AptarGroup, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisition: Announced acquisition of Mod3 Pharma's clinical trial manufacturing capabilities, expanding Aptar Pharma services into early-stage CDMO field, with a new FDA-inspected facility in New Jersey.
• Awards and Recognitions: Named Time Magazine's World's Most Sustainable Companies for the second year and CDP's Supplier Engagement Assessment A List.
• Innovations: Highlighted recent technologies like lateral control system for nasal decongestion, and Pharma, Beauty, Derma series for dermacosmetic market.
• Share Repurchases: Repurchased ~1 million shares for ~$150 million and returned ~$210 million to shareholders in first 6 months of 2025.
• Segment Updates: Closures segment saw growth from innovation pipeline, Beauty segment had core sales growth driven by tooling, Pharma segment had strong contributions from various divisions.

Segment Performance

• Pharma Segment: Core sales increased 3%. Prescription core sales up 8%, Injectables up 9%, Active Materials Science Solutions up 11%, while Consumer Healthcare core sales decreased 14% due to European inventory management issues. Adjusted EBITDA margin was 35.4%, a 130 basis points improvement.
• Beauty Segment: Core sales increased 1% primarily driven by stronger tooling sales. Fragrance, facial skin care, and color cosmetics core sales decreased 4%, while Personal Care core sales increased 11%. Adjusted EBITDA margin was 14.1%, up 20 basis points.
• Closures Segment: Core sales increased 7%. Food core sales up 13%, Beverage up 7%, Personal Care down 4%, and other categories up 1%. Adjusted EBITDA margin was 16.9%, a 130 basis points improvement.

Guidance

• Third Quarter Outlook: Anticipates adjusted earnings per share in range of $1.53 to $1.61, excluding certain items. Elevated legal expenses related to pharma IP litigation impact ~$0.06 to $0.07 per share. Effective tax rate expected to be in range of 20.5% to 22.5%. Assumes 1.15 Euro to U.S. dollar exchange rate.
• Year-to-Date: Reported sales and core sales increased 2%, adjusted earnings per share up 8%, adjusted EBITDA margin up 130 basis points to 21.7%, free cash flow $92 million, strong balance sheet with cash and short-term investments near $170 million.

Risks

• Litigation: Ongoing litigation related to pharma intellectual property rights, with legal fees expected to increase significantly.
• Consumer Healthcare: Soft demand for nasal decongestants and saline solutions in Europe due to excess inventory and weaker cold/flu season, with limited visibility on future demand.
• Naloxone Sales: Normalization of Naloxone sales growth due to uncertainty in distribution channels and public policy changes.
• Tariffs: Uncertainties affecting Prestige beauty segment, with recent U.S.-EU trade deal coming too late to impact third quarter guidance.

Question and Answer

• Q: Can you give more color on naloxone sales normalization impacting pharma growth? A: Naloxone growth is muted due to uncertainty in distribution channels and recent executive orders, impacting pharma growth rate, but Injectables and Active Materials are picking up.
• Q: What caused the deep downturn in consumer healthcare pharma end market? A: Factors include post-COVID inventory hoarding, cold/cough season dynamics, and loss of Russian market share.
• Q: Any color on legal expenses related to pharma IP litigation? A: Litigation is to safeguard intellectual property, with costs expected to persist for a few quarters but no impact on P&L yet.
• Q: Details on acquisition of Mod3 Pharma's clinical trial manufacturing capabilities? A: Expands pharma services into early-stage CDMO field for Phase I/II GMP fill, with state-of-the-art facility in New Jersey supporting drug delivery devices.