The Brink’s Company 2013 Q3 Form 10-Q Summary
Business context and reporting period
The filing covers the quarter and nine months ended September 30, 2013. Brink’s provides transportation and logistics management services for cash and valuables, including cash-in-transit, ATM services, global services, cash management, payment processing, and security services. Reportable segments are International and North America; operations span more than 100 countries.
Financial performance and position
| Metric | Q3 2013 | Q3 2012 | 9M 2013 | 9M 2012 |
|---|---|---|---|---|
| Revenue | $1,003.0 million | $944.9 million | $2,960.4 million | $2,811.4 million |
| Operating profit | $61.0 million | $45.7 million | $112.3 million | $125.9 million |
| Income from continuing operations attributable to Brink’s | $31.1 million | $21.3 million | $47.8 million | $78.6 million |
| Diluted EPS from continuing operations | $0.63 | $0.44 | $0.98 | $1.62 |
| Net income attributable to Brink’s | $23.8 million | $13.5 million | $15.9 million | $61.0 million |
| Net cash from operating activities | Not separately provided for the quarter | Not separately provided for the quarter | $104.4 million | $129.3 million |
- Q3 revenue increased 6%, while operating profit increased 33%. The operating margin was approximately 6.1%, compared with 4.8% in Q3 2012.
- For the first nine months, revenue increased 5%, but operating profit declined 11%. The operating margin was approximately 3.8%, compared with 4.5% in the prior-year period.
- Q3 International revenue increased 8% to $768.5 million and segment operating profit increased 36% to $81.0 million. North America revenue was essentially flat at $234.5 million, while segment operating profit fell to $0.7 million from $8.3 million.
- The nine-month effective tax rate on continuing operations was 33.7%, compared with 20.3% in 2012. The 2012 rate benefited from a $21 million non-cash tax benefit related to retiree healthcare funding strategy.
- Cash and cash equivalents were $242.3 million at September 30, 2013, compared with $201.7 million at December 31, 2012. Total debt was $522.2 million, compared with $389.3 million at year-end, and reported net debt was $317.1 million versus $231.6 million.
- Cash used in investing activities was $131.6 million, including $124.3 million of capital expenditures and $18.1 million for acquisitions. Financing activities provided $83.1 million, primarily through short-term and revolving-facility borrowings.
- The $480 million unsecured revolving facility matured in January 2017; $276 million was available at September 30, 2013. Management stated that liquidity should meet needs for more than the next twelve months.
- Brink’s paid $14.4 million of common dividends, or $0.30 per share, during the first nine months.
Material changes versus the prior comparable period
- Q3 performance benefited from organic growth and improved International results, especially in Latin America and Asia Pacific. North America was pressured by lower cash-in-transit demand and continued U.S. pricing pressure.
- Nine-month operating profit included an $18.7 million charge related to the February 2013 Brussels robbery and a $13.4 million Venezuela currency-remeasurement loss following the February devaluation. Excluding specified unusual items, nine-month non-GAAP operating profit was approximately flat and non-GAAP diluted EPS was $1.48 versus $1.74.
- Venezuela generated $306.3 million, or 10%, of nine-month revenue. The company held $84.9 million of bolivar-denominated cash and had $110.0 million of equity-method investment in Venezuelan operations.
- Discontinued European operations produced a net loss of $31.9 million for the nine months, including operating losses, sale losses, and $15.9 million of severance expenses associated with the German cash-in-transit business. The German divestiture was expected to close in the fourth quarter of 2013; several other European exits had already been completed.
- Brink’s acquired Brazil-based Rede Trel for approximately $27.7 million, including contingent consideration, and acquired the remaining 26% interest in its Chilean cash-logistics business for approximately $18 million.
- Operating cash flow declined $24.9 million year over year, primarily because of increased working-capital requirements, including higher receivables for insurance recoveries and lower continuing-operations profit.
Guidance, outlook, commentary, and risks
- 2013 GAAP outlook called for organic revenue growth of 5% to 8%, total currency impact on revenue of negative 2% to negative 4%, and segment operating margin of 6.0% to 6.5%. Non-GAAP segment margin guidance was 6.5% to 7.0%.
- International organic revenue growth was expected at 8% to 10%, with a 7.0% to 8.0% GAAP segment margin. North America organic growth was expected at 0% to 2%, with a 1% to 2% GAAP margin.
- Management expected 2013 GAAP effective tax rate of 35% to 38%, interest expense of $24 million to $27 million, capital expenditures of approximately $195 million, and depreciation and amortization of $180 million to $190 million.
- Management expected North American margins to improve in 2014 and 2015, with a long-term goal of reaching 7% in 2016.
- Key risks include further Venezuelan devaluation, currency restrictions and cash-repatriation limitations, foreign-exchange volatility, political and regulatory conditions, labor costs and work stoppages, security losses, customer pricing pressure, insurance recoveries, pension and retiree-benefit funding, litigation, and access to credit markets.
- Estimated future contributions to the primary U.S. pension plan totaled $225.9 million as of September 30, 2013, based on year-end 2012 assumptions. The company contributed $13.0 million during the first nine months and did not expect a further contribution to that plan during the remainder of 2013.
- The company had approximately $221.5 million of cash held by subsidiaries considered permanently invested; potential taxes on repatriation were not estimable but could be material. It was in compliance with financial covenants at September 30, 2013.
- Operating lease residual-value guarantees totaled approximately $10.3 million. The company was involved in ordinary-course litigation and stated that recorded and reasonably estimable matters were not expected to materially affect liquidity, financial position, or results.
Most important facts for investors to verify
- Whether International organic growth can offset currency devaluation, particularly in Venezuela, and whether Venezuelan cash can be accessed or repatriated.
- Progress in restoring North American profitability amid lower CIT demand and pricing pressure.
- The final cost and timing of the German divestiture, including the $15.9 million severance obligation and other discontinued-operation contingencies.
- Debt reduction capacity, revolving-facility availability, covenant headroom, and the increase in net debt to $317.1 million.
- Actual pension contributions and the sensitivity of retirement liabilities to interest rates, investment returns, and actuarial assumptions.
- Reconciliation of GAAP results to management’s non-GAAP measures, particularly adjustments for the Brussels robbery, Venezuela remeasurement, retirement costs, acquisitions and dispositions, and tax-rate normalization.