Morningstar | Pharma Organic Growth Reaches 15% in Solid 1Q for Aptar
Aptar started the year on a high note, with organic sales growth of 7% over the prior year, due principally to superb results from its pharma business. Segment income also performed solidly, up just over 12% thanks to the benefit of falling resin prices and a consolidated mix shift toward pharma over its food and beauty segments. Management didn't have any one factor to point to as a driver of outperformance, saying that all business units operated well during the quarter. With our outlook largely unchanged, our fair value estimate remains $89 per share and our narrow moat rating is intact. After a run-up in share prices, we view shares in Aptar to be overvalued at this stage.Performance remained frothy in Aptar's pharma segment, sending shares higher on an otherwise bleak day for the market. Not only did the segment grow sales by 15% on an organic basis, but it also held the line on margins, with operating margin rising slightly versus the prior year. A combination of consumer and prescription nasal products were some of the largest contributors to sales growth in the quarter, but everything performed fairly well. CEO Stephan Tanda continues to caution that although he feels good about the company’s pipeline, he doesn't feel a 10%-15% organic growth rate will be sustainable in the long run. We concur and expect sales growth to slow to around 6%-8% over the next few years. However, we think recent margins will largely be sustainable thanks to significant customer switching costs.
The beauty and home segment also performed well, though it encountered meaningful foreign exchange headwinds. Beauty sales fell 3%, mainly due to a 7% currency headwind. Adjusted beauty and home segment income remained flat versus the year prior. As currency headwinds abate, we expect operating income margins to converge to adjusted figures as restructuring costs wane over the next few years.
AptarGroup is a supplier of a range of dispensing, sealing and active packaging solutions for the beauty, personal care, home care, prescription drug, consumer health care, injectables, food and beverage markets. The company's primary products are dispensing pumps, which dispense a spray or lotion from non-pressurized containers; closures, which are plastic caps that allow a product to be dispensed without removing the cap; aerosol valves, which dispense product from pressurized containers; and elastomeric primary packaging components, which include stoppers for infusion, antibiotic, lyophilization and diagnostic vials, pre-filled syringe components, as well as dropper bulbs and syringe plungers.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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