Coverage Initiated on AptarGroup - Analyst Blog

On Mar 25, 2014, we initiated coverage on the global provider of consumer product dispensing systems, AptarGroup, Inc. ATR. AptarGroup delivered strong fourth-quarter 2013 results with both the top and the bottom line surpassing the respective Zacks Consensus Estimate.

In the quarter, AptarGroup's fourth-quarter 2013 adjusted earnings of 69 cents per share increased 21% year over year on record revenues of $637 million, which rose 12% year over year.

AptarGroup's Pharma business is doing particularly well, generating higher margins and returns on assets when compared to its other segments. The momentum is expected continue in 2014 as well. The segment has good growth prospects with strong margins and high barriers to entry.

AptarGroup's acquisition of Stelmi Group, in 2012, marked its entry into a new area of primary packaging components used in the injectable drug delivery market. This broadened its product portfolio and customer reach. AptarGroup's $26 million investment in capacity expansion at Stelmi in 2014 will further strengthen the segment's growth profile.

In Dec 2013, AptarGroup acquired a 20% stake in Bapco Closures for approximately $5 million and also secured an exclusive global license for Bapco's sealing technology that provides package integrity and tamper evidence. The technology has scope of use in diverse markets. The acquisition, along with the exclusive global license for Bapco's innovative closure sealing technology, gives AptarGroup a better foothold in the market.

In Nov 2012, AptarGroup had announced a plan to optimize capacity in Europe which was substantially completed by 2013 end. Savings are expected in the range of $10 million to $12 million on an annualized basis. Right sizing the footprint should augment returns over the long term and also help boost growth in Europe.

On the flip side, continued softness in the U.S., currency effects, and Latin American facility start-up costs had a negative impact on fourth-quarter results of the Beauty + Home segment. The challenging currency environment, particularly in Latin America and Southeast Asia, is expected to continue. There is also some modest pricing pressure and a meaningful volume pickup is necessary for the segment to deliver improved results.

Margins were affected in the fourth quarter due to increase in resin prices. Further increases in resin prices will impact AptarGroup's results. The sluggish U.S. personal care end market was a major headwind for the company throughout 2013, weighing on its results. A prolonged decline in consumer spending could materially affect demand for AptarGroup's products.

Other Stocks to Consider

The stock currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same sector include Ball Corp. BLL, Packaging Corporation of America PKG and Sealed Air Corp. SEE. While Ball Corporation and Packaging Corporation sport a Zacks Rank #1 (Strong Buy), Sealed Air carries a Zacks Rank #2 (Buy).