AptarGroup (NYSE: ATR) released second-quarter 2019 results on Wednesday after the markets closed, detailing strong core sales increases from two of its three business segments, as well as a pair of strategic purchases that will help fuel its appetite for acquisitive growth. But shares of the dispensing-systems leader also pulled back around 3% from their all-time highs after the company followed with seemingly light forward earnings guidance.
That's not exactly a wild drop by today's standards. But it's worth taking a closer look at not only what AptarGroup accomplished over the past few months, but also the cause of that conservative outlook.
IMAGE SOURCE: AptarGroup.
AptarGroup results: The raw numbers
|Metric||Q2 2019||Q2 2018||Growth|
|Net sales||$742.7 million||$710.6 million||4.5%|
|GAAP net income||$73.9 million||$55.8 million||32.4%|
|GAAP earnings per diluted share||$1.12||$0.86||30.2%|
DATA SOURCE: APTAR GROUP. GAAP = GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.
What happened with AptarGroup this quarter?
- AptarGroup's core sales -- which excludes the effect of foreign currencies and acquisitions -- climbed 4%.
- Adjusted for items like restructuring and acquisition costs, (non-GAAP) net income per share increased 10% year over year to $1.15 per share, near the high end of guidance provided in May for a range of $1.09 to $1.15.
- Adjusted EBITDA grew 14% year over year to $160.7 million.
- By business segment:
- Beauty and home core sales fell 7% as reported, as a 1% contribution from acquisitions was more than offset by a core sales decline of 3% and a 5% currency headwind.
- Pharma sales climbed 17%, as 10% core sales growth and a 13% contribution from acquisitions were partially offset by a 6% currency headwind.
- Food and beverage segment sales jumped 18%, as 10% core sales growth and an 11% contribution from acquisitions were partially offset by a 3% currency headwind.
- In June, AptarGroup expanded its pharmaceutical and biotech services by acquiring Nanopharm and Gateway Analytical in a deal with an enterprise value of roughly $50 million.
What management had to say
AptarGroup CEO Stephan Tanda stated:
We performed well overall despite some headwinds that affected our Beauty + Home segment. Our Pharma segment grew across a variety of therapies and applications, especially nasally delivered allergic rhinitis and central nervous system treatments. In addition, we previously announced two strategic acquisitions that will broaden our services platform and bring additional value to our pharmaceutical and biotech customers. It was also a good quarter for our Food + Beverage segment, primarily due to increased demand for our innovative dispensing closures across a wide range of food-related categories. Our Beauty + Home segment continued to make progress on the transformation initiatives although sales declined due to significantly lower custom tooling sales and a pipeline fill connected to a customer's global launch in the second quarter of last year. Further, currencies continued to be a headwind across each segment.
Looking forward, and the bottom line
AptarGroup expects core product sales growth in each segment going forward, particularly in the pharma business. But Tanda added that the beauty and home segment may continue to see lower custom tooling sales as select customers anticipate soft sales volumes in the near term.
Coupled with a higher effective tax rate this year (partly due to a recently enacted corporate tax hike in France), AptarGroup is targeting third-quarter 2019 adjusted earnings per share in the range of $0.91 to $0.97 -- down from $0.99 per share in the same year-ago period, and below consensus estimates for $1.02 per share.
Of course, this slight bottom-line guidance shortfall certainly doesn't mean AptarGroup's long-term story is broken. And that explains why shares pulled back only modestly from their all-time highs on the heels of this week's report. As it stands, I think this durable dividend payer remains a compelling portfolio option for any patient shareholder.
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