AptarGroup, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Unaudited consolidated results; amounts below are in U.S. dollars. AptarGroup makes dispensing, drug-delivery, sealing and related products through Aptar Pharma, Aptar Beauty and Aptar Closures.
Financial performance
- Revenue: $915.4 million, up 6% year over year. Core sales, excluding currency and acquisitions, increased 5%; volume and mix contributed approximately 6%, while price adjustments reduced growth by 1%. Currency translation added approximately 1%.
- Profit and margins: Operating income was $112.1 million, up from $83.9 million; operating margin rose to 12.2% from 9.8%. Net income attributable to AptarGroup was $83.1 million, or $1.23 per diluted share, versus $54.8 million, or $0.82. Adjusted EBITDA was $178.8 million, with a 19.5% margin, compared with $153.7 million and 17.9%.
- Expenses and taxes: Cost of sales declined to 63.7% of sales from 64.8%, attributed to product mix, operational performance and cost management, as well as the absence of prior-year injectables ERP implementation costs. Restructuring expense fell to $3.5 million from $11.5 million. The effective tax rate was 20.5%, versus 25.5%.
- Segment results: Pharma sales rose 14% to $407.3 million and Adjusted EBITDA margin increased to 32.5% from 30.7%. Beauty sales were broadly flat at $327.3 million; margin improved to 12.6% from 11.4%. Closures sales increased 2% to $180.8 million; margin improved to 15.0% from 14.6%.
- Cash flow and investment: Operating cash flow was $92.3 million, down from $98.3 million. Capital expenditures were $75.7 million; reported free cash flow was $16.7 million, versus $20.5 million. Cash and equivalents ended the quarter at $199.8 million, down from $223.6 million at year-end.
- Debt and liquidity: Total debt was $1.116 billion and net debt was $914.7 million. Net debt to net capital decreased to 27.9% from 28.3% at December 31, 2023. The company repaid $100 million of 3.49% senior notes due in February and drew more on its revolving facility; $149.5 million was outstanding on that facility at quarter-end. Management reported covenant ratios of 1.39x leverage against a 3.50x maximum and 16.75x interest coverage against a 3.00x minimum.
- Shareholder returns: Dividends paid were $27.1 million; the quarterly dividend was $0.41 per share. AptarGroup repurchased approximately 86,000 shares for $12.1 million, with $48.6 million remaining under its authorization.
Changes versus the prior-year quarter
- Pharma was the primary growth driver: core sales rose 13%, including 54% growth in injectables, partly reflecting prior-year downtime during ERP implementation.
- Beauty core sales declined 1%, with softer demand in some regions and personal care applications. Closures core sales increased 1%; beverage core sales fell 4%, partly due to customer transition timing for tethered caps.
- Consolidated operating and Adjusted EBITDA margins improved. Management cited favorable Pharma mix, improved operations and lower restructuring costs; higher SG&A and depreciation partly offset gains.
- Foreign-currency translation losses drove a $38.9 million other comprehensive loss, compared with $24.5 million of other comprehensive income in Q1 2023.
Outlook, commentary and risks
- For Q2 2024, management expects diluted EPS of $1.30–$1.38, excluding restructuring expenses, changes in fair value of equity investments and acquisition costs; the estimate assumes a 22%–24% effective tax rate. The filing does not provide full-year EPS guidance.
- Management expects Pharma strength to continue through 2024, demand for consumer dispensing technologies to build in Q2 as North American destocking abates, and continued Beauty and Closures focus on operational improvement and cost management.
- 2024 capital expenditures, net of government grants, are expected to be approximately $280–$300 million. Management says it could reduce capital spending and share repurchases if a prolonged demand decline materially weakens operating cash flow.
- The company’s $55.2 million cumulative optimization-initiative expense had a $28.0 million restructuring reserve at quarter-end. Future savings and execution remain dependent on the initiative’s progress.
- Customs-duty claims total approximately $13 million in principal plus $5–$6 million in interest and penalties. The company is contesting them and recorded no liability because the amount and timing remain uncertain. Management says resolution of other ordinary-course litigation is not expected to materially affect results, but adverse outcomes are possible.
- Risks highlighted include weaker customer demand, inflation and input costs, supply disruptions, foreign-exchange movements, interest rates, geopolitical events, customer and supplier financial health, regulation, cybersecurity, and execution of cost initiatives and acquisitions.
- A proposed acquisition of 40% of Jinyu for approximately $84 million remained subject to closing conditions and was expected to close in 2024.
Important facts for investors to verify
- Whether Pharma growth, particularly injectables, persists after the prior-year ERP comparison effect.
- Whether North American destocking abates as expected and Beauty and Closures demand and margins improve.
- Progress against Q2 EPS guidance and the $280–$300 million capital-spending outlook.
- Cash conversion, working-capital trends, debt maturities and revolving-credit usage following the $100 million note repayment.
- Outcome and potential financial exposure from the customs-duty claims, and the timing, conditions and funding for the proposed Jinyu investment.
- Effects of foreign exchange, input costs, and the restructuring program on reported results and cash flow.