AptarGroup’s Q2 Earnings Rise on Dispensing Solutions Demand

AptarGroup, Inc. (ATR) reported record results for second-quarter 2014. The company posted earnings of 79 cents per share, which rose 2.6% from adjusted earnings of the year-ago quarter. Earnings per share also came within the company’s guidance range of 78 to 83 cents. However, it missed the Zacks Consensus Estimate of 82 cents per share.

Notably, the prior-year quarter figure excluded charges of 4 cents per share related to the European restructuring plan. Including these, prior-year earnings came in at 73 cents per share.

Operational Update

Total revenue rose 5% year over year to $671 million, the highest ever recorded second quarter results. Core sales also increased 4%, excluding currency effects. Changes in currency exchange rates accounted for 1% of sales growth. Revenues however fell short of the Zacks Consensus Estimate of $682 million. Year-over-year sales growth was driven by a rise in demand for innovative dispensing solutions and increased core sales in all segments over the prior year.

Cost of sales went up 4.6% year over year to $451 million. Gross profit improved 4.5% to $219.6 million from $210 million in the year-ago quarter. However, gross margin remained flat year over year at 32.7%.

Selling, research, development and administrative expenses rose 9.5% year over year to $96.5 million. Adjusted operating income increased 1.5% year over year to $84.6 million while operating margin contracted 40 basis points (bps) to 12.6%.

Total revenue in the Beauty + Homes segment increased 2.7% year over year to $385 million. Operating income declined 10.4% to $27.2 million from $30.3 million in the year-earlier quarter due to weaker economic condition in the U.S., as well as start-up costs, and the difficult currency environment in Latin America. Consequently, the segment’s operating margin decreased 100 bps to 7.1%.

Total revenue in the Pharma segment rose 6.9% year over year to $195.7 million. Operating income increased 4.7% to $52.8 million from the year-ago quarter. Operating margin, however, contracted 60 bps year over year to 27%.

Total revenue in the Food + Beverage segment increased 7.4% year over year to $89.7 million. Operating income rose 4.7% to $12.4 million from the prior-year quarter. Operating margin decreased 40 bps year over year at 13.8%.

Financial Performance

AptarGroup ended the second quarter with cash and cash equivalents of $341.3 million, down from $309.9 million as of 2013-end. The long-term debt of the company was at $354.6 million, marginally down from $354.8 million as of 2013-end. Debt-to-capital ratio was 27.2% as of Jun 30, 2014, compared with 25% as of Dec 31, 2013.

Outlook

AptarGroup expects earnings in the range of 72 to 77 cents per share for the third quarter of 2014.

AptarGroup is implementing a legal entity reorganization for the non-U.S. subsidiaries for better financial flexibility. Due to this the company expects to record a one-time tax expense in the third quarter of approximately $3 million or 4 cents per share, which is not included in the guidance.

The company remains committed to cost containment and the development of innovative products and technologies. It expects demand for innovative dispensing solutions to drive growth. However, the emerging market currency environments are expected to remain challenging in the near term. Moreover, earnings will be negatively impacted by the volatile raw material prices and economic uncertainty.

Crystal Lake, IL-based AptarGroup is a leading global supplier of a wide range of innovative dispensing systems for the fragrance/cosmetic, personal care, pharmaceutical, household and food/beverage markets.

At present, AptarGroup has a Zacks Rank #3 (Hold). Some better-ranked stocks in the industrial products sector include Sealed Air Corporation (SEE), Graphic Packaging Holding Company (GPK) and MeadWestvaco Corporation (MWV). While Sealed Air holds a Zacks Rank #1 (Strong Buy), Graphic Packaging and MeadWestvaco carry a Zacks Rank #2 (Buy).