On Nov 14, we issued an updated research report on AptarGroup, Inc. (ATR - Free Report) . The company is poised to gain from business-transformation plan, product roll outs and acquisitions. However, its results might be marred by customer-plant shutdowns, elevated costs and negative impact of foreign currency translation.
Let’s illustrate these factors in detail.
Business-Transformation Plan -- Key Growth Driver
In late 2017, AptarGroup began a business-transformation plan to drive top-line growth, boost operational excellence, enhance its approach to innovation and improve organizational effectiveness. The company remains on track with its business transformation which primarily focuses on the Beauty + Home segment. AptarGroup anticipates capital investments related to the transformation plan of about $54 million in 2018. The company expects the business-transformation plan to yield incremental EBITDA of approximately $80 million by the end of 2020..
Acquisitions to Spur Growth
AptarGroup remains committed to expand its business through inorganic growth. In sync with this, the company acquired CSP Technologies, a leader in active packaging technology based on proprietary material science expertise, for an enterprise value of $555 million. The acquisition contributed net sales of $13.2 million for the quarter ended Sep 30, 2018. In May 2018, AptarGroup acquired 100% of the common stock of Reboul, a French manufacturer specializing in stamping, decorating and assembling metal and plastic packaging for the cosmetics and luxury markets. Moreover, the company has acquired several innovative companies, including Stelmi, Mega Airless, and acquired a minority investment in Kali Care, Inc., over the past few years.
Product Roll Outs Support AptarGroup
AptarGroup is poised to gain from product launches. Its Beauty + Home segment has collaborated with a third party which provides image-recognition technology. Further, the company has created a new sampling package for the PacoRabanne fragrance by Puig. It also recently launched PureHale, affordable and ready-to-use upper respiratory delivery system. In its Food + Beverage segment, AptarGroup is marketing a new technology called Flip Lid, a consumer-friendly dispensing closure designed to promote post-use recycling. In contrast to the traditional flat bottle caps, Flip Lid remains attached to the bottle throughout its life cycle, making the closure more likely to be collected and recycled.
Plant Shutdowns to Mar Results
AptarGroup’s results in the last quarter of the year typically are negatively impacted by customer plant shutdowns in December. Furthermore, its performance will be impacted by the seasonality of certain products and changes in product mix. Moreover, difficult comparison remains a matter of concern.
Elevated Expenses to Hurt Earnings
AptarGroup expects the inflationary environment to prevail. Elevated raw material costs and transportation costs are expected to affect near-term margins. The company’s performance will also be impacted by weaker beverage volumes in China. Furthermore, 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. These costs remain a drag for earnings in the near term.
Foreign Exchange Volatility to Hurt AptarGroup’s Performance
AptarGroup’s results will bear the brunt of changes in foreign currency rates. The company has primary foreign exchange exposure to the euro, in addition to the Chinese yuan, Brazilian real, Mexican peso, Swiss franc and other Asian, European and South American currencies. A strengthening U.S. dollar relative to foreign currencies has an effect on financial statements.
Share Price Performance
Shares of the company have outperformed the industry, over the past year. The stock has gained around 19%, while the industry recorded a loss of around 8% during the same time period.
Zacks Rank & Key Picks
AptarGroup carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same sector include CECO Environmental Corp. (CECE - Free Report) , Flowserve Corporation (FLS - Free Report) and Mobile Mini, Inc. (MINI - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
CECO has a long-term earnings growth rate of 15%. The stock has surged around 52% in a year’s time.
Flowserve has a long-term earnings growth rate of 17.3%. The company’s shares have been up 22% during the past year.
Mobile Mini has a long-term earnings growth rate of 14%. Its shares have rallied 24% in the past year.
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