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Dismal End-Market Demand & Cost Woes Impact AptarGroup

On Jul 3, we issued an updated research report on AptarGroup, Inc. ATR. The company’s second-quarter performance is likely to have been unfavorably impacted by dismal demand and global economic uncertainties due to the coronavirus pandemic. Also, higher costs related to business-transformation plan in the Beauty + Home segment might have dented the company’s margins.

Muted Guidance on Coronavirus Crisis

AptarGroup now projects adjusted earnings per share (EPS) for second-quarter 2020 between 58 cents and 73 cents. The mid-point of the guided range reflects a year-over-year plunge of 43%. Considering the bleak demand due to the pandemic, the company projects weaker second-quarter results compared with the year-ago quarter.

Segments Bearing the Brunt of Coronavirus

The Beauty + Home segment’s performance is expected to have been hurt by the prevailing softness across each end market due to the unfavorable impact of the pandemic in the June-end quarter. Reduced orders from customers providing prestige beauty products will continue affecting the segment. Also, several beauty retailers had to shut down in response to government mandates to contain the spread of the virus. Notably, beauty products account for 24% of the company’s revenues. The travel retail industry, which is a significant part of the beauty market, might have been affected by the pandemic as well.

The Food + Beverage segment will continue being weighed down by decrease in food services, softness in the on-the-go beverage market, primarily related to the pandemic, and negative impact of lower resin costs. Moreover, the Pharma segment might have faced difficult comparisons in the quarter given the exceptional growth in the second quarter of 2019.

Inflated Costs & Currency Translation Woes

AptarGroup expects to incur implementation costs of approximately $110 million over the next three years related to business-transformation plan in the Beauty + Home segment. This is likely to impact the company’s bottom-line results in the near term.

The company’s results will bear the brunt of fluctuation in foreign-currency rates. AptarGroup 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 unfavorable impact on financial statements.

Price Performance

Shares of the company have gained 13.7% over the past three months, compared with the industry’s growth of 20.3%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. LAKE, Energous Corporation WATT and TPI Composites, Inc. TPIC. While Lakeland Industries sports a Zacks Rank #1 (Strong Buy), Energous Corporation and TPI Composites carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has a projected earnings growth rate of 127.8% for fiscal 2020. The company’s shares have appreciated 50.9% in the past three months.

Energous Corporation has an expected earnings growth rate of 44% for 2020. The stock has gained 252.6% over the past three months.

TPI Composites has an estimated earnings growth rate of 197% for the ongoing year. The company’s shares have rallied 62.3% in the past three months.

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AptarGroup, Inc. (ATR): Free Stock Analysis Report
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