occur. the forward good and level that said the fact high lead going indicator period We're we deliver this as very short-term where are larger can we less a not a point will have there's times customers in would going at our to shift significantly time. because a the percentage of that's So consistently constant backlogs we than their

So looking point looked what of true at we got four, five way a this at backlog three, at get to to time. of be we little years careful bit is

Larry Solow

Right.

backlog read positive. it the Okay might period like your number, sounds sounds analyze it sort that better will of we so what but sounds and of it outside if be until little, shakeout remains could consistent you

great. Okay,

quite maybe by expected like, - pharma pharma And bit bit little one Just I sounds an that the on than more high-value Did that year XXXX? outlook and you give gears maybe the quarter? finished you the obviously you switching - for bit. good. just but the little skewed in quarter-to-quarter to. a but down, more outlook think products this all generics, biologics quote and volatility hear in Did well it pretty as I during little Obviously didn't

Eric Green

Larry a bit, you it's just little what Yes, commented.

had me look at Let - QX. the and put into pharma issue we that in it

pharma our decline, clients not are and demand XXXX of was drug predictable, molecules quite an number. in We business we customers we tooling know in roughly - difference had our - on of we off also are taken on Bill which call noticeable these tooling, particular with our [ph] work Venezuela in we between large top XXXX when we the pharma one our The plus you our we're a with which impact predictable a in And versus on mentioned area to of closures. forecastable had Some I business. had one back, Venezuela was and/or QX do little some a our of customers. X% it's so with one of containment this base earlier provide bring the European over elements in these what quite the saw lot and market of that. growth that

in visible wasn't the unfortunately the October continue future to the demands. It you at and community in the us with - talking visibility was our on time clearly regards the we that So to impact in was QX. work to to transparency investment were we

Larry Solow

success Okay, expect capacity explainable from you but SG&A online under to On absorption, less by still fair you absorption. offset margin. drag coming little great new lower it's gross that on say? and in bit again improve and then It on your the that little is XXXX, and quarter the sounds bit expected, upon than like realized over - some to have under

Eric Green

say right to is That Larry. it, absolutely way

Larry Solow

to that hard to. hopefully time, overtime grow of sort will I guess I and Okay switch but to you and guess as continue

Bill Federici

now plants that quality into highest it's go for you business we in highest where Absolutely in while a a you capacity the products satisfy these a give that is our and as can excess that future you value the offer. good to can demand drag designed know specifically thing customers of having are growing products

Larry Solow

a on and non-core sort little of Excellent that the has plastics This a $XX quite color sourcing and focus. is small additional it come that contract? but It whole, the is expect this million, any $XX like margin off sounds contracts And $XX you contract this over business getting obviously forward less lower then on that a that. looks of in million, contract. I that like become as going one overtime. of something million. Is realize

Eric Green

case, client working all we our want of of for long service Larry we've a with [indiscernible] In in our time mean been to bill, I particular sourcing. period obviously Yes, this customers. long,

around - consumer So said we roughly you're about margin is forward years. be the impact part business and put $XX of our it's it one as place. area over investments talking in this, seen area declining we're you've business. last it million to lower an this is the five But But correct strategically in consumer without the slightly as when we you The a will it going business. having de-emphasize be

as your magnitude that's of today. So that of business

well the as be XX% ago. business was consumer about you, remind group will tech to XX of years Just acquired

several over a has the been shift this So last years. especially

Larry Solow

Okay, guys. great. much Thank very you

Operator

Our De next of with from Bank question Bruin Derik is America.

Your line is now open.

Derik De Bruin

I'm Sorry, on late. and traveling jumped

question. apologies my to you hit but the on follow-up So sort just last this, if of

think the about gross trying for outlook for dynamics So the for how what's segments all pieces. the margin to the Just the XXXX? different given moving work,

Bill Federici

your question. for Derik Thanks

back and year biologics building QX, in as the that and know get XXXX generics to the very, headwinds manufacturing in be front of away and towards high to businesses high-value diagnostic the we'll continue goes, pharma, year, and see as as move impacting operational that with believe that, will efficiencies. the That to comfortable mentioned consumer and will be will but low we half device so Longer so margins us the very On our and the contract continue the the in single that XXXX growth margins term of more challenged. will for comment the product we are for be overall the continue be Eric we ability talked a, doubles are in about that expand we fact both from grow half still feel will to in from to this Derik. you benefiting organically the full side to year in

continue will be So margins quarter first in the to challenged.

Derik De Bruin

year well. and M&A my rules. Okay the as full effect you impact question I'm from these. a - on there and FX know that how some for in from does [indiscernible] just and on I I the FX I some line and already of the top guess the just margin answered margin just accounting changes apologies level gain pension are guess what's the

Bill Federici

accounting the well. pension Yes that will have the an point, margin a effect on change. as good It's

impact so talking mid-single one from just - strictly and to it the change, reclassing to it P&L an of like violent But you're the you're [ph] but area low a a change, another. For have accounting not about change the of us millions on in dollars, an it's it's does is it's margin.

On the first? the was what - I'm sorry

Derik De Bruin

FX.

Bill Federici

the have guidance is prepared as was Euro full mentioned remarks, per and Derik it's effect million, - roughly year's the my year Last a little in a is $X.XX $X.XX FX over, that's we EPS. per $X.XX we So I prepared $X.XX one we've are over Euro. at each of budgeted

more bit little than So that.

it put. talking the going should about whole you between that know which what won't If the it the is have and were but you we for you're hold, year, $X.XX $X.XX ground, stake range the So from from a $X.XX expect that's FX. $X.XX to where to kind in at of

Derik De Bruin

Thank great. very you Okay, much.

Operator

last our And is question from Dave Windley.

Your line open. is now

Dave Windley

of December actually and am reduction clarification, back for couple times would that the through that that end fourth year-over-year coming about I the that represent of third Am three. thinking itself I strong more A quarter in in at a such the so X% that was see in after pattern back the you right pattern then, that to I'm because third orders negative improvement kind wait product high-value your quarter you're a negative thinking pattern or quarter catch the quite up. would year-over-year in of correctly?

Bill Federici

correct. is commentary general The

of average a and obviously. bit the as that, volume to expect construct margin we XXX says little you We expect Dave know year over an price due and efficiencies mix expansion about of shift, the points basis operational

than we time talked impacted of Venezuela building. half. periods and by So we the half We like by of see first the more as quarters the de-stocking back in long XXXX inventory over the things about being individual know the that we're impacted severely

to that be normal talked they the it's to order half of the fact the year. biologics back more come towards back generics going half, also patterns as back and about We the

first products you're guiding growth to double-digit low counting will of that for year. yes but on is part in So to what the the high single a and high-value - we're year, we're challenged be in the

Dave Windley

was six significantly XX, which Coming even or were something XX% next which approvals had were is. five, more approvals of Okay, what XXXX XXXX had like maybe XX injectables it that out XX, maybe we of XX we those injectable. of drug of XX follow-up more maybe XX.

in about. approvals in commensurate and injectables a you that significant increase So improvement overall care

of talked timing for about ramp products regard a patterns had and cadence? being the approvals. and with in XXX% big already in Order XXXX. biologic should uptick we approvals coverage the What's You What's driver how thinking that injectable drive? a you revenue when your you up be about then to of

Eric Green

approval they ramp Yes, we so that get is, and one look is into up. at, a market launch place. the there's two there areas Where

into you distribution a the lead channel. So get time year it's roughly marketplace, the into about

which we're The smaller are very more approval we seeing for in some tremendous exciting number thing is obviously patient, going just be while some have very molecule. seen through - In just a therapies the there's been per cases and molecules recently, launch the recently second small. they're of volumes drug have volume but quite process increase effective in there to aware

not So - and larger. the ratio not obviously be smaller we It's with to X:X the while does the is tends have it. to it generics balance is every volumes, very pharma molecule biologics

Dave Windley

question. final then and Okay

restructuring On to for and sure just were that a both CapEx then charge, that amount that to spend going make savings expect you I restructuring want get. a I to you the you understand got you because got

places in that a build other to fact identified having capacity to about talking able shutdown absorb productive to got some we and that? facility to that completely executing? volume, that, do and in are operationally that some Just you productive do you and can offline then take what you're order and Is out do you're before that exit

Bill Federici

activities. We and exit as amount course will XXXX products opportunity then million the $XX that's million then the into take mentioned those over will products happen with we customers idea there and the XXXX certain but over the it certain facilities can of those will to that capital as our to you A is those for what consolidate we very and locations. of in needed. will of couple be do to move will time customers some into and imagine you those modest that locations said exactly a so close, release $X products, Yes, some believe regulated some we actually have those over, migrate to

takes XX So - a nature months. of to it to because it's XX things regulated of as little time estimated the why know do bit that these you we've

a of XXXX. expect savings lot and don't we So XXXX, through bit in at back little a the whole

Dave Windley

volume, regional come more recipient of call and of or to kind like that? are of moving part hubs excellence - super And able the is into a volume this is like you of it Waterford someplace of the this kind centers

Eric Green

aligning operations we're what global strategy towards our through basically last that consolidated doing year so Yes, of we we outlined centers excellence. where

more resource discreet locations. So an efficiently. the opportunity run capabilities you're actually us and we're to and correct, This pooling more into gives technologies the

more sites you today as on it's some really have have towards moving we and [indiscernible] we strategic so opportunities. know do XX So

Dave Windley

thanks. Okay,

Operator

And we're no showing further questions.

Quintin Lai

available our on Thank archive you the broadcast at online on section. the call. us today's for conference be in joining investors An will website of www.westpharma.com

release. XX, earnings access ID provided and Additionally, the through end you at may a dialing conference telephone the replay February Thursday, numbers today's of by

next nice Wednesday in a New that York always Conference Investor our on as and website any at you as presenting be webcast have will and well. day. Thank available We is

Operator

gentlemen, and you conference. today's in thank Ladies for participating

all may You disconnect. a day. have great Everyone

West Pharmaceutical Services (WST) 15 Feb 182017 Q4 Earnings call transcript