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Shares of AptarGroup, Inc. (ATR - Analyst Report) gained 1% since the company reported record third-quarter 2013 earnings on Oct 30. Adjusted earnings increased 6% year over year to 70 cents per share from 66 cents in the year-ago quarter. The results however missed the Zacks Consensus Estimate by a penny.

Earnings were at the upper end of management’s guidance range of 68 to 73 cents per share. Earnings in the third quarter exclude restructuring charges of 3 cents per share related to the European Operations Optimization plan. The prior-year quarter excluded a negative impact of 4 cents from non-recurring purchase accounting effects relating to the Stelmi acquisition. Including these, earnings increased 8% to 67 cents per share from the prior-year quarter’s earnings of 62 cents.

Operational Update

Total revenue rose 6% year over year to $624 million. Revenues fell short of the Zacks Consensus Estimate of $629 million. Core sales increased 4% excluding currency effects. Changes in currency exchange rates accounted for 2% of the sales growth in the quarter.

Cost of sales went up 4% year over year to $424 million. Gross profit improved 9.5% to $199.6 million from $182 million in the year-ago quarter. Consequently, gross margin expanded 100 basis points (bps) to 32%.

Selling, research & development, and administrative expenses increased 8.5% year over year to $88 million. Adjusted operating income increased 13% year over year to $75.5 million with operating margin expanding 70 basis points (bps) to 12%.

Segment Performance

Total revenue in the Beauty + Homes segment increased 5% year over year to $376 million. Operating income grew 3% year over year to $30.9 million. Segment sales were driven by increased sales in Europe, Latin America and Asia but were partly offset by weak demand in the U.S. The segment’s operating margin decreased 20 bps to 8.2%.

Total revenue in the Pharma segment jumped 10% year over year to $172 million. Increased demand from the consumer health care and injection markets drove the growth. Sales to prescription declined marginally, primarily due to lower custom tooling sales compared to the prior year. Operating income increased 30.8% year over year to $44.7 million. Operating margin expanded 410 bps year over year to 26%.

Total revenue in the Food + Beverage segment increased 0.4% year over year to $75 million. Operating income declined 20% year over year to $7.7 million, affected by higher resin cost. Operating margin also contracted 260 bps to 10.2%.

Financial Performance

As of Sep 30, 2013, cash and cash equivalents amounted to $247.8 million versus $229.7 million as of Dec 31, 2012. As of Sep 30, 2013 long-term debt increased to $355 million compared with $352.8 million as of Dec 31, 2012. The debt-to-capitalization ratio contracted 80 bps to 22.8% as of Sep 30, 2013 from 23.6% as of Dec 31, 2012.

Optimization Plan of European Operations

In the reported quarter, AptarGroup incurred around $2.7 million in expenses on its European optimization plan. Using current exchange rates, the company expects about $3 million additional costs in the fourth quarter, most of which will be incurred in 2013. Annual savings of roughly $12 million are expected from the plan.


AptarGroup expects earnings in the range of 62 to 67 cents per share for the fourth quarter of 2013. The guidance does not include any impact from the European Operations Optimization plan. The company remains optimistic about the long-term growth based on investments in Aptar Stelmi and a strong balance sheet position.

AptarGroup remains committed to cost containment and development of innovative products. However, earnings will be negatively impacted by the continuing softness of the U.S. markets.

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

AptarGroup currently carries a Zacks Rank #4 (Sell). Packaging Corporation of America (PKG - Snapshot Report) belongs to the same industry and holds a Zacks Rank #2 (Buy).

Among AptarGroup’s peers, Sealed Air Corporation (SEE - Analyst Report) reported third-quarter 2013 adjusted net earnings from continuing operations of 39 cents per share, up 39% from the year-ago earnings of 28 cents. The results beat the Zacks Consensus Estimate of 34 cents per share.

Another competitor, Sonoco Products Co. (SON - Analyst Report) reported third-quarter 2013 adjusted earnings of 63 cents per share, managing to surpass the Zacks Consensus Estimate of 61 cents and increasing 14% from 55 cents earned in the year-ago quarter. Earnings were at the upper end of the company’s guidance range of 59 cents to 63 cents.

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