AptarGroup, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Unaudited consolidated results; comparisons are with Q1 2019 unless noted. Amounts are USD.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | $721.6 million | $744.5 million | Down 3%; core sales down 2% |
| Operating income / margin | $88.5 million / 12.3% | $97.1 million / 13.0% | Income down 9% |
| Net income attributable to AptarGroup | $55.3 million | $63.0 million | Down 12% |
| Diluted EPS | $0.84 | $0.96 | Down 13% |
| Adjusted EBITDA / margin | $144.2 million / 20.0% | $154.5 million / 20.8% | Down 7% |
| Cash from operations | $85.0 million | $77.6 million | Up $7.4 million |
| Capital expenditures / free cash flow | $61.6 million / $23.4 million | $51.7 million / $25.9 million | FCF down $2.5 million |
Cost of sales fell to 62.5% of sales from 63.0%, helped by business mix and lower material costs. SG&A rose to 17.5% of sales from 16.3%; depreciation and amortization rose to 7.0% from 6.4%. Restructuring expense was $4.8 million, down from $9.5 million. The effective tax rate was 29.2%, versus 30.0%.
Segments and material changes
- Beauty + Home: Sales fell 12% to $324.6 million; core sales declined 9%. Adjusted EBITDA decreased 36% to $34.2 million, with margin down to 10.6% from 14.5%. Travel and retail beauty demand weakened significantly; personal and home care also declined, despite increased sanitizer and cleaner demand.
- Pharma: Sales rose 9% to $297.2 million, including 7% core growth and 4% acquisition contribution. Adjusted EBITDA increased 11% to $108.3 million; margin improved to 36.5% from 35.7%. Injectables and active packaging were particularly strong.
- Food + Beverage: Sales fell 4% to $99.8 million; core sales declined 2%. Adjusted EBITDA decreased 8% to $15.4 million; margin was 15.4% versus 16.0%. On-the-go beverage sales and lower resin-cost pass-through weighed on results.
Currency translation reduced consolidated sales growth by 2%; acquisitions added 1%. The stronger U.S. dollar also reduced translated results. Foreign currency translation losses drove most of the $39.1 million other comprehensive loss.
Cash, debt and liquidity
- At March 31, cash and equivalents were $410.8 million, compared with $242.0 million at year-end; cash including restricted cash was $414.8 million.
- Total debt was $1.36 billion, up from $1.20 billion at year-end; net debt was $950.5 million, nearly unchanged from $953.7 million. Net debt to net capital was 37.4%, versus 37.8%.
- The company drew $175 million net on its U.S. revolving facility during the quarter. $200 million of its $300 million U.S. facility was utilized at quarter-end; the separate €150 million facility was unused.
- Debt covenants were met: leverage ratio 1.73x against a 3.50x maximum; interest coverage 16.32x against a 3.00x minimum. Management reported approximately $1.0 billion of additional borrowing capacity under the leverage covenant.
- Capital expenditures are expected to be approximately $220–$240 million for 2020, subject to exchange rates and project timing. The company temporarily suspended share repurchases and defined-benefit plan contributions to preserve liquidity, while intending to continue dividends and business investment.
Outlook, risks and unusual items
- Management expected COVID-19 effects to continue into Q2 and be more pronounced than in Q1. Beauty + Home was expected to remain significantly soft; Food + Beverage faced continued on-the-go beverage weakness; Pharma faced difficult year-over-year comparisons.
- Q2 2020 EPS guidance was $0.58–$0.73, excluding restructuring and acquisition-related costs, based on an effective tax rate of 31%–33%. Guidance included approximately $3.6 million pretax expense for employee “Thank You Awards.”
- The pandemic had reduced travel/retail beauty and on-the-go beverage demand. Most facilities remained operational because products were considered essential, but management said the duration and financial impact remained uncertain and could be material. No impairments were recorded at March 31.
- On April 1, 2020, after quarter-end, Aptar closed its acquisition of Fusion Packaging for approximately $165 million, with a potential earn-out of up to $33.9 million. The company also invested approximately $31 million for a 49% interest in BTY, of which about $20 million was paid by March 31.
- Brazilian tax authorities assessed approximately $6.1 million, including interest and penalties, over import-duty classifications; Aptar is contesting the assessment and recorded no liability. An environmental reserve of $0.4 million remained for its Brazil facility. Potential additional Brazilian tax recoveries of $2–$8 million were not recorded because of uncertainty.
- The ongoing business transformation had incurred $91.3 million of estimated total implementation costs of approximately $110 million; about $40 million of planned $50 million capital investment had been incurred. Management continued to target $80 million of annualized incremental EBITDA by the end of 2020, while noting business and macroeconomic headwinds.
Most important facts for investors to verify
- How COVID-19 affected subsequent-quarter sales, operations, collections and the assumptions underlying Q2 guidance.
- Whether segment trends—especially the steep Beauty + Home decline and Pharma growth—persisted, and whether restructuring benefits offset ongoing headwinds.
- Post-quarter funding, integration and earn-out implications of the Fusion acquisition, alongside the BTY investment and planned capital spending.
- Debt, revolver usage and covenant headroom after the acquisition, and the company’s ability to maintain dividends and liquidity.
- Developments in the contested Brazil tax assessment, environmental remediation, and any other legal or contingency exposure.