AptarGroup, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. AptarGroup makes dispensing, drug-delivery, sealing and closure products for pharmaceutical, beauty, personal care, home care, food and beverage markets. All amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Net sales | $895.9 | $844.5 | $1,756.0 | $1,689.5 |
| Operating income | $116.6 | $101.2 | $200.5 | $198.9 |
| Operating margin | 13.0% | 12.0% | 11.4% | 11.8% |
| Net income attributable to AptarGroup | $83.1 | $63.6 | $137.8 | $126.0 |
| Diluted EPS | $1.24 | $0.95 | $2.07 | $1.88 |
| Adjusted EBITDA | $181.2 | $159.9 | $334.9 | $316.2 |
| Adjusted EBITDA margin | 20.2% | 18.9% | 19.1% | 18.7% |
Q2 reported sales grew 6%; core sales, excluding currency and acquisitions, rose 4%. First-half reported and core sales each increased 4%. First-half core growth reflected approximately 3% volume and mix and 1% inflation-related pricing. Cost of sales, excluding depreciation and amortization, was 64.0% of sales in Q2 versus 65.0%; the corresponding first-half figures were 64.4% and 64.6%.
For the first six months, operating cash flow was $182.2 million, compared with $176.7 million. Capital expenditures were $155.0 million, producing reported free cash flow of $27.2 million versus $42.2 million a year earlier. The company paid $49.8 million in dividends and repurchased $29.0 million of shares during the half.
Segments and material changes
- Aptar Pharma: Q2 sales rose 15% to $390.7 million, with 13% core growth; Adjusted EBITDA increased 13% to $125.9 million. Prescription and consumer health care demand was strong. First-half Adjusted EBITDA margin fell to 31.5% from 33.2%, reflecting injectables ERP disruption, capacity-expansion startup costs and lower COVID-related sales.
- Aptar Beauty: Q2 sales grew 4% to $329.6 million and Adjusted EBITDA rose 5% to $43.1 million. Beauty-market demand was strong, while personal care and home care were weaker. First-half sales increased 5% and Adjusted EBITDA increased 6%.
- Aptar Closures: Q2 sales declined 6% to $175.6 million, including an 8% core decline; first-half sales fell 7%. Customers continued working through inventories, with softer food and personal-care demand. Despite lower sales, Q2 Adjusted EBITDA rose 30% to $27.8 million and margin expanded to 15.8% from 11.4%, aided by cost control and favorable mix.
Effective January 1, 2023, the company reorganized its reporting segments, combining closure operations into Aptar Closures and renaming Beauty + Home as Aptar Beauty; prior-period segment data was recast. The changes did not affect consolidated results. The company acquired iD SCENT and 80% of Gulf Closures in March 2023; their results are included in the respective segments.
Financial position, outlook and risks
At June 30, 2023, cash and equivalents were $121.0 million, total debt was $1,225.9 million, and net debt was $1,104.9 million. Net debt to net capital was 33.6%, versus 33.3% at year-end 2022. The company had $61.1 million outstanding under its $600 million revolving credit facility. Leverage and interest-coverage ratios were 1.81x and 15.55x, respectively, against covenant limits of no more than 3.50x and no less than 3.00x. Current maturities of long-term obligations were $214.3 million. Management said it believes liquidity and operating cash generation are sufficient for foreseeable business requirements.
Management expects Q3 2023 diluted EPS of $1.23 to $1.31, excluding restructuring expenses, changes in fair value of equity investments and acquisition costs; the guidance assumes a 25%–27% effective tax rate. It expects strength in core Pharma drug-delivery systems and fragrance dispensing to continue into Q3. Estimated 2023 capital expenditures, net of government grants, are $280–$300 million. A quarterly dividend of $0.41 per share was declared for payment in August, up from $0.38 per share in the comparable periods.
Key risks cited include economic weakness and changing customer demand, inflation and input-cost volatility, supply-chain constraints, foreign-exchange and interest-rate movements, execution of restructuring and facility expansions, ERP implementation, cybersecurity, acquisitions and integration, and legal or regulatory outcomes. The filing reports customs-duty claims of approximately $13 million principal plus $5–$6 million interest and penalties; no liability was recorded because the assessment and appeal outcome remain uncertain. The company also faces ordinary-course litigation and claims, whose outcomes are inherently uncertain.
Unusual items and investor verification
- Restructuring costs were $1.9 million in Q2 and $13.5 million in the first half; cumulative optimization-initiative costs reached $19.7 million by June 30.
- A $2.9 million Q2 gain on the PureCycle investment contributed to other income; first-half gain was $3.1 million. Fair-value movements may be volatile.
- Management cited approximately $4 million of Q2 costs from injectables capacity validation and ERP-related inefficiencies; first-half incremental startup costs and inefficiencies were approximately $16 million.
- The $25.3 million Fusion contingent-consideration obligation was paid in April 2023, including $22.8 million classified as a financing cash outflow.
- Verify the assumptions and exclusions underlying Q3 EPS guidance; progress in resolving injectables ERP and expansion disruptions; whether Closures demand and customer inventory levels recover; cash conversion after elevated capital spending; refinancing of near-term debt maturities; the outcome of customs-duty claims; and the sustainability of investment gains and segment margin improvements.