AptarGroup, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. AptarGroup manufactures dispensing, drug-delivery, sealing and closure products through Aptar Pharma, Aptar Beauty and Aptar Closures. The company realigned its segments effective January 1, 2023; comparative segment figures were recast, with no effect on consolidated results.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $893.0 million | $836.9 million | $2,649.0 million | $2,526.3 million |
| Operating income | $119.3 million | $95.2 million | $319.8 million | $294.1 million |
| Operating margin | 13.3% | 11.4% | 12.1% | 11.6% |
| Net income attributable to AptarGroup | $84.3 million | $54.2 million | $222.1 million | $180.3 million |
| Diluted EPS | $1.26 | $0.81 | $3.32 | $2.70 |
| Adjusted EBITDA margin | 21.7% | 18.4% | 19.9% | 18.6% |
Q3 sales rose 7% year over year; management attributed 2% growth to core sales, split between volume growth and inflation-related pricing, with currency adding 4% and acquisitions 1%. For the nine months, sales increased 5%, including 3% core growth, 1% currency benefit and 1% acquisition contribution. Cost of sales fell to 63.5% of sales in Q3 from 65.3%, reflecting favorable Pharma mix and moderating input-cost inflation. Restructuring expense was $6.2 million in Q3 and $19.6 million year to date.
Segment trends: Q3 core sales increased 8% in Pharma and 2% in Beauty, but declined 9% in Closures. Pharma growth reflected prescription and consumer healthcare demand; Beauty benefited from fragrance, while personal and home care remained weak. Closures faced lower product and tooling sales and lower input-cost pass-throughs. Year-to-date core sales rose 9% in Pharma and 4% in Beauty, and fell 8% in Closures.
Cash flow, debt and liquidity
- For the first nine months, operating cash flow was $355.6 million, compared with $306.3 million a year earlier. Capital expenditures were $231.2 million; free cash flow, as defined by the company, was $124.4 million versus $97.3 million.
- Cash and equivalents were $151.6 million at September 30, 2023. Total debt was $1.171 billion, broadly unchanged from year-end 2022; net debt was $1.019 billion. Net debt to net capital improved to 31.5% from 33.3%.
- Current assets were $1.503 billion and current liabilities $1.232 billion. Current maturities of long-term obligations were $366.4 million. The company had $124.5 million outstanding under its revolving credit facility and overdrafts, versus $3.8 million at year-end.
- The $600 million revolving facility matures in June 2026. At quarter-end, the consolidated leverage ratio was 1.61x against a maximum of 3.50x; interest coverage was 16.19x against a minimum of 3.00x. The company reported approximately $1.2 billion of additional borrowing capacity before reaching the leverage covenant limit.
- Cash uses included $76.7 million of dividends, $37.3 million of share repurchases, $231.2 million of capital expenditures and repayment of $117.3 million of long-term debt. Estimated 2023 capital expenditures, net of grants, were approximately $300 million.
Outlook, risks and unusual items
- For Q4 2023, management expects continued growth in proprietary Pharma drug-delivery systems, improving injectables performance as capacity comes online, and strong fragrance dispensing sales. It expects Beauty and Closures to benefit from improving North American conditions as customer destocking eases.
- Q4 diluted EPS guidance is $1.06–$1.14, excluding restructuring expenses, changes in fair value of equity investments and acquisition costs; guidance assumes a 24%–26% effective tax rate. This is non-GAAP guidance.
- Management cited approximately $16 million of additional year-to-date costs related to validation of new injectables capacity and early-year ERP implementation inefficiencies. ERP-related operational disruption also contributed to lower year-to-date injectables sales.
- Foreign exchange supported reported sales, while currency translation adjustments reduced other comprehensive income by $52.5 million in Q3. The company identifies currency movements, inflation and input costs, customer demand and destocking, supply constraints, interest rates, geopolitical events, cybersecurity, facility expansion execution and litigation among relevant risks.
- The company recorded $19.6 million of restructuring expense year to date, with $12.4 million of related reserves remaining at quarter-end. It repaid $25.3 million of Fusion contingent consideration during the year.
- Customs-duty claims total approximately $13 million in principal plus $5–$6 million in interest and penalties; no liability was recorded because the amount and outcome remain uncertain. Management says other routine litigation is not expected to materially affect results, but adverse outcomes could exceed accruals.
- Q3 tax expense benefited from stock-based compensation and a change in U.S. foreign-tax-credit regulations; the comparative 2022 period included a $7.2 million out-of-period tax charge. The quarter also included gains on sale of two French buildings and volatile investment results, including PureCycle-related gains and losses.
Key facts for investors to verify
- Whether Pharma growth and new injectables capacity can offset weaker Closures and Beauty personal- and home-care demand.
- Whether Q4 EPS guidance is achieved, noting its exclusions and assumed tax-rate range.
- Capital-spending execution, cash conversion and the effect of ERP implementation on production and costs.
- Debt maturities, variable-rate revolver usage and continued compliance with financial covenants.
- Resolution and potential exposure from customs-duty claims and other legal contingencies.
- How much reported growth and earnings reflect currency, pricing, restructuring, tax benefits and investment-related items rather than recurring operating performance.