The Brink’s Company — Q1 2011 Form 10-Q Summary
Business context and reporting period
The Brink’s Company provides secure transportation and logistics services for cash and valuables, including cash-in-transit, ATM servicing, Global Services, cash logistics, Payment Services and guarding. Reportable segments are International and North America. The filing covers the three months ended March 31, 2011, compared with the three months ended March 31, 2010. Financial statements are unaudited and prepared under U.S. GAAP.
Key financial metrics
| Metric | Q1 2011 | Q1 2010 | Change |
|---|---|---|---|
| Revenue | $913.3 million | $735.4 million | +24% |
| Operating profit | $37.0 million | $23.8 million | +55% |
| Operating margin | 4.1% | 3.2% | +0.9 percentage points |
| Income from continuing operations attributable to Brink’s | $18.9 million | $(4.8) million | Improved |
| Diluted EPS from continuing operations | $0.39 | $(0.10) | Improved |
| Net income attributable to Brink’s | $20.0 million | $(8.2) million | Improved |
| Net cash provided by operating activities | $(5.7) million | $5.2 million | Down $10.9 million |
| Capital expenditures | $29.4 million | $26.9 million | Up $2.5 million |
| Cash and cash equivalents | $155.3 million | $183.0 million at Dec. 31, 2010 | Down $27.7 million |
International revenue increased to $674.3 million from $509.0 million, while North America revenue increased to $239.0 million from $226.4 million. International segment operating profit rose to $45.2 million from $24.5 million, but North America declined to $6.8 million from $10.4 million. Segment operating margin improved to 5.7% from 4.7%; International margin increased to 6.7% from 4.8%, while North America declined to 2.8% from 4.6%.
The effective tax rate on continuing operations was 32.0%, compared with 107.0% in Q1 2010. The 2011 rate benefited from recently enacted Greek legislation and audit settlements; the prior-year rate included a significant deferred-tax-asset reduction related to U.S. healthcare legislation.
Total debt was $402.7 million at March 31, 2011, compared with $389.2 million at December 31, 2010. Reported net debt was $276.2 million, or $293 million excluding cash and debt in Venezuelan operations. Approximately $283.8 million remained available under the $400 million revolving facility.
Material changes versus the prior comparable period
- Revenue growth was driven primarily by the 2010 Mexico acquisition, favorable currency effects and organic growth in International operations. Organic revenue growth was 7% overall, with a 10% increase in International and a 1% decline in North America.
- Latin America revenue increased 81%, including approximately $100 million from the Mexico acquisition, and organic growth was 17%. EMEA revenue increased 3% and Asia Pacific revenue increased 29%.
- North America revenue increased 6% because of the 2010 Canada acquisition and currency effects, but organic revenue declined 1% because of lower volumes and pricing pressure. North America operating profit fell 35%.
- Operating results benefited from improved Latin America and EMEA performance, Global Services growth and lower foreign-currency transaction losses. Q1 2010 included a $5 million Venezuelan remeasurement loss.
- Q1 2011 included $4.4 million of gains on sales of available-for-sale securities and a $0.4 million acquisition-related gain. Management’s non-GAAP diluted EPS from continuing operations was $0.31 versus $0.23 in Q1 2010 after excluding specified unusual items and adjusting tax rates.
- Operating cash flow turned negative primarily because of a $9.7 million decline in cash held for customers in certain cash-logistics operations, higher tax payments and working-capital changes.
- On January 24, 2011, the company issued $100 million of unsecured private-placement notes, consisting of $50 million at 4.57% and $50 million at 5.20%, due in 2021. Proceeds were used to reduce revolving-facility borrowings.
Guidance, outlook, risks and unusual items
- Management expects 2011 organic revenue growth in the mid-to-high single-digit percentage range.
- Including approximately $400 million of Mexico acquisition revenue at approximately break-even margins, management expects 2011 segment operating margin at the high end of the 6.5%–7.0% range.
- Expected 2011 interest expense is $20 million–$24 million, compared with $15 million in 2010. Expected effective tax rate is 36%–39%; noncontrolling-interest income is expected to be $20 million–$24 million.
- Expected 2011 capital expenditures are $190 million–$200 million, capital leases are $30 million–$40 million, total property and equipment additions are $220 million–$240 million, and depreciation and amortization is $160 million–$170 million.
- Venezuela accounted for $55 million, or 6%, of Q1 revenue. Currency controls limit repatriation of cash; Venezuelan subsidiaries held $13.4 million of bolivar-denominated cash and $3.0 million of U.S.-dollar cash and short-term investments at March 31, 2011.
- The former Brink’s Belgium cash-in-transit subsidiary was deconsolidated following bankruptcy. A claim of up to €20 million, equivalent to $28.3 million at March 31, 2011, remains reasonably possible but was not accrued because management does not believe a loss is probable.
- Operating-lease residual-value guarantees totaled approximately $37.6 million. The company also has substantial pension, retiree healthcare and black-lung obligations; projected U.S. pension contributions begin in 2012 under current assumptions.
- Management stated that liquidity should be sufficient for more than the next 12 months and that the company was in compliance with all financial covenants at March 31, 2011. Facilities maturing in 2011 are expected to be refinanced.
Most important facts for investors to verify
- Whether Mexico and Canada acquisitions achieve expected margins and integration benefits, particularly given the anticipated break-even margin on Mexico acquisition revenue.
- The sustainability of International organic growth and the recovery of North American volumes, pricing and operating margins.
- Cash conversion, working-capital requirements and the effect of customer cash balances on operating cash flow.
- Debt refinancing needs, interest-rate exposure, covenant compliance and the effect of rising interest expense on earnings.
- Venezuelan currency controls, exchange rates, local cash restrictions and repatriation risk.
- The outcome and potential financial impact of the Brink’s Belgium litigation and other unresolved claims.
- Future pension, retiree healthcare and black-lung funding requirements and the sensitivity of those obligations to actuarial assumptions.