AptarGroup (ATR) Hurt By Cost Woes & Coronavirus Outbreak

On Mar 24, we issued an updated research report on AptarGroup, Inc. (NYSE:ATR) . The company’s results are likely to be impacted by sluggish demand and global economic uncertainties amid the coronavirus outbreak. Also, higher costs related to business-transformation plan in the Beauty + Home segment might dent the company’s margins.

AptarGroup delivered fourth-quarter 2019 adjusted earnings per share of 80 cents, surpassing the Zacks Consensus Estimate of 79 cents. However, the bottom line declined 13% year over year. Total revenues were down 2% year over year to $671 million in the quarter due to changes in currency exchange rates. The top line missed the Zacks Consensus Estimate of $678 million.

Share Price Performance

AptarGroup, along with Amcor Ltd. (NYSE:AMCR) , falls under Containers – Paper and Packaging industry. The company’s shares have have depreciated 16.5% over the past year compared with the industry’s loss of around 50.8%.

Muted Guidance on Coronavirus Pandemic

AptarGroup now projects adjusted earnings per share (EPS) for first-quarter 2020 between 85 cents and 93 cents compared with earnings per share of $1.07 reported in the prior-year quarter. Considering sluggish demand in response to the coronavirus pandemic, the company expects weaker current-quarter results compared with the year-ago quarter.

Rapid spread of the coronavirus outbreak is likely to adversely impact the company’s business and operations disrupting its supply chain. AptarGroup also might temporarily suspend its operations in order to reduce the spread of the virus. Eventually, the outbreak is expected to reduce consumer demand as well as impact European and North American sales. The company generated 4% revenues related to China operations in 2019.

Segments to Bear the Brunt of COVID-19 Outbreak

AptarGroup’s Pharma segment will face difficult comparisons in the ongoing quarter given exceptional growth last quarter. The Food + Beverage segment’s Asian business is likely to bear the brunt of the coronavirus outbreak.

In the Beauty + Home segment, growth in the beauty and home care markets has been offset by weak demand in the personal care market. Further, the negative impact of the virus outbreak is likely to dent the segment’s results in the first quarter. The travel retail industry, which is a significant part of the beauty market, is expected to have been affected by the pandemic. This apart, the company is witnessing sluggish demand across most of its major applications, especially body care and hair-care products, as political and economic uncertainties are leading to some customer destocking.

Higher Costs & Currency Translation Woes

AptarGroup expects to incur implementation costs of approximately $80 million over the next three years related to business-transformation plan in the Beauty + Home segment. Costs associated with footprint consolidations are currently expected to be around $20 million. These costs remain a drag for earnings in the near term.

The company’s results will bear the brunt of fluctuation 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 impact on financial statements.

Zacks Rank & Stocks to Consider

AptarGroup currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Industrial Products sector include Sharps Compliance Corp (NASDAQ:SMED) and Tetra Tech, Inc. (NASDAQ:TTEK) . While Sharps Compliance Corp sports a Zacks Rank #1 (Strong Buy), Tetra Tech carries a Zacks Rank of 2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 767% for 2020. In a year’s time, the company’s shares have gained 36%.

Tetra Tech has an expected earnings growth rate of 10.7% for the ongoing year. In the past year, the company’s shares have appreciated 38%.

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