On Oct 22, 2020, we issued an updated research report on AptarGroup, Inc. ATR. The company is anticipated to bear the impact of the coronavirus pandemic on its end markets, particularly in the Beauty + Home and Food + Beverage segments, until the situation stabilizes. Nevertheless, gain from business-transformation, product innovation and acquisitions will drive growth in the days ahead.
AptarGroup is a global supplier of a broad range of innovative dispensing, sealing and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. The Beauty + Home segment sells dispensing systems primarily to the beauty, personal care and home care markets, and contributed around 47% to total sales in fiscal 2019. Notably, reduced orders from customers providing prestige beauty products this year owing to the COVID-19 crisis will continue hurting the segment. Beauty products are sold via duty free travel and retail stores. Consequently, the restrictions on air travel has impacted the beauty market. Also, many beauty retailers have shut down in response to government mandates to stem the spread of the coronavirus.
AptarGroup’s peer, Silgan Holdings Inc. SLGN, has also been impacted by weakness in certain beauty products owing to shift in consumers’ buying patterns as a result of the coronavirus crisis. Further, the company’s exposure to the fragrance market following its acquisition of the dispensing business, Albéa Group, remains a concern as the fragrance market is heavily retail and travel based.
AptarGroup’s Food + Beverage segment, which accounted for 15% of the company’s revenues in 2019, sells dispensing closures and non-dispensing closures, spray pumps and aerosol valves to the food and beverage markets. The segment will be persistently affected by decrease in food service and on-the-go beverage closure sales due to the COVID-19 crisis.
However, the company’s Pharma segment (38% of fiscal 2019 revenues) is witnessing sales growth across each end market with especially strong improvement in the injectables and active packaging businesses. This is likely to persist amid the coronavirus pandemic. Notably, the segment has identified over 150 potential projects as a result of the COVID-19 pandemic and continues to receive inquiries from the healthcare industry on an almost-daily basis. However, these gains are likely to be negated by the abovementioned headwinds.
Also, in the wake of the ongoing uncertainty related to the COVID-19, AptarGroup like the other players in the industry, which includes Sealed Air Corporation SEE, Greif Inc. GEF and Silgan, has been undertaking several cost control measures that include reducing temporary labor headcount, wage reductions, elimination of business travel and curtailment of discretionary spending. This will help sustain margins despite low volumes.
AptarGroup now projects third-quarter 2020 adjusted earnings per share between 80 cents and 88 cents. The mid-point of the guided range reflects a year-over-year decline of 10% from the prior-year quarter.
However, going forward, AptarGroup is focused on growing business-transformation plan that will help drive the top line, boost operational excellence, enhance approach to innovation and improve organizational effectiveness. It also remains committed to business expansion through acquisitions to broaden the scope of technologies, geographic presence and product offerings. Continued focus on bringing innovative product launches will also provide it with a competitive edge.
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