Founded in the late 1940s, AptarGroup (ATR) is a leading provider of innovative packaging for the beauty, personal care, home care, drug, and food and beverages markets. The company focuses on the development and marketing of dispensing systems that employ finger-actuated technologies to hand out spray or lotion from non-pressurized containers. It also offers certain plastic closures that allow products to be dispensed without removing the cap. Sales of these systems have expanded at a faster pace than other products in the slow-growing packaging industry. Management expects this positive trend to persist, citing the shelf appeal, convenience and accuracy of dosage of these packaging solutions. AptarGroup competes with peers in the highly-consolidated Packaging & Containerboard Industry, notably Ball Corp. (BLL), Crown Holdings (CCK), MeadWestvaco Corp. (MWV), and Silgan Holdings (SLGN).
Recent Performance By Segment
The Beauty + Home division (59% of 2013 revenues) appears to be rebounding after sales for this division advanced just 2% in 2013, following a 4% decline in 2012. Then, the mixed results reflected weak results in domestic markets, the exit of certain struggling businesses in Europe, as well as unfavorable currency translation swings during the period. Now, though, business seems to be heating up in 2014, as revenues in the first-quarter rose 7.5% year to year, fueled by better penetration in the personal care space. Management noted climbing demand for a variety of dispensing products for both facial and body skincare contents. This recovering segment is a vital piece of the puzzle for AptarGroup’s ambitions going forward.
Meanwhile, prospects for the Pharma segment (28% of sales) are very promising. Revenues for this highly-profitable division have increased at an average rate of 6% for the last three years, excluding contributions from the Stelmi acquisition. The strong organic growth was primarily driven by solid product sales in the consumer health care market, the over-the-counter side of the segment. Particularly, performance in the nasal pumps business was encouraging in recent years, with the rising need for AptarGroup’s dispensing solutions for use in generic allergy formations. Most recently, it began supplying packaging for the over-the-counter version of Sanofi-Aventis’s Nasacort. On the other hand, sales growth in the prescription drug market advanced at a more-moderate pace, restricted by rigorous pharmaceutical regulations. It’s noteworthy that Pharma is the company’s most lucrative segment.
The Food + Beverage segment (13% of sales) is also advancing nicely. AptarGroup’s smallest division achieved revenue growth averaging 13% in the last three years, thanks to vigorous packaging sales to the condiment, dairy, and infant formula markets. In addition, increased popularity of functional drinks in Asia has also helped the cause. As for North America, a surge of water flavoring and new juice projects opened the door for new packaging opportunities. Lately, the company benefited from the introduction of dispensing systems and sealing technologies for Unilever’s Hellmann’s and Nestle’s line of barbeque sauces.
Performance by Geographical Area
Europe remains the key for AptarGroup’s fortunes going forward. Despite economic woes in the region, the company still generated 58% of 2013 revenues in Europe. Indeed, AptarGroup’s business in France and Germany continued to flourish at a dynamic rate. Combined revenues generated from these two nations rose at an average annual rate of 12% (7.5% excluding the Stelmi business) in the last three years, likely due to the company’s strong presence in the beauty and pharmaceutical markets. Nevertheless, performance in the remaining European countries was disappointing, dragging down results considerably. All said, organic revenues from the Continent climbed at a modest 3% rate in recent history. This figure rises to 7% including acquisitions. With stabilizing economic conditions in Europe, AptarGroup’s operations in the region should continue to progress nicely.
Sales from the U.S. market appear to be on the mend. AptarGroup’s domestic sales, which accounts for around a quarter of yearly revenues, fell 2.5% in 2013. The decline interrupted a streak of positive revenue growth rates achieved since the 2009 recession. Management pointed out that it had not yet replaced certain discontinued businesses, tempering results for that year. This problem seems to have been addressed in the first quarter of 2014, as the company reported an 8.5% domestic revenue increase in the period. The launch of new products also provided a boasted to the top-line. However, given the mature nature of the U.S. markets, this upsized growth rate is unlikely to be sustainable for the full year.
With strength in certain key markets, AptarGroup appears to be on the right track with its business strategies. For more details on this conservative stock, please consult our report in the Value Line Investment Survey.