AptarGroup, Inc. — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. This is an annual report, not a standalone fourth-quarter filing; fourth-quarter figures are included below where relevant. AptarGroup supplies dispensing and packaging components to beauty, personal care, home care, pharmaceutical, injectables, food and beverage markets. Europe generated 58% of 2014 sales; no customer or affiliated group exceeded 5% of sales.
Financial performance and position
| Metric | 2014 | 2013 |
|---|---|---|
| Net sales | $2,597.8 million | $2,520.0 million |
| Core sales growth (non-GAAP) | 5% | 4% |
| Operating income / margin | $306.4 million / 11.8% | $284.6 million / 11.3% |
| Net income attributable to AptarGroup | $191.7 million | $172.0 million |
| Diluted earnings per share | $2.85 | $2.52 |
| Operating cash flow | $314.6 million | $285.4 million |
| Capital expenditures | $161.9 million | $151.5 million |
| Cash and equivalents at year-end | $399.8 million | $309.9 million |
| Total interest-bearing debt | $840.9 million | $494.6 million |
| Net debt | $441.1 million | $184.7 million |
Net margin was 7.4%, versus 6.8% in 2013; cost of sales was 67.6% of revenue, versus 67.8%, while SG&A rose to 14.8% from 14.4%. Operating cash flow less capital expenditures was approximately $152.6 million. The company reported current assets of $1,213.9 million and current liabilities of $604.7 million. Its net-debt-to-net-capitalization ratio increased to 28.6% from 11.1%. The leverage covenant was 1.09x against a maximum of 3.50x; interest coverage was 21.80x against a 3.00x minimum.
Fourth quarter: Sales were $599.2 million, down from $637.3 million a year earlier. Diluted EPS was $0.63, compared with $0.54.
Material changes versus 2013
- Reported sales rose 3%; 5% core growth was partly offset by an approximately 2% adverse currency effect. Growth was led by Pharma and Food + Beverage.
- Pharma sales increased 6% to $751.2 million and segment income rose 8% to $204.7 million; segment margin was 27.2%. Food + Beverage sales rose 8% to $348.3 million and segment income increased 7% to $37.7 million.
- Beauty + Home sales edged up 1% to $1,498.3 million, but segment income fell 10% to $98.4 million and margin declined to 6.6% from 7.3%.
- Operating income benefited from the absence of 2013 European restructuring charges. The restructuring plan, involving consolidation across 12 facilities and about 170 employees, was substantially completed in 2013 at cumulative cost of approximately $19.5 million.
- Net income increased 11% and diluted EPS rose 13%. The lower 2014 effective tax rate, 33.1% versus 35.0%, reflected no U.S. repatriation of foreign earnings in 2014; 2013 included repatriation-related tax expense.
- Debt increased substantially, while share repurchases totaled approximately $340.5 million for 4.5 million shares. Dividends paid were $71.1 million, and the annual dividend declared per share rose to $1.09 from $1.00.
Outlook, risks and unusual items
- Management expected foreign exchange, especially the Euro, to remain a headwind and said soft demand in select fourth-quarter markets could continue into the first quarter of 2015. Q1 2015 EPS guidance was $0.60–$0.65, versus reported prior-year EPS of $0.71; management estimated prior-year comparable EPS at about $0.60 at similar exchange rates.
- Management estimated 2015 capital expenditures of approximately $150 million, at then-current exchange rates. It described liquidity and financial resources as sufficient for foreseeable business requirements.
- Beauty + Home results included approximately $3.0 million of Colombian start-up costs, $3.3 million of adverse Latin American currency transaction effects and $1.3 million of net expense from a Brazilian facility fire. The fire generated $5.5 million of costs; $1.8 million of insurance proceeds had been received and a further $2.4 million receivable was recorded for probable reimbursement.
- Currency translation reduced 2014 other comprehensive income by approximately $192.8 million; this is distinct from reported net income. Stockholders’ equity fell to $1,103.4 million from $1,479.8 million, with currency translation and share repurchases among the major movements.
- Key risks include currency volatility, economic and geopolitical disruptions, raw-material and supplier constraints, pricing pressure and competition, customer concentration and product success, plant utilization, labor disruption, product liability, cybersecurity, regulation, and possible goodwill impairment. Goodwill was $329.7 million; no impairment was recorded after the annual qualitative assessment.
- Ordinary-course lawsuits and claims were disclosed. Management did not expect a material adverse effect, but noted outcomes could exceed accruals. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued an unqualified opinion.
Important facts for investors to verify
- Whether first-quarter 2015 demand and EPS landed within management’s stated range, and how currency movements affected reported results.
- Whether Pharma and Food + Beverage growth can continue and Beauty + Home margins recover from 2014 weakness.
- How the higher debt and the $250 million accelerated repurchase affect leverage, interest costs, and remaining repurchase authorization; also note the filing says most cash was held outside the United States and repatriation could incur tax.
- Whether insurance reimbursements for the Brazil fire are realized, and whether any litigation or other contingencies develop beyond disclosed expectations.
- How pension assumptions, foreign exchange translation, and goodwill cash-flow estimates affect reported equity and future results.