AptarGroup, Inc. — FY 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports fourth-quarter results. AptarGroup supplies dispensing and packaging components to beauty, personal care, home care, pharmaceutical, food and beverage markets through three segments: Beauty + Home, Pharma, and Food + Beverage.
Financial performance and liquidity
- Revenue: Net sales were $2.520 billion, up 8% from 2012. Core sales, a non-GAAP measure excluding acquisitions and currency movements, grew 4%; acquisitions added 3% and currency effects added 1% to reported growth.
- Profit and margins: Operating income was $284.6 million, up 10%, with an 11.3% operating margin versus 11.1%. Net income attributable to AptarGroup was $172.0 million, up from $162.6 million; diluted EPS was $2.52 versus $2.38. Gross profit was $666.2 million, approximately 26.4% of sales. The effective tax rate increased to 35.0% from 32.7%.
- Cash flow and investment: Operating cash flow was $285.4 million, down from $313.9 million, primarily due to higher working-capital needs. Capital expenditures were $151.5 million; operating cash flow less capital expenditures was approximately $133.9 million. Investing activities used $157.1 million, compared with $359.5 million in 2012, which included the Stelmi acquisition.
- Liquidity and debt: Cash and equivalents were $309.9 million; total interest-bearing debt was $494.6 million and net debt was $184.7 million. Net debt to net capitalization was 11.1%, compared with 12.5% a year earlier. Current assets were $1.198 billion and current liabilities $542.8 million. The company reported compliance with its debt covenants.
- Shareholder returns: The company repurchased approximately 2.0 million shares for $118.8 million and paid $66.1 million in dividends. Dividends declared were $1.00 per share, versus $0.88 in 2012.
Changes versus 2012
- Pharma led growth: sales rose 20% to $708.8 million and segment income increased 34% to $189.7 million. Growth included a full-year contribution from Stelmi, acquired in July 2012.
- Food + Beverage sales increased 12% to $323.1 million and segment income rose 16% to $35.2 million.
- Beauty + Home sales increased 2% to $1.488 billion, but segment income fell 12% to $109.3 million. North American softness, higher labor costs, operational inefficiencies, and Latin American facility start-up costs weighed on results.
- Reported operating income and net income improved year over year, while net income remained below 2011’s $183.7 million. The higher 2013 tax rate reflected French tax-law changes, partly offset by tax benefits in Brazil and Italy.
- Cash increased by $80.1 million during 2013, compared with a $147.9 million decrease in 2012. Working-capital use contributed to lower operating cash flow.
Outlook, commentary, risks, and unusual items
- Management expected improved first-quarter 2014 results and forecast diluted EPS of $0.65–$0.70, versus $0.64 in first-quarter 2013 excluding approximately $0.05 per share of European restructuring costs. It also expected challenging currency conditions, particularly in Latin America and Southeast Asia, and higher taxes year over year.
- Management estimated 2014 capital expenditures of approximately $190 million. Annualized savings from the substantially completed European restructuring were expected to be $10–$12 million.
- The European restructuring involved capacity transfers and consolidation across 12 facilities, including two closures affecting approximately 170 employees. Cumulative costs were approximately $19.5 million; 2013 restructuring expense and related accelerated depreciation totaled approximately $14.5 million.
- French tax changes enacted at year-end reduced 2013 earnings by approximately $0.10 per share. Currency-transaction losses were $6.3 million in 2013, with additional fourth-quarter losses associated with devaluations in several currencies.
- Key risks include foreign-exchange volatility, raw-material and input-cost increases, competitive pricing, economic and customer-demand changes, dependence on certain single-source materials or manufacturing sites, pharmaceutical product and regulatory risks, and potential product-liability or intellectual-property claims. A patent dispute was resolved through a license agreement on February 13, 2014.
Important facts for investors to verify
- Reconcile reported sales growth with the company’s 4% core-sales measure and the contributions from acquisitions and currency.
- Assess whether Pharma and Food + Beverage growth, and the expected restructuring savings, can offset continuing weakness and start-up costs in Beauty + Home.
- Review cash conversion and working-capital trends, planned 2014 capital spending, and the use of cash for dividends and repurchases.
- Monitor currency exposure, raw-material costs, tax-rate changes, and the company’s ability to pass cost increases through to customers.
- Review the full notes for debt maturities, pension assumptions and funding, tax uncertainties, contingencies, and the terms or implications of the patent-license resolution.