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AptarGroup Grows on Strategic Moves, Input Cost Woes Persist

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On May 24, we issued an updated research report on AptarGroup, Inc. (ATR - Free Report) . The company is poised to gain from its focus on strategies and business-transformation plan. Its Pharma business will benefit from drug delivery innovation. However, implementation costs related to business-transformation plan as well as elevated raw material costs are anticipated to hurt AptarGroup's performance.
 
Let’s analyze these growth factors in detail.
 
Focus on Strategies to Prove Beneficial
 
The company projects earnings per share for second-quarter 2018 in the range of 99 cents to $1.04. It expects each segment to report elevated second-quarter revenues over the prior year. AptarGroup expects each segment to report elevated second-quarter revenues over the prior year. The outlook is backed by its focus on strategies, including transformation activities in the Beauty + Home segment and select G&A functions.
 
Business-Transformation Plan to Fuel Growth
 
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.
 
Pharma Business Remains a Tailwind
 
AptarGroup’s Pharma segment will continue to improve on solid underlying fundamentals in most regions and end markets and 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.
 
Higher Cost to Impair Near-term Margins
 
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. Also, elevated raw material costs are expected to affect near-term margins.
 
Share Price Performance
 
 
AptarGroup has outperformed its industry with respect to price performance over the past year. The stock has gained around 12%, while the industry has recorded growth of 6%.
 
Zacks Rank & Stocks to Consider
 
AptarGroup currently carries a Zacks Rank #3 (Hold).
 
Some better-ranked stocks in the same sector include Caterpillar Inc. (CAT - Free Report) , Axon Enterprise, Inc. (AAXN - Free Report) and W.W. Grainger, Inc. (GWW - Free Report) . These stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Caterpillar’s earnings estimates for full-year 2018 have increased by 7% to $10.58 per share in the last 30 days while estimates for 2019 rose 8% to $12.03 per share. Its shares have gone up 50% over the past year.
 
Axon Enterprise also witnessed positive estimates revisions for fiscal 2018 and 2019. The Zacks Consensus Estimate for fiscal 2018 has soared 98% to 81 cents per share in the last 30 days while estimates for fiscal 2019 climbed by 50% to $1.02 per share. Its shares have soared 148% over the past year.
 
Both the fiscal 2018 and fiscal 2019 consensus for Grainger have moved up 2% to $14.90 and $16.79 per share, respectively, in the last 30 days. The company carries a Zacks Rank #1. Its shares have surged 76% in the past year.
 
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