AptarGroup (ATR) Rides on Segment Growth, Higher Costs Ail

On Jun 25, we issued an updated research report on AptarGroup, Inc. ATR. The company is poised well on its ongoing business-transformation plan in Beauty + Home segment, solid underlying fundamentals in most regions and end markets for its Pharma segment. However, elevated raw material and implementation costs related to business-transformation plan will weigh on the near-term margins.

Let’s analyze these factors in detail.

AptarGroup projects earnings per share for second-quarter 2018 in the range of 99 cents to $1.04. Compared with the earnings per share of $1.01 in the prior year quarter, the mid-point of the guidance reflects year-over-year growth of 0.5%. The company expects each segment to report elevated second-quarter revenues over the prior year. The Zacks Consensus Estimate for earnings for the quarter is currently pegged at $1.02, reflecting year-over-year growth of 1%.

The company remains focused on strategies including transformation activities in Beauty + Home segment and select G&A functions. In the segment, AptarGroup continues to proactively manage costs and remains focused on higher growth areas such as skin care, cosmetics and select beauty applications.

AptarGroup’s Pharma segment will continue to improve on solid underlying fundamentals in most regions and end markets along with drug delivery innovation. The company is experiencing continued adoption of its products for nasal spray systems (metered dose inhalers), injectable products and the ophthalmic market. Demand for decongestant applications is also on the rise. The company has invested in additional capacity at Congers, NY facility to better serve U.S. customers in the injectables market.

In late 2017, AptarGroup began a business-transformation plan in a bid to become a more agile, competitive and customer-centric business. This plan includes a wide range of initiatives to drive sales growth, enhance operational excellence as well as improve organizational health and effectiveness. The company is poised to gain from its focus on the plan which will yield annual recurring incremental EBITDA of approximately $80 million by the end of 2020.

AptarGroup expects to incur implementation costs of approximately $90 million over the next three years related to business-transformation plan in the Beauty + Home segment. It also anticipates capital investments related to the transformation plan of about $45 million, majority of which will be incurred in 2018. These costs remain a drag for earnings in the near term. Further, elevated raw material costs are expected to affect near-term margins.

AptarGroup has outperformed its industry with respect to price performance over the past year. The stock has gained around 7%, while the industry has recorded a dip of 1%.

AptarGroup currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the sector include Axon Enterprise, Inc. AAXN, DMC Global Inc. BOOM and Zebra Technologies Corporation ZBRA. All of these stocks carry sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise has expected long-term growth rate of 25%. Its shares have surged 144% over the past year.

DMC Global has expected long-term growth rate of 20%. Its shares have appreciated 258% in a year’s time.

Zebra Technologies has expected long-term growth rate of 5%. Its shares have appreciated 40% year to date.

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