AptarGroup, Inc. — Q2 2021 Form 10-Q
Business context and period. AptarGroup manufactures dispensing, drug-delivery, sealing and material-science solutions through Pharma, Beauty + Home, and Food + Beverage. This unaudited filing covers the quarter and six months ended June 30, 2021, compared with the same 2020 periods. Amounts below are in U.S. dollars; financial figures are in millions except per-share data.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $811.0 | $699.3 | $1,587.8 | $1,420.9 |
| Operating income | $84.4 | $70.5 | $177.0 | $158.9 |
| Operating margin | 10.4% | 10.1% | 11.1% | 11.2% |
| Net income attributable to AptarGroup | $55.3 | $41.8 | $139.2 | $97.1 |
| Diluted EPS | $0.81 | $0.63 | $2.05 | $1.47 |
| Adjusted EBITDA margin | 18.2% | 19.5% | 18.9% | 19.8% |
Reported sales increased 16% in Q2 and 12% in the first half. Management attributed the growth to recovering markets, favorable currency translation (6% in both periods), higher tooling sales and pass-through of higher input costs. Core sales, excluding currency and acquisitions, rose 10% in Q2 and 5% for the first half. Q2 sales growth was strongest in Food + Beverage (+28% reported) and Beauty + Home (+20%); Pharma rose 8% reported but only 2% on a core basis.
Profit rose, but margins showed mixed pressure. Q2 operating margin improved to 10.4%, while first-half operating margin edged down to 11.1%. Cost of sales increased to 64.5% of sales in Q2 from 63.2%, reflecting inflation and mix, including more lower-margin tooling and a smaller share of higher-margin Pharma sales. Consolidated adjusted EBITDA margin declined year over year in both periods. Pharma margins fell (Q2 32.6% versus 34.6%); Beauty + Home improved (10.5% versus 8.0%); Food + Beverage declined (15.6% versus 18.1%).
Cash flow, debt and liquidity
- First-half operating cash flow was $175.6, down from $227.7 a year earlier. Capital expenditures were $137.0; reported free cash flow was $38.5 versus $104.7.
- Management cited higher receivables from stronger June sales and inventory build ahead of expected second-half demand and higher input costs as key working-capital uses.
- Cash and equivalents were $291.5 at June 30, 2021, versus $300.1 at year-end 2020. Total debt was $1,119.1, versus $1,172.9; net debt was $827.6. Net debt to net capital improved to 29.4% from 32.0%.
- A new unsecured, multicurrency revolving facility provides up to $600 of capacity, with no amount drawn at quarter-end. The amended term facility had $112 outstanding at June 30; AptarGroup paid $56 toward it on July 20. Leverage and interest-coverage ratios were 1.49x and 18.93x, respectively, compared with covenant limits of 3.50x maximum and 3.00x minimum.
- First-half dividends paid were $48.4. The board declared a subsequent quarterly dividend of $0.38 per share. Full-year 2021 capital spending was estimated at $300–$330.
Developments, outlook and risks
- Outlook: Management expected beauty and beverage markets to benefit from gradual reopening, while prescription-market customer inventory destocking was expected to continue through Q3. Raw-material and transportation inflation remained headwinds; management expected consolidated margins to improve. Q3 2021 EPS guidance was $0.90–$0.98, excluding restructuring, acquisition-related costs and changes in fair value of equity investments, based on a 28%–30% effective tax rate.
- COVID-19 and operations: Direct pandemic effects were described as limited at the time, with activity and customer/product mix approaching pre-pandemic levels. Management cautioned that renewed impacts could materially affect results. Beauty-market recovery was expected to be gradual and uneven.
- Acquisitions and investments: AptarGroup expected to use about $160 of cash in the second half for disclosed acquisitions. It signed an agreement to acquire 80% of China-based Hengyu, subject to closing conditions, and after quarter-end signed to acquire a majority stake in digital-therapeutics company Voluntis, subject to approvals. It also invested about $5.9 in YAT after quarter-end.
- Unusual investment item: The publicly traded PureCycle investment produced a $1.6 Q2 unrealized loss but a $15.2 first-half unrealized gain, materially benefiting first-half other income. It is excluded from management’s adjusted performance measures.
- Restructuring: The transformation plan generated $8.5 of first-half costs; cumulative expense was $121.5 against estimated total implementation costs of about $125. Management said significant further capital investment was not expected.
- Contingencies: AptarGroup is contesting a Brazilian tax assessment of approximately $6.1 and recorded no liability, citing its belief in a strong defense. Potential additional Brazilian tax recoveries of approximately $3–$6 were not recorded because of uncertainty. The company stated that ordinary-course legal claims could have unfavorable outcomes, though management did not expect current matters to materially affect results.
- Key risks: Input-cost and labor inflation, supply availability and transportation constraints, foreign-exchange movements, customer destocking and demand changes, COVID-19 uncertainty, acquisition execution, and legal and tax outcomes.
Important facts for investors to verify
- Whether Q3 EPS guidance and anticipated margin improvement are achieved, particularly amid inflation and prescription-market destocking.
- How much first-half earnings growth reflects recurring operations versus the $15.2 PureCycle fair-value gain and lower tax rates.
- Whether working capital converts back to cash and full-year capital expenditure stays within the $300–$330 estimate.
- Closing, funding and integration progress for Hengyu and Voluntis, and the valuation and performance assumptions behind acquisition-related contingent consideration.
- Developments in the Brazilian tax assessment and unrecorded potential recovery, and any change in the company’s assessment of pandemic, supply-chain or currency risks.