AptarGroup, Inc. ATR is witnessing strong demand in its Beauty and Pharma segments. The company’s strategic actions and strong balance sheet will also drive growth. However, AptarGroup is exposed to headwinds like high raw material costs, unfavorable currency translation and supply-chain issues. Labor shortages are also worrisome.
Shares of the company have lost 1.3% in the past year compared with the industry’s fall of 4.5%.
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AptarGroup is poised to gain from its business transformation plans to drive top-line growth, boost operational excellence, enhance its approach to innovation and improve organizational effectiveness.
The company has primarily been focused on transforming its Beauty segment, adding capabilities in Asia, implementing new commercial strategies, reducing costs, and capitalizing on fast-growing application fields.
The company’s cost-control measures and pricing actions will help sustain margins in the upcoming quarters.
In December 2022, the company announced a strategic realignment of its closures and non-pharma complex multi-component dispensing solutions. The realignment is expected to strengthen AptarGroup's market position in both closures and beauty by more closely aligning it with how its customers are structured. The action positions the company better to enter new markets for its closure technologies. Furthermore, it improves the bottom line by capturing efficiencies and streamlining operations.
The Pharma and Beauty segments are witnessing strong demand. The Beauty segment is gaining from growth in the beauty and personal care markets, driven by fragrance, as well as hair care and skincare solutions.
In fourth-quarter 2022, the Pharma segment’s core sales to the prescription drug market increased 9% on solid demand for allergic rhinitis, asthma and emergency medical devices due to post-pandemic re-openings and product launches. The consumer health market saw 11% core sales growth, driven by higher demand for nasal decongestants, saline rinses, and cough and cold solutions. Core sales of elastomeric components for COVID-19 and other vaccines led to 6% core sales growth in the injectables market.
AptarGroup is poised to gain from innovative product launches and continues to be the preferred choice for renowned brands worldwide. The company also maintains a strong balance sheet, enabling it to continue to invest in a business, pursue strategic opportunities and continue to return value to shareholders in the forms of dividends and repurchases.
However, AptarGroup will bear the brunt of supply-chain issues. The normalization of demand in certain markets, which surged amid the pandemic, will lead to difficult comparisons. Gains from an improved mix of the higher-margin Pharma product sales were more than offset by inflationary cost increases and higher tooling sales, which typically carry lower margins.
The company has also been witnessing increases in several input costs, including utilities, metals, freight and labor. While the company maintains a normal pass-through of resin cost increases and has implemented price increases to offset other cost hikes, there is no margin on resin pass-through costs, which has led to an increase in the cost of sales as a percentage of sales. This will continue to impact its margins in the near term.
Zacks Rank & Stocks to Consider
AptarGroup currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the Industrial Products sector are OI Glass OI, Encore Wire WIRE, and Illinois Tool Works ITW. OI and TS flaunt a Zacks Rank #1 (Strong Buy) at present, and ITW has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
OI Glass has an average trailing four-quarter earnings surprise of 16.4%. The Zacks Consensus Estimate for OI’s 2023 earnings is pegged at $2.57 per share. This indicates an 11.7% increase from the prior-year reported figure. The consensus estimate for 2023 earnings has moved 16% north in the past 60 days. OI’s shares gained 70.2% in the last year.
Encore Wire has an average trailing four-quarter earnings surprise of 146.8%. The Zacks Consensus Estimate for WIRE’s 2023 earnings is pegged at $19.76 per share. The consensus estimate for 2023 earnings has moved north by 1.7% in the past 60 days. Its shares gained 52.1% in the last year.
The Zacks Consensus Estimate for Illinois Tool Works’ fiscal 2023 earnings per share is pegged at $9.61, suggesting an increase of 4.8% from that reported in the last year. The consensus estimate for fiscal 2023 earnings rose 4% in the last 60 days. ITW has a trailing four-quarter average earnings surprise of 0.9%. Its shares gained 9% in the last year.
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