Why Is AptarGroup (ATR) Down 19.5% Since Last Earnings Report?

It has been about a month since the last earnings report for AptarGroup (ATR). Shares have lost about 19.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is AptarGroup due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

AptarGroup Q4 Earnings Beat Estimates, Revenues Miss

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. Notably, core sales improved in several of the company’s markets in the quarter including the consumer health care, injectables, active packaging and food markets. However, it was offset by continued inventory reductions by several key customers in the personal care and beauty markets, and passing through of lower resin costs.

On a reported basis, earnings came in at 73 cents per share compared with 62 cents reported the year-ago quarter.

Total revenues declined 2% year over year to $671 million in the fourth quarter owing to changes in currency exchange rates. The top line missed the Zacks Consensus Estimate of $678 million. Core sales, excluding currency and acquisition effects, dipped 1% including a negative impact from passing on lower resin costs. Core sales growth in the Pharma segment was negated by decline in core sales in other segments.

Operational Update

Cost of sales was down 5% to $436 million from the $458 million reported in the year-ago quarter. Gross profit increased 4% year over year to $236 million. Gross margin came in at 35.1% during the fourth quarter of 2019, up from 33.2% in the prior-year quarter.

Selling, research, development and administrative expenses inched up 1% year over year to $108 million. Adjusted operating income went down 12% year over year to $81.6 million. Operating margin came in at 12.1% in the quarter under review, down from 13.5% in the year-ago-ago quarter. Adjusted EBITDA declined 7% year over year to $131 million in the reported quarter.

Segmental Performance

Total revenues in the Beauty + Homes segment declined 7% year over year to $315 million. Adjusted operating income in the fourth quarter was down 24% year over year to $17.1 million.

Total revenues in the Pharma segment rose 4% year over year to $267 million. Adjusted operating income fell 1% year over year to $76 million in the fourth quarter.

Total revenues in the Food + Beverage segment were down 2% year over year to $89 million. Operating income plunged 39% year over year to $2.2 million.

Financial Performance

AptarGroup reported cash and cash equivalents of around $242 million as of Dec 31, 2019, down from $262 million as of Dec 31, 2018. The company generated $514 million of cash flow from operations compared with $313 million in the prior year. At 2019- end, long-term debt was approximately $1,085 million, down from $1,126 million as of Dec 31, 2018.

During the year, AptarGroup’s Board raised cash dividend by 6%. This marked the company’s 26th consecutive year of dividend hike. Through 2019, AptarGroup has returned $177 million to shareholders in dividends and share repurchases.

In 2019, AptarGroup expanded services platform for the Pharma segment with acquisitions of leading analytical laboratories, Nanopharm and Gateway Analytical, and training device and patient onboarding expert, Noble International.

2019 Results

AptarGroup reported adjusted earnings per share of $3.95 in 2019, up 2% from the prior year. Earnings beat the Zacks Consensus Estimate of $3.94. On a reported basis, earnings per share came in at $3.66 compared with $3.00 in 2018.

Sales came in at $2.86 billion in 2019, up 3% from the previous year. However, the top line fell short of the Zacks Consensus Estimate of $2.87 billion.

Major Developments Post Q4

Subsequent to the end of the quarter, AptarGroup completed the previously announced equity investment in BTY, a leading Chinese provider of decorative and complete color cosmetics packaging solutions. AptarGroup also announced that it has entered into an agreement to acquire Fusion Packaging, a leader in high quality, prestige airless and color cosmetics packaging, and conception-to-launch turnkey solutions for the North American beauty market.

The company also announced plans to consolidate the North American Beauty + Home footprint. AptarGroup decided to close its Stratford and Torrington, CT sites by the end of 2020 and consolidate this production capacity into other North American facilities. Following the changes, the company expects to be better poised to serve customers efficiently with an aim to drive long-term profitable growth. Estimated costs associated with the footprint consolidations are projected at around $20 million.

Outlook

AptarGroup expects weaker first-quarter 2020 results compared with year-ago period. Customers in the Beauty + Home segment are lowering inventory reductions thanks to current macroeconomic uncertainties. The negative impact of the coronavirus outbreak is likely to dent the segment’s results. The travel retail industry, which is a significant part of the beauty market, is likely to have been affected.

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

AptarGroup now projects adjusted earnings per share (EPS) for first-quarter 2020 between 85 cents and 93 cents. It reflects a tax rate of 28-30%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -12.58% due to these changes.

VGM Scores

Currently, AptarGroup has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise AptarGroup has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.