Aptar Earnings: Strength in Pharma Business Supports Solid Results

Narrow-moat Aptar ATR reported solid second-quarter results, continuing the positive trend in the previous quarter. The company sees a strong pipeline as over 85 medical products using Aptar’s proprietary delivery technology were launched in the first half of 2023. We are encouraged by Aptar’s presence among small to midsize pharma companies, highlighting the significant switching costs Aptar’s pharma business has developed. Therefore, we maintain our $132 fair value estimate for the company. Shares are currently trading undervalued.

The firm’s core sales expanded 4% year over year, primarily driven by the 13% core growth in Aptar Pharma. We believe Aptar’s addition of clinical trial and regulatory filing support solidifies intangible assets as its moat source since pharma companies have more channels to leverage Aptar’s expertise in navigating complex regulatory environments. Beauty products had 3% year-over-year core growth due to strong demand for fragrance dispensing technologies. The closures segment’s core sales declined by 8% year over year, impacted by lower demand, primarily in North America. The firm’s EBITDA margin improved by 130 basis points compared with last quarter because of cost-reduction initiatives.

Aptar’s adjusted earnings per share recorded a 26% year-over-year growth to $1.23. Management expects to have third-quarter adjusted earnings between $1.23 and $1.31 per share, a further continuation of strong performance so far this year. Rollout of a new enterprise resource planning, or ERP, system had a negative impact of $0.04 per share on earnings. Despite management’s confidence that major issues with the ERP system have been solved, it expects a sustained earnings drag for the next two quarters because of startup costs for new investments.