The Brink’s Company: 2019 Q2 Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and six months ended June 30, 2019. Brink’s provides cash-in-transit, ATM, cash-management, global logistics, payment, commercial security and guarding services through three segments: North America, South America and Rest of World.
The statements are unaudited and prepared under U.S. GAAP. Results include the January 2019 Rodoban acquisition in Brazil and the June 2019 acquisitions of Balance Innovations and COMEF. Venezuela was deconsolidated effective June 30, 2018.
Key financial metrics
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $914.0 million | $849.7 million | $1,819.0 million | $1,728.8 million |
| Operating profit | $52.6 million | $61.7 million | $111.0 million | $126.5 million |
| GAAP operating margin | 5.8% | 7.3% | 6.1% | 7.3% |
| Income from continuing operations attributable to Brink’s | $12.6 million | $(107.8) million | $26.3 million | $(85.7) million |
| Diluted EPS from continuing operations | $0.25 | $(2.11) | $0.52 | $(1.68) |
| Non-GAAP diluted EPS | $0.84 | $0.78 | $1.63 | $1.45 |
| Cash flow from operating activities | Not separately provided | Not separately provided | $23.9 million | $109.1 million |
Non-GAAP operating profit was $88.8 million in the second quarter and $173.6 million for the first half, producing margins of 9.7% and 9.5%, respectively, compared with 9.2% and 8.8% in the prior-year periods.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $304.9 million at June 30, 2019, compared with $343.4 million at December 31, 2018. Cash, cash equivalents and restricted cash totaled $410.7 million.
- Total debt was $1.760 billion, up from $1.554 billion at year-end 2018. Net debt, as defined by Brink’s, was $1.466 billion versus $1.214 billion.
- The company had $791 million available under its $1 billion revolving credit facility. It was in compliance with all financial covenants at June 30, 2019.
- Operating cash flow of $23.9 million was substantially below the prior-year $109.1 million. Investing cash flow was $(242.7) million, including $167.0 million for acquisitions and $73.1 million of capital expenditures.
- Financing activities provided $149.5 million, primarily reflecting net debt borrowing. Brink’s paid $14.9 million in shareholder dividends during the first half.
Material changes versus the prior comparable period
- GAAP revenue increased 8% in the second quarter and 5% in the first half. Acquisition contributions and organic growth were partly offset by unfavorable foreign exchange and the absence of Venezuela revenue following deconsolidation.
- North America was the principal growth driver, with second-quarter revenue up 37% and operating profit up 78%, primarily due to Dunbar and organic growth.
- South America reported second-quarter revenue down 3% and operating profit down 2% as currency effects offset organic growth and the Rodoban acquisition. For the first half, revenue declined 7% and operating profit declined 13%.
- Rest of World revenue declined 8% in the quarter and 11% for the first half, primarily due to dispositions and currency effects; second-quarter operating profit was flat.
- GAAP operating profit declined because of higher acquisition and integration costs, restructuring charges, corporate expenses, reporting-compliance costs and currency impacts. Non-GAAP operating profit improved.
- Interest expense increased 44% in the second quarter and 48% in the first half, primarily because of higher borrowing levels related to acquisitions.
Guidance, outlook, commentary and risks
- No explicit full-year revenue or earnings guidance is provided in the filing text.
- Management expects North America’s operating margin to improve through productivity initiatives, lower vehicle and labor costs, higher-value services and Dunbar synergies. Management expects the segment’s margin to become comparable to Rest of World but not reach South America’s level.
- Current restructuring actions are expected to reduce the workforce by 100 to 200 positions and generate approximately $8 million of annualized savings. Additional restructuring costs of $2 million to $4 million are expected.
- Argentina remains highly inflationary for accounting purposes. Brink’s recorded $4.4 million of related pretax charges in the first half, including a $3.4 million currency remeasurement loss.
- Venezuela remains subject to political, economic, currency-control and sanctions risks. Following U.S. sanctions imposed in April 2019, Brink’s ceased support of the Venezuela business, subject to possible future losses or compliance costs.
- Foreign currency weakness, particularly involving the Argentine peso, Brazilian real and euro, reduced reported results. Management stated that a stronger U.S. dollar could continue to pressure reported revenue and operating profit.
- The company faces pension, UMWA, black lung, litigation, regulatory, labor, cybersecurity, insurance, acquisition-integration and foreign-government risks. A Chilean antitrust investigation could result in future claims, but the company cannot estimate the probability or amount of loss.
- Lease accounting under ASC 842 was adopted January 1, 2019, adding $280.8 million of right-of-use assets and $229.9 million of noncurrent lease liabilities at June 30, 2019; management stated that adoption did not affect debt-covenant compliance.
Most important facts for investors to verify
- Whether North American productivity improvements and Dunbar synergies offset elevated acquisition, integration and corporate costs.
- Underlying organic revenue and operating-profit growth after separating acquisitions, inflation-related pricing and foreign-exchange effects.
- Debt reduction capacity, interest-rate exposure and compliance with leverage and interest-coverage covenants.
- The sustainability of operating cash flow, given the decline to $23.9 million in the first half and substantial acquisition spending.
- The ultimate costs and savings from restructuring, acquisition integration and reporting-compliance remediation.
- Exposure to Argentina’s inflation and currency devaluation, Venezuela-related sanctions and support obligations, and the Chilean antitrust investigation.
- Future cash requirements for pensions, UMWA benefits, black lung obligations and other retirement liabilities.