AptarGroup, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. Unaudited results; amounts below are in U.S. dollars. AptarGroup manufactures dispensing, drug-delivery, sealing and related solutions across Pharma, Beauty + Home, and Food + Beverage.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $844.5m | $811.0m | $1,689.5m | $1,587.8m |
| Operating income | $101.2m | $84.4m | $198.9m | $177.0m |
| Net income attributable to AptarGroup | $63.6m | $55.3m | $126.0m | $139.2m |
| Diluted EPS | $0.95 | $0.81 | $1.88 | $2.05 |
| Operating margin | 12.0% | 10.4% | 11.8% | 11.1% |
| Adjusted EBITDA margin | 18.9% | 18.2% | 18.7% | 18.9% |
Q2 reported sales increased 4%; core sales, excluding currency and acquisitions, rose 10%, with approximately 5 percentage points from volume and mix and 5 points from pricing to recover higher input costs. For the first half, reported sales rose 6% and core sales increased 11%. A stronger U.S. dollar reduced reported sales growth by 6 points in Q2 and 5 points in the first half.
Q2 operating income improved on sales growth and lower restructuring charges. Cost of sales rose to 65.0% of sales from 64.5%, as inflation in resin, metals, freight, labor and utilities more than offset favorable Pharma mix. Q2 net income grew year over year; first-half net income and EPS declined, largely reflecting the prior-year $15.2m investment gain versus a $1.7m investment loss in 2022, as well as a higher effective tax rate (28.5% versus 20.5%).
Segments and cash flow
- Pharma: Q2 sales $340.2m, up 5% reported and 12% core; Adjusted EBITDA $111.0m, up 5%, with a 32.6% margin. First-half core sales grew 13%, including strong active material science demand.
- Beauty + Home: Q2 sales $371.3m, up 3% reported and 10% core; Adjusted EBITDA $44.9m, up 18%, and margin improved to 12.1% from 10.5%. Beauty was stronger; home care declined.
- Food + Beverage: Q2 sales $133.0m, up 6% reported and 8% core; Adjusted EBITDA fell 10% to $17.7m and margin declined to 13.3% from 15.6%, due to mix and operating inefficiencies, including labor and supply disruptions.
- Cash flow, six months: Operating cash flow was $176.7m, compared with $175.6m. Capital expenditures were $147.3m; free cash flow, as defined by the company, was $42.2m versus $38.5m, including $12.8m of government grant proceeds in 2022.
Balance sheet, financing and capital allocation
At June 30, cash and equivalents were $240.5m, versus $122.9m at year-end 2021. Total debt was $1.342bn (including current maturities), versus $1.197bn; net debt was $1.102bn versus $1.073bn. Net debt to net capital increased to 36.1% from 35.1%. The company reported a $600m unsecured revolving facility with no borrowings outstanding at quarter-end, in addition to $56m outstanding under a term facility then scheduled to mature in July 2022. Covenant ratios were within requirements: leverage 1.84x versus a 3.50x maximum, and interest coverage 16.58x versus a 3.00x minimum.
In March, Aptar issued $400m of 3.6% senior notes due 2032 and redeemed $75m of 3.25% notes, paying a $0.4m make-whole premium. First-half dividends paid were $49.8m; share repurchases were $53.1m, with $147.3m remaining under the authorization. Management estimated 2022 capital expenditures, net of grants, at $290m–$320m. Subsequent to quarter-end, the company entered a debt swap expected to save about $0.5m quarterly at then-current exchange rates and declared a $0.38-per-share dividend.
Outlook, risks and unusual items
Management guided to Q3 2022 EPS of $0.90–$1.00, excluding restructuring expenses, changes in fair value of equity investments and acquisition costs; the guidance assumes a 28%–30% effective tax rate. Management expected continued momentum in Pharma prescription and consumer health care markets, while noting that a stronger dollar, inflation, the Ukraine conflict, supply-chain disruption and tight U.S. labor conditions could affect results. Beauty’s recovery was described as gradual and potentially uneven. The filing gives no full-year EPS guidance.
COVID-19 effects remained uncertain; management reported no pandemic-related impairments at June 30. The Ukraine war had no significant direct business impact to date but contributed indirectly to higher input costs and supply disruptions. Foreign-currency translation reduced first-half comprehensive income, with a $91.9m translation loss. The company also recorded a $1.5m expected credit-loss reserve on a venture investment note. Restructuring costs were $0.7m in the first half, compared with $8.5m a year earlier.
Contingencies include a contested Brazilian import-tax assessment of approximately $6.1m, for which no liability was recorded, and an Indian import-tax assessment of approximately $6.8m plus interest and penalties, received in July 2022 and also unrecorded at quarter-end. The company is contesting both. A lawsuit seeking recovery of insurance proceeds for a 2016 facility fire remains unresolved; no gain was recognized.
Important facts for investors to verify
- Whether price increases and productivity gains can offset continuing input-cost, labor and freight inflation without further margin erosion.
- Whether reported sales and segment growth persist as currency headwinds continue and pandemic-related demand normalizes.
- The repayment or refinancing status of the $56m term facility due July 2022, and the effect of the post-quarter debt swap.
- Cash conversion and the ability to fund the planned $290m–$320m of capital expenditures while maintaining dividends and repurchases.
- Developments in the Brazil and India tax assessments, and any potential financial exposure from other legal or insurance claims.
- Performance against Q3 EPS guidance and the assumptions excluded from that non-GAAP outlook.