AptarGroup, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also provides unaudited fourth-quarter results; it is an annual report, not a standalone quarterly filing. Dollar amounts below are in U.S. dollars.
Business context
Aptar designs and manufactures drug-delivery, dispensing, sealing and active-packaging solutions. Its three segments are Pharma, Beauty + Home, and Food + Beverage. The company serves approximately 6,000 customers, with no customer representing more than 5% of 2020 sales, and operates in 20 countries.
Financial performance and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Net sales | $2.929 billion | $2.860 billion |
| Operating income / margin | $339.5 million / 11.6% | $371.7 million / 13.0% |
| Net income attributable to AptarGroup | $214.0 million | $242.2 million |
| Diluted EPS | $3.21 | $3.66 |
| Adjusted EBITDA / margin | $586.3 million / 20.0% | $592.3 million / 20.7% |
| Operating cash flow | $570.2 million | $514.5 million |
| Capital expenditures | $246.0 million | $242.3 million |
| Free cash flow (non-GAAP) | $324.2 million | $272.2 million |
| Cash and equivalents at year-end | $300.1 million | $242.0 million |
| Total interest-bearing debt | $1.173 billion | $1.196 billion |
| Net debt / net debt to net capital | $872.5 million / 32.0% | $953.7 million / 37.8% |
Cost of sales excluding depreciation and amortization was 62.9% of sales, versus 63.6% in 2019; SG&A increased to 17.1% from 15.9%. The effective tax rate was 28.9%, compared with 29.2%.
Fourth quarter: Net sales were $749.3 million versus $671.3 million in Q4 2019; net income attributable to AptarGroup was $53.2 million versus $48.5 million; diluted EPS was $0.79 versus $0.73.
Material changes and segment results
- Sales: Reported sales rose 2%, while core sales were flat. Acquisitions contributed 3%; currency effects reduced growth by 1%.
- Pharma: Net sales increased 12% to $1.226 billion; core sales grew 9%. Adjusted EBITDA rose 11% to $428.5 million, with a 35.0% margin versus 35.5%.
- Beauty + Home: Net sales declined 4% to $1.298 billion; core sales fell 7%. Beauty core sales fell 20%, while personal care grew 7% and home care grew 3%. Adjusted EBITDA declined 29% to $129.3 million; margin fell to 10.0% from 13.4%.
- Food + Beverage: Net sales declined 3% to $405.4 million; core sales fell 1%. Food core sales grew 7%, offset by a 20% decline in beverage. Adjusted EBITDA increased 6% to $72.0 million.
Cash from operations reached a record, supported mainly by improved working-capital management. Investing activities used $452.0 million, including $164.2 million for business acquisitions. Aptar paid $92.7 million in dividends and made no share repurchases in 2020. The annual dividend increased for the 27th consecutive year.
Outlook, risks and unusual items
- For Q1 2021, management guided to EPS of $0.86–$0.94, excluding restructuring and acquisition-related costs, using an expected tax rate of 28%–30%. This is forward-looking guidance, not a full-year forecast.
- Management expected near-term pressure in beauty fragrance and on-the-go beverages, and noted customer inventory reductions in prescription drug and consumer health care products. It cited growth opportunities in injectables, active materials, sanitizers, cleaners and food products, and described longer-term project pipelines as strong.
- COVID-19 reduced travel-related beauty and on-the-go beverage demand and caused additional operating costs and under-absorbed factory overhead. The pandemic’s duration and financial effects remained uncertain.
- The Beauty + Home transformation plan incurred $26.5 million of 2020 restructuring costs; cumulative expense was $113 million against estimated total implementation costs of about $125 million. Management said the recovery in beauty would likely be gradual and non-linear.
- Notable items included a $3.0 million impairment of the Kali Care investment, a $3.1 million gain from a PureCycle investment valuation increase, and $12.0 million of non-recurring active-packaging tooling sales. No COVID-related impairment or goodwill impairment was recorded.
- Key risks include foreign exchange, raw-material cost volatility and single-source supply, customer demand and pricing, acquisition integration and contingent consideration, sustainability-related regulation, cybersecurity, and goodwill valuation. Goodwill was $898.5 million; management disclosed that a 59% reduction in estimated cash flows for the Active Packaging reporting unit would imply a potential $169 million impairment.
- Contingencies include ordinary-course litigation, a $0.3 million environmental reserve for a Brazilian facility, and a contested Brazilian tax assessment of approximately $6.1 million for which no liability was recorded. The filing says outcomes are uncertain.
Liquidity disclosures show $52 million drawn on the U.S. revolving facility and no euro-facility borrowing at year-end. Covenant ratios were within requirements: leverage of 1.63x against a 3.50x maximum and interest coverage of 16.86x against a 3.00x minimum. The company reported effective disclosure controls and internal control over financial reporting; the auditor issued unqualified opinions.
Important facts for investors to verify
- Whether Pharma growth can continue and whether Beauty + Home can recover margins as travel and retail demand normalizes.
- How much of reported growth and cash generation reflects acquisitions, working-capital movements, and non-recurring tooling sales.
- Progress and remaining costs of the Beauty + Home transformation plan, including delayed facility closures.
- Goodwill valuation assumptions, especially for Active Packaging and Beauty + Home, and any subsequent impairment indicators.
- Debt maturities, covenant headroom, variable-rate exposure and the treatment of contingent acquisition payments.
- Developments in the Brazilian tax and environmental matters, and the potential effect of sustainability regulation and alternative materials on costs and demand.