On Mar 1, we issued an updated research report on AptarGroup, Inc. ATR. The company is poised to gain from its business-transformation plan, product rollouts and acquisitions. However, its results might be marred by 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 the top line, boost operational excellence, enhance its approach to innovation and improve organizational effectiveness. The company is on track with its business transformation which primarily focuses on the Beauty + Home segment. The company expects the business-transformation plan to yield incremental EBITDA of approximately $80 million by 2020-end.
Acquisitions to Spur Growth
AptarGroup is committed toward expanding 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 to core sales growth of 6% during the fourth quarter. 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 companies, including Stelmi, Mega Airless, and made a minority investment in Kali Care, Inc., over the past few years.
Product Rollouts 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 will invest in sustainable solutions and accelerate innovation to drive long-term growth.
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. The company expects to incur an additional $40 million restructuring costs related to this plan in 2019. 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 as the euro has weakened considerably from last year. 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
AptarGroup’s shares have gained 11.52% over the past year, outperforming the S&P 500’s gain of 3.04%.
Zacks Rank & Stocks to Consider
AptarGroup currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Industrial Products sector are Mueller Industries, Inc. MLI, Alarm.com Holdings, Inc. ALRM and Albany International Corp. AIN, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Mueller Industries has an expected earnings growth rate of 2.2% for 2019.
Alarm.com has an expected earnings growth rate of 7.8% for the current year.
Albany International has an expected earnings growth rate of 44.7% for 2019.
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