AptarGroup, Inc. — FY 2015 Form 10-K
Business and reporting period. AptarGroup supplies dispensing, packaging and sealing systems to beauty, personal care, home care, pharmaceutical, food and beverage markets. This annual report covers the year ended December 31, 2015; fourth-quarter figures are included where noted. The company reports three segments: Beauty + Home, Pharma, and Food + Beverage.
Financial performance
| Metric | FY 2015 | FY 2014 |
|---|---|---|
| Net sales | $2,317.1 million | $2,597.8 million |
| Operating income; margin | $324.1 million; 14.0% | $306.4 million; 11.8% |
| Net income attributable to AptarGroup | $199.3 million | $191.7 million |
| Diluted EPS | $3.09 | $2.85 |
| Cash from operations | $324.5 million | $316.3 million |
| Capital expenditures | $149.3 million | $161.9 million |
| Cash and equivalents at year-end | $489.9 million | $399.8 million |
| Interest-bearing debt; net debt | $819.5 million; $299.8 million | $840.9 million; $441.1 million |
Reported sales fell 11%, primarily reflecting a 12% adverse foreign-currency translation effect; core sales, a non-GAAP measure excluding acquisitions and currency changes, grew 1%. Operating income rose 6% and the operating margin improved 2.2 percentage points. Cost of sales declined to 64.8% of sales from 67.6%; the filing attributes improvement to product mix, lower material costs, productivity and cost savings, and favorable timing of resin pass-throughs. The effective tax rate was 32.3%, versus 33.1%.
Fourth-quarter 2015 sales were $546.8 million, versus $599.2 million in Q4 2014; diluted EPS was $0.68, versus $0.63.
Segments and changes from prior year
- Beauty + Home: Sales declined 15% to $1,272.9 million, including a 13% negative currency effect; core sales decreased 2% amid softness across most regions. Segment income was nearly flat at $98.7 million, and margin improved to 7.8% from 6.6%, aided by lower input costs, productivity and resin pass-through timing.
- Pharma: Sales declined 5% to $712.2 million as currency reduced reported sales by 13%; core sales increased 8%, supported by prescription and injectables demand. Segment income rose 3% to $210.5 million; margin increased to 29.6% from 27.2%. Pharma remained the most profitable segment.
- Food + Beverage: Sales declined 5% to $332.0 million, while sales excluding currency effects grew 2%; lower tooling sales weighed on reported results. Segment income rose 13% to $42.7 million and margin increased to 12.9% from 10.8%.
Liquidity, capital allocation and debt
Cash from operations increased to $324.5 million. Cash and equivalents rose to $489.9 million, and short-term investments were $29.8 million. Net debt to net capitalization improved to 20.7% from 28.6%. The $300 million revolving facility had no year-end balance and matures in December 2019. The company reported compliance with debt covenants; leverage was 0.83x against a 3.50x maximum, and interest coverage was 14.11x against a 3.00x minimum. Management estimated approximately $160 million of 2016 capital expenditures.
The company paid $71.2 million in dividends and declared $1.14 per share for 2015, its 22nd consecutive annual increase. It repurchased approximately 190,000 shares for $13.9 million in November 2015; the prior accelerated repurchase program delivered approximately 3.8 million shares. Management said liquidity and operating cash flows should fund foreseeable needs, including acquisitions, investment and shareholder returns.
Outlook, risks and unusual items
- For Q1 2016, AptarGroup forecast diluted EPS of $0.69–$0.74, excluding Mega Airless acquisition costs, compared with $0.70 reported in Q1 2015. Management expected ongoing macroeconomic challenges and volatile foreign exchange, and emphasized cost containment while continuing investment in innovation.
- After year-end, the company agreed to acquire Mega Airless for approximately €200 million ($218 million) in cash, subject to regulatory approval and expected to close by the end of Q1 2016. The company expected to fund the purchase with European cash and its U.S. revolving facility. It incurred $1.9 million of transaction costs in 2015.
- A 2015 inventory accounting change from LIFO to FIFO for certain North American operations increased pretax income by $7.4 million and net income by approximately $4.8 million, or $0.08 per diluted share. Management said the change was not material to prior statements and recorded it in 2015.
- A Brazilian facility fire led to a $2.9 million insurance gain in 2015; a $4.9 million receivable remained recorded for costs not yet reimbursed, with final settlement expected in the first half of 2016.
- Key risks include foreign currency exposure, economic and geopolitical conditions, raw-material prices and pass-through timing, customer consolidation and pricing pressure, sole-source suppliers and manufacturing sites, competition, acquisition integration, product liability, cybersecurity, environmental regulation, pension assumptions and potential goodwill impairment. Goodwill was $310.2 million; the 2015 qualitative review identified no impairment.
- Routine lawsuits and claims were disclosed; management did not expect a material adverse effect, but noted that unfavorable outcomes could exceed recorded accruals. A French transfer-pricing assessment resulted in a $2.4 million tax charge; the company said it would seek offsets, but recorded no receivable.
Most important facts for investors to verify
- Whether core-sales growth and margin gains persist once the $7.4 million inventory accounting benefit and favorable resin pass-through timing are excluded.
- How currency movements and continued softness in Beauty + Home affect reported sales, segment margins and EPS.
- Mega Airless closing conditions, final purchase funding, integration costs and subsequent contribution to results.
- Cash generation and capital needs against planned 2016 capital expenditures, dividends, debt service and acquisition spending.
- Resolution of the Brazilian fire insurance claim and the French transfer-pricing matter, and any material developments in litigation or tax uncertainties.