West Pharmaceutical Delivers Solid Fourth-Quarter Results

Wide-moat West Pharmaceutical delivered solid fourth-quarter results, with full-year results in line with management’s previously stated guidance. Sales declined in the quarter by 3%, and full-year sales growth for 2022 was 2% (organic net sales growth of 7.7%) year over year. While the company continues to face foreign exchange headwinds and inflationary pressure paired with a significant drop off from COVID-19-related sales, we are maintaining our $280 fair value estimate, and shares appear overvalued.

The sales decline in the quarter was due to volume, mix shift, and foreign exchange headwinds, moderately offset by price increases. By segment, proprietary products declined 4% year over year for the quarter. Revenue grew 3.9% (organic sales growth of 9.8%) year over year for the full year of 2022. High-value product components, or HVP, represent about 72% of this segment, with HVP sales flat year over year. This segment also saw a single-digit sales decline in biologics due to a reduction in COVID-19 vaccines and decent growth with the company’s generics and pharma products. Contract manufacturing experienced 2% revenue growth in the quarter and full-year net sales declining 6.7% year over year (organic net sales declined 2%). Growth in the quarter was driven by increased sales of medical device products and demand increases from existing customers. Each segment experienced slight margin contraction year over year. However, West’s operating margin remains stronger than in the prepandemic era, and while we expect a slight dip in margins in 2023, we project margin expansion into the high-20s by the end of our five-year explicit forecast.

Management provided 2023 full-year revenue guidance of $2.94 billion to $2.96 billion, lower than our projected $3 billion. This guidance includes a $303 million year-over-year decline in COVID-19-related sales.