APTARGROUP, INC. annual report, FY2021

AptarGroup, Inc. — 2021 Form 10-K

Business context and reporting period. This annual report covers the fiscal year ended December 31, 2021; it is not a standalone fourth-quarter report. Aptar designs and manufactures drug-delivery, consumer dispensing, and active material science products. Its reporting segments are Pharma, Beauty + Home, and Food + Beverage. Amounts below are in U.S. dollars unless stated otherwise.

Financial performance and position

Metric20212020
Net sales$3.227 billion$2.929 billion
Operating income / margin$347.3 million / 10.8%$339.5 million / 11.6%
Net income attributable to AptarGroup$244.1 million$214.0 million
Diluted EPS$3.61$3.21
Adjusted EBITDA / margin$607.5 million / 18.8%$586.3 million / 20.0%
Cash provided by operations$363.4 million$570.2 million
Capital expenditures$307.9 million$246.0 million
Free cash flow (non-GAAP)$57.5 million$324.2 million
Total debt / cash and equivalents$1.197 billion / $122.9 million$1.173 billion / $300.1 million
Net debt / net debt to net capital$1.073 billion / 35.1%$872.5 million / 32.0%

Reported sales rose 10%; core sales, excluding currency and acquisition effects, grew 7%. About 4 percentage points of core growth reflected price increases passed through for higher resin and other input costs. The cost-of-sales ratio increased to 64.1% from 62.9%, implying a lower gross margin before depreciation and amortization. The effective tax rate fell to 24.3% from 28.9%.

Segment net sales and Adjusted EBITDA were: Pharma $1.285 billion and $425.7 million; Beauty + Home $1.434 billion and $154.7 million; Food + Beverage $508.6 million and $79.4 million. Sales growth was strongest in Food + Beverage (25% reported; 23% core), while Pharma core sales grew 2%. Pharma EBITDA declined slightly, and Food + Beverage EBITDA margin fell to 15.6% from 17.8%; Beauty + Home EBITDA increased 20% and margin rose to 10.8% from 10.0%.

At year-end, current assets were $1.358 billion and current liabilities $982.5 million. The $600 million unsecured revolving facility matures in 2026; $144.4 million was drawn under it at year-end, alongside a $56 million term facility due in July 2022. Covenant ratios were within limits: leverage 1.84x against a 3.50x maximum, and interest coverage 19.65x against a 3.00x minimum. The company paid $98.5 million in dividends and repurchased $78.1 million of shares in 2021.

Material changes versus 2020

  • Sales recovered across Beauty + Home and Food + Beverage as pandemic-depressed markets improved; the latter also benefited from strong food and beverage demand and higher selling prices.
  • Pharma growth in injectables and active material science was offset by lower prescription-drug sales and customer inventory drawdowns. Prescription drug core sales declined 8%.
  • Operating income grew only 2% despite 10% sales growth; higher materials, freight and labor costs and an unfavorable sales mix reduced operating and Adjusted EBITDA margins.
  • Operating cash flow decreased by $206.7 million, mainly from working-capital investment, including higher receivables and inventory. Capital spending increased by $62.0 million.
  • Net debt increased about $200.5 million, reflecting acquisition funding and capital returns; cash balances fell materially.

Outlook, commentary, risks and unusual items

For first-quarter 2022, Aptar guided to diluted EPS of $0.92–$1.00, excluding restructuring expenses, changes in fair value of equity investments, and acquisition-related costs, using an estimated tax rate of 27%–29%. Management expected solid Pharma growth, signs of recovery in beauty and beverage, and prescription allergy growth as customer destocking appeared to be ending. Supply-chain disruption was expected to persist near term, and COVID-19 variants could slow market recoveries. Planned 2022 capital investment was $300–$330 million; management expected operating cash flow to cover working-capital needs and scheduled debt repayments.

Key risks include pandemic uncertainty, input-cost inflation and inability to pass costs through, supply-chain and labor constraints, reliance on certain single-source materials, foreign-exchange movements, competitive pressure, environmental and packaging regulation, and execution of acquisitions. The company identified approximately 2% of consolidated sales as coming from Russia and Ukraine and did not expect a material impact from escalation based on its exposure at year-end 2021.

2021 included $23.2 million of restructuring expense; the company said most transformation initiatives were complete and did not expect significant additional restructuring expense or cash outflows in 2022. Net investment gains included $2.0 million realized and $2.7 million unrealized gains on PureCycle shares. A favorable Brazilian tax recovery contributed $5.6 million to cost of sales and $1.8 million to interest income. No COVID-related goodwill impairment was recorded. Goodwill totaled $974.2 million.

Unresolved matters include a contested Brazilian import-tax assessment of approximately $6.1 million, for which no liability was recorded, and ordinary-course lawsuits and claims whose outcomes are uncertain. The company disclosed $91 million of unconditional purchase commitments over the next two years and $33.9 million of contingent consideration liabilities related to acquisitions.

Important facts for investors to verify

  • Whether price increases and productivity gains can offset ongoing material, freight, energy and labor inflation without further margin erosion.
  • Whether Pharma prescription demand and customer inventory levels recover, and whether strong injectables and diagnostics demand is sustained.
  • Cash conversion and working-capital trends, given the sharp decline in operating cash flow and free cash flow alongside elevated capital spending.
  • Debt maturities, refinancing of the $56 million term facility due in July 2022, and the effect of increased net debt on capital returns and investment plans.
  • Acquisition integration and contingent consideration outcomes, including the valuation assumptions for Voluntis technology and Fusion performance obligations.
  • Developments in the Brazilian tax assessment, litigation, supply commitments, and evolving sustainability and packaging regulations.