The Brink’s Company: Q1 2012 Form 10-Q Summary
Business Context and Reporting Period
The Brink’s Company provides transportation, logistics, cash-management, payment-processing and security services in more than 100 countries. Reportable segments are International and North America. This unaudited Form 10-Q covers the three months ended March 31, 2012, compared with the three months ended March 31, 2011.
Financial Performance and Position
| Metric | Q1 2012 | Q1 2011 / Dec. 31, 2011 | Change |
|---|---|---|---|
| Revenue | $966.8 million | $913.3 million | Up 6% |
| Operating profit | $42.4 million | $37.0 million | Up 15% |
| Operating margin | 4.4% | 4.1% | Improved |
| Income from continuing operations attributable to Brink’s | $17.0 million | $18.9 million | Down 10% |
| Diluted EPS from continuing operations | $0.35 | $0.39 | Down 10% |
| Net cash provided by operating activities | $(16.4) million | $(5.7) million | Higher use of $10.7 million |
| Capital expenditures | $34.3 million | $29.4 million | Up $4.9 million |
| Cash and cash equivalents | $155.5 million | $182.9 million at Dec. 31, 2011 | Down $27.4 million |
| Total debt | $431.9 million | $389.4 million at Dec. 31, 2011 | Up $42.5 million |
| Net debt | $284.5 million | $231.6 million at Dec. 31, 2011 | Up $52.9 million |
International revenue increased 8% to $730.4 million and segment operating profit increased 35% to $60.9 million. North America revenue declined 1% to $236.4 million and segment operating profit declined 15% to $5.8 million. International performance was led by Latin America, particularly Mexico, Venezuela, Argentina and Brazil.
GAAP income attributable to Brink’s declined despite higher operating profit because of higher income-tax expense, increased retirement-plan costs and higher income attributable to noncontrolling interests. The effective tax rate increased to 40.5% from 32.0%. Non-GAAP diluted EPS from continuing operations increased to $0.58 from $0.39, primarily after excluding U.S. retirement-plan expenses and other specified items.
Cash flow was pressured by an $11.1 million pension benefit payment to the former CEO, reduced customer-related cash balances, working-capital outflows and increased investment spending. Financing activities provided $22.2 million, including $43.9 million of borrowings under revolving credit facilities. The company paid $4.7 million in common dividends, or $0.10 per share.
At March 31, 2012, $147.4 million of cash was considered available for general corporate purposes after excluding cash held in cash-logistics operations. The company reported $327 million available under its $480 million revolving facility and approximately $35 million available under three multi-currency revolving facilities. Management stated that current cash, credit availability and projected operating cash flows should satisfy liquidity needs for more than twelve months.
Material Changes Versus the Prior Comparable Period
- Revenue increased $53.5 million, driven primarily by 9% organic growth, concentrated in International operations, partly offset by unfavorable currency effects of approximately $28.9 million.
- Segment operating profit increased $14.7 million to $66.7 million, while non-segment expense increased $9.3 million to $24.3 million.
- U.S. retirement-plan expense increased materially, including a $4.0 million pension settlement loss. Full-year 2012 non-segment expense was projected at approximately $89 million, versus $60 million in 2011.
- The company acquired a logistics software provider in France, using $16.4 million of cash for acquisitions during the quarter versus $1.2 million in the prior-year quarter.
- The company issued 361,446 shares valued at approximately $9 million for a contribution to its primary U.S. pension plan and filed a shelf registration for up to $150 million of common stock.
- Net debt increased primarily because of the French acquisition and cash used to fund operations.
- The 2011 discontinued-operations contribution did not recur; Q1 2011 included $1.1 million of income from discontinued operations.
Guidance, Outlook, Risks and Unusual Items
For full-year 2012, management projected organic revenue growth of 5% to 8%, International organic growth of 7% to 10%, and flat North America organic revenue. The company expected total segment operating margin of approximately 7%, International margin of 7.0% to 8.0%, and North America margin of 3.6% to 4.6% on a GAAP basis. Expected interest expense was $23 million to $26 million, the effective tax rate was 37% to 40%, capital expenditures were $210 million to $220 million, capital leases were $30 million to $40 million, and depreciation and amortization was $175 million to $190 million.
Key risks include currency volatility, political and economic conditions in foreign markets, restrictions on repatriation of cash, labor and regulatory issues, pricing pressure and demand in North America, integration of acquisitions, security and safety exposures, litigation, insurance costs, pension and former-coal-operation liabilities, and access to credit markets.
Venezuela generated $74.3 million, or 8% of consolidated revenue. Its economy is treated as highly inflationary; cash conversion and repatriation remain restricted, with $20.9 million of local-currency cash and $1.2 million of U.S.-dollar cash and short-term investments at March 31, 2012. The company reported $68.8 million of bolivar-denominated net monetary assets and stated that continued access to U.S. dollars was less certain.
U.S. retirement obligations remain a significant cash requirement. The company contributed $9 million during Q1 2012 and expected to contribute another $22.5 million to its primary U.S. pension plan during the remainder of 2012. Projected total payments to U.S. plans for 2012 were $51.9 million, subject to changes in actuarial assumptions and investment performance.
The former Brink’s Belgium litigation was dismissed in March 2012 after a €7 million settlement finalized in 2011. The company had recorded the related approximately $10 million pretax charge in Q2 2011. It also had approximately $25 million of residual-value guarantees under operating leases and continued exposure to ordinary-course litigation.
Most Important Facts to Verify
- Whether International organic growth, particularly in Latin America, can offset currency headwinds and weaker North American performance.
- The magnitude and timing of U.S. pension contributions, retirement-plan expenses and possible future stock contributions.
- Whether operating cash flow improves after the former CEO pension payment and customer-obligation cash movements.
- Debt reduction capacity, compliance with financial covenants and available borrowing capacity under the revolving and other credit facilities.
- Venezuela’s exchange controls, ability to obtain U.S. dollars and restrictions on repatriating cash.
- Progress integrating the French logistics software acquisition and achieving projected margin targets.
- Whether the 2012 tax-rate, capital-spending, depreciation and segment-margin guidance remains achievable.