AptarGroup, Inc. (ATR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2026 Third Quarter Results Conference Call. [Operator Instructions] Introducing today's conference call is Ms. Mary Skafidas, Senior Vice President, Investor Relations and Communications. Please go ahead.

Hello, everyone. Good morning, and thanks for being with us on our call today. Joining me on today's call are Gael Touya, President and CEO; and Vanessa Kanu, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will post a replay of this call on our website. I would now like to turn the conference call over to Gael.

Thank you, Mary, and good morning, everyone. I'm pleased to join you today for my first earnings call as CEO of Aptar. I will touch on the quarter briefly and then turn it over to Vanessa to add more details. Our results in the quarter demonstrate the underlying strength of our businesses with 5% core sales growth across all 3 segments and adjusted earnings per share at the higher end of our guidance range. Our adjusted EBITDA margin of 21.3% remain within our long-term target range, despite emergency medicine destocking and the associated mix impact. In Pharma, while the anticipated reduction in emergency medicine sales continue to affect our growth rate, the underlying business remain strong. Results were driven by broad-based demand across a number of end markets in each of our divisions. This breadth is important. Our Pharma growth opportunities are not dependent on 1 product or 1 therapeutic category. It reflects the depth of our portfolio, innovation, pipeline and the increasingly important role Aptar plays with customers across the drug development cycle. Our ambition is to continue moving forward becoming the partner of choice for our customers through our technology, scientific expertise, services and regulatory capabilities. Beauty also delivered a strong top line growth in the quarter with strong demand from a number of end markets, including prestige fragrance and color cosmetics. But looking at the profitability, I want to be clear. Sales growth alone is not our objective. Our goal is to convert the strong demand for our products into more consistent profitability. We have excellent technology, strong customer relationships and leading positions in attractive categories. At the same time, the margin performance, mostly in North America, is not where it needs to be. Closures also delivered double-digit core sales growth, reflecting strong demand in beverage and food and continued momentum from innovation. From a margin perspective, without the decrease from the impact of indexation, Closures would have been within their long-term adjusted EBITDA target range. And Vanessa will talk further about that. Across Aptar, my priorities remain straightforward: profitable growth, execution, and disciplined capital allocation. Pharma is a pipeline business, and many of you have asked us to provide more visibility into that pipeline. So I want to spend a few minutes highlighting some of the key developments we have seen over the last several months. These opportunities span different technologies, customers and therapeutic areas and there are different stages of development. Some will take time to contribute, but taken together, they provide a clearer view of how we can extend our leadership positions and create new avenues of growth. Let's look at some concrete examples. In ophthalmics, we continue to see attractive opportunities to build on our strong position in eye care. Earlier this year, we introduced Beat the Blink designed to improve dosing precision and the patient experience. The technology is not yet commercially available and is being developed and industrialized through an exclusive collaboration with Bausch + Lomb. Since then, we are encouraged by an early clinical study of Beat the Blink, which showed strong patient acceptance and preference for the solution. This innovation demonstrates how we are bringing together our drug delivery formulation and human factors expertise to address unmet patient and consumer needs. In our ophthalmic pipeline, I want to point out that we are starting to see biologics in clinical testing across areas such as limbal stem cell deficiency, macular degeneration, and dry eye disease. Biologics are starting to be disseminated through different routes of delivery beyond injectables. This is another area where we see meaningful long-term growth potential. Overall, we see ophthalmic as an attractive area for continued innovation and future growth. Prescription to over-the-counter switches can be an attractive growth opportunity for Aptar, as broader consumer access can translate into higher volumes for our dispensing solutions. A recent example is an acne treatment, where our device is supporting its transition from prescription to OTC in the U.S. It also reflects the growing intersection of pharmaceutical innovation and consumer skin care. Switching to nasal drug delivery. We recently announced a research collaboration with Massachusetts General Hospital focused on advancing the science of nose-to-brain delivery. The goal is to make this emerging pathway, more predictable and data-driven and to help pharmaceutical companies assess molecular classes earlier and accelerate the development of therapies targeting neurological and central nervous system diseases. This build on decades of Aptar expertise in nasal delivery and is expected to strengthen our position in an area where we see meaningful long-term opportunity. Nasally delivered therapies continue to progress across several therapeutic areas. We have Phase III programs in pain management and severe allergic reactions. Phase II programs include amyotrophic lateral sclerosis or ALS, other neurological diseases. And therapies focus on the prevention of respiratory viral infections and emergency treatment. Earlier-stage opportunities further broaden the pipeline across schizophrenia, nausea, congestion, Alzheimer's and dementia and migraine. We also see longer-term potential in pain anesthetics, addiction, depression and other novel therapeutics. These developments demonstrate how the pipeline is maturing with program advancing through clinical development and moving closer to potential approval and commercialization. We have also seen development related to vaccines with our LuerVax intranasal delivery system and Spray Divider now carrying the European Conformity mark, enhancing our ability to support customers developing intranasal vaccines. In inhalation, we continue to expand our capabilities in next-generation pulmonary drug delivery. We recently announced a 3-year collaboration research with Macquarie University focused on high-dose dry powder delivery of biologic medicines using our Orbital inhaler platform. This is yet another example of biologics projects in our pipeline being disseminated through a route of delivery beyond injectables. We are also expanding our respiratory platform through the acquisition of PULMOTREE, adding its Kolibri Non-Propellant Liquid Inhaler technology. Together, these initiatives are intended to broaden the range of complex therapies we can support and create opportunities for long-term growth. We are also supporting the transition towards next-generation lower carbon meter dose inhalers. One program using our valve technology has progressed through Phase III into regulatory review in Europe with the potential to significantly reduce the environmental footprint of a widely used respiratory therapy, while maintaining comparable efficacy and safety. Beyond the pipeline, we continue to invest in manufacturing capabilities to support customers as these markets grow. This quarter, we expanded our pharma operations in Mumbai, India, strengthening our supply chain resilience and our ability to serve customers in the region. In Injectables, we launched Premia Precision, a new quality standard for elastomer components designed for complex and high-value injectable therapies, including biologics, GLP-1 medicines, for instance. It brings together tighter quality controls, advanced contamination and defect management and 100% automated vision inspection. Earlier this week, we announced a collaboration with Stevanato Group to advance system-level solutions aimed at helping customers make earlier, more informed packaging decisions for complex biologics and other injectable therapies. This is Aptar Pharma's first collaboration as part of the integrated system level framework launched in July for injectable drug development. These developments are meant to position Aptar Pharma for the future. We are continuing to deepen our differentiation across all delivery routes, where our technology, services, scientific expertise and patient understanding position us as the partner of choice for our customers. Turning to Beauty. We are focused on driving growth by bringing differentiated premium solutions to leading brands across key beauty categories and geographies. Recent wins include the first launch of our patented fragrance-refill technology with BVLGARI's Le Gemme Tygar Travel Spray in Europe, our premium cosmetic pump on Helena Rubinstein's Powercell Serum and our custom pump for SK-II Facial Treatment Serum in China. These launches highlight the strength of our innovation pipeline and our ability to translate customer partnerships into attractive growth opportunities. In Closures, we continue to support the conversion of tub-based condiments to easy-squeeze pouch dispensing. Our recent example is Hormel Foods' Wholly Guacamole featuring our Closure with SimpliSqueeze valve. Our SimpliSqueeze valve technology is also used in the personal care market for ease of dispensing products in the shower as found on the new inverted Dance Body Wash by IP One in Thailand. Finally, our continued partnership with McCormick, which is focused on elevating their spice portfolio, led to the launch of a distinctive two-color, easy-open closure for spices in Mexico. As you can see from our highlights, we believe we have strong businesses, excellent customer relationships and differentiated technologies. My focus is on initiatives intended to translate those strength into consistent financial performance and long-term value creation. I'm encouraged by what I've seen in my first weeks as CEO, but I'm equally clear about where we need to improve. We are focused on staying close to our customers, continuing to invest behind our best growth opportunities, and bringing greater accountability and operational discipline to how we execute to improve profitability. With that, I'll turn the call over to Vanessa to take you through the quarter in more detail.

Thank you, Gael, and good morning, everyone. Before we get into the results, I want to acknowledge our 8-K filed in late September regarding our Russian subsidiary that is now under administrative control. As previously reported, that subsidiary, which is currently primarily Closures, is not material to the company's ongoing revenue and earnings. As a result of the loss of control, we have deconsolidated the Russian subsidiary effective September 21, 2026. We recorded a combined charge of $61.2 million before tax and $60.4 million after tax or $0.94 per diluted share. The charge consists of a $58 million loss on de-consolidation, which included approximately $30 million of cash held by the subsidiary, along with related receivables reserves and legal costs. This charge has been excluded from our adjusted earnings. Now turning to top line results. Our reported sales increased 6% to just over $1 billion, and core sales increased 5% compared to the prior year period driven by growth across our segments and the impact of pass-throughs of higher input costs. Let me provide additional details on sales growth by segment, starting with Pharma. Our Pharma segment's core sales increased 1%. Excluding the impacts of the anticipated emergency medicine headwind, core sales grew 8% in the quarter, demonstrating the underlying strength of our portfolio. As previously discussed, emergency medicine sales are expected to decrease by approximately $65 million for the full year 2026. This destocking is expected to lap in the fourth quarter. Looking across our key Pharma markets, starting with our proprietary drug delivery systems, prescription core sales decreased 7%. Excluding emergency medicine, prescription core sales increased 6% and with central nervous system and asthma and COPD therapies driving growth in the quarter. Consumer Healthcare core sales increased 13%, driven by strong demand for nasal decongestants and dermal solutions. Injectables core sales increased 9%, with continued strong demand, primarily for elastomeric components used for GLP-1, biologics and vaccines. We also continue to see strong pipeline activity across Annex 1, GLP-1 and biologics projects. And for our Active Material Science Solutions, core sales increased 4% in the quarter with growth in oral solid dose and probiotic sales. Turning to Beauty. Core sales increased 8%, driven by higher demand for dispensing systems across prestige fragrance, color cosmetics and hair care markets. Pass-throughs of higher input costs contributed approximately half of the core sales growth. Looking at Beauty's 2 largest end markets, fragrance, official skin care and color cosmetics core sales increased 5%, and primarily due to strong sales growth in prestige fragrance pumps and color cosmetics. Our turnkey indie beauty business continued to perform well, benefiting from the growth of indie brands. Personal Care core sales increased 11% as we continue to see good demand for hair care, shower gels and baby care applications. Beauty generated strong core sales growth albeit lower margins, reduce the flow-through to profitability. And turning to Closures, core sales increased 11% compared to the prior year period, reflecting strong product sales growth in addition to the pass-through of higher input costs which contributed approximately half of the segment's core sales growth. Across Closures' 2 largest end markets, food core sales increased 9%, primarily due to continued demand for our sauces and condiments dispensing closures. Beverage core sales increased 19%, primarily driven by increased sales for bottled water and concentrates, with additional support from strong tooling sales in the quarter. Now moving from sales to profitability. Consolidated gross margin declined by 120 basis points year-over-year primarily due to lower sales of high-margin emergency medicine products and lower growth margins in Beauty and Closures. We expect the emergency medicine destocking impacts to lap in Q4 2026. SG&A increased in absolute dollars by approximately $11.4 million to $160 million and as a percentage of sales increased slightly from 15.5% in Q3 2025 to 15.7% in Q3 2026. The increase was attributed to a number of current period dynamics, including higher professional fees, largely associated with our CEO transition. An allowance for credit loss related to our Russian receivables and the pension cost transfer, which from an accounting perspective, increased SG&A, but is offset by a curtailment gain that is classified in other income. These current period increases offset productivity savings we continue to generate across the business. From an EBITDA perspective, we achieved adjusted EBITDA of $217 million, a decrease of 2% from the prior year and delivered an adjusted EBITDA margin of 21.3% compared to 23.2% in the prior year. Breaking that down by segment, Pharma's adjusted EBITDA margin for the quarter was 36.4%, an 80 basis point decline from the prior year. The margin decline was anticipated and driven by short-term unfavorable product mix arising from the decline in high-margin emergency medicine sales, while royalties and productivity initiatives continue to contribute positively. Beauty's adjusted EBITDA margin for the quarter was 11.4%, a decline of 70 basis points year-over-year including unfavorable mix and ongoing challenges in our North American operations, which, as Gael indicated, we are focused on improving, but it will not be a linear progression. Closures adjusted EBITDA margin was 15.5%, a 60 basis point decline from the prior year, driven by the margin dilution effect of indexation pass-throughs, which impacted margins by 120 basis points. Without this impact, the segment's adjusted EBITDA margin would have improved by 60 basis points due to favorable product mix, mainly from higher value beverage dispensing. Turning to earnings per share. Adjusted EPS was $1.52, a decrease of 6% compared to the prior year's adjusted EPS of $1.62 at comparable exchange rates, which was primarily due to lower adjusted EBITDA, higher interest expense and a higher effective tax rate. Turning to our year-to-date performance. Reported sales increased 8%, and core sales increased 2%. Strong growth in consumer healthcare and injectables offset the emergency medicine destocking, while Beauty and Closures also saw growth on a year-to-date basis. Adjusted EBITDA declined slightly to $619 million, while adjusted EBITDA margin declined by 180 basis points to 20.4%. Adjusted EPS was $4.13, which decreased 10% compared to the prior year, including comparable exchange rates. Turning to free cash flow. Free cash flow year-to-date was $198 million, comprising cash operations of $390 million, less capital expenditures net of government grants of $192 million. Year-to-date, we have returned $272 million to shareholders through share repurchases and dividends. Over the last 9 months, we have repurchased 1.3 million shares for $180 million. As of September 30, we had $420 million remaining under our existing share repurchase authorization. Additionally, our Board of Directors have authorized an increase in our quarterly dividend by 4%. Exiting the quarter, our balance sheet remains strong with a cash balance of $204 million and a leverage ratio of 1.49. With that, let me turn to our outlook for the fourth quarter. We anticipate fourth quarter adjusted earnings per share to be in the range of $1.39 to $1.47. At the midpoint, this reflects expected growth of 17% from prior year Q4, including comparable exchange rates. This assumes an effective tax rate range of 17.5% to 19.5% and a euro to U.S. dollar exchange rate of 1.12. For the full year 2026, we continue to expect capital investments to be in the range of $260 million to $280 million and depreciation and amortization expense to be between $310 million and $320 million. With that, I will turn it over to Gael to provide a few closing comments before we move to Q&A.

As we look to the remainder of the year, we expect Aptar to finish on a strong note driven by Pharma. We anticipate continued growth across a number of Pharma end markets, led by robust demand for consumer healthcare dispensing systems and elastomeric components for injectables. Additionally, the segment will no longer be affected by the emergency medicine destocking headwind. We expect Pharma margins to improve year-over-year as productivity initiatives continue to gain traction and operational efficiencies take hold. We remain excited about the strength of our Pharma pipeline and the opportunities it creates for future growth. Across nasal inhalation of ophthalmic and injectable drug delivery, our technologies and services are supporting programs that span a broad range of therapeutic areas, including neurological disorders, respiratory conditions, pain management, and macular degeneration and other eye diseases. As these programs progress through development and towards commercialization, that reinforce the long-term growth potential of our Pharma business. Our Beauty and Closures segments are both supported by differentiated dispensing solutions and strong customers' partnerships. Beauty has strong momentum in prestige fragrance supported by high-value dispensing solution. In Closures, we remain encouraged by the positive response to our beverage applications that continue to drive customer adoption. We believe Aptar is well positioned for both near-term performance and long-term value creation. Before I open the call to questions, I wanted to highlight that we recently announced the appointment of Virginie Maes, as President of Aptar Pharma, effective January 1. Virginie brings deep global pharma and medical experience and a strong customers and growth orientation. She will build on our strong foundations as we deepen customer partnerships and pursue the significant growth opportunities across our pharma portfolio. And with that, I'd like open the call to questions.

[Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird.

I'll just ask my two questions upfront, both specific to Pharma. First off, on 3Q, just the margin dynamic year-over-year, down 80 basis points, which is quite a bit better than the trend line during the first half of the year. So I would love some color as to what drove that? And then second, as it relates to the emergency medicine destock, is that still tracking in line with plan, i.e., will there still be a residual impact on 4Q? And you have confidence that, that will be done, if so, by the fourth quarter with no residual into 2027?

Ghansham, thanks for the question. I will take the second one and Vanessa will bring you some color regarding margins. So yes, we are trending where we said we're going to be trending. So the $65 million negative impact with the naloxone destocking emergency medicine being on [indiscernible] and as we run to Q4, I mean, the destocking impact will be behind us. So trending where we say we're going to be trending. So the question will be where it's going to be the best line moving forward. And we're going to know this by Q1, I mean, 2027. There is no official data you can buy. So we are relying on comments on conversations we've got with our customers.

Ghansham, so on the margin front, absolutely, we had a very strong margin quarter for Pharma, 36.4%. Yes, it was down about 80 basis points year-over-year. Last Q3 was, I would say, abnormally high in excess of 37%. So we were actually quite pleased to see the 36.4% higher than the top end of our guidance range. And so why was that? We had strong Pharma revenues in the quarter, as you saw from the or heard from the prepared remarks, coming in at 8% growth, isolating for the emergency medicine impacts, and that was broad-based, not necessarily one thing. Royalties are helping to improve things. And then importantly, I also want to call out because when we had talked about the emergency medicine impact several quarters ago, we also did say that the segment was going to be initiating productivity improvements to help to partially mitigate the impact. And we are seeing those pay off quite well. So I would say all of those different factors contributed to very strong margins, 36.4% notwithstanding being down slightly from a high in Q3 last year.

And I will add that if you exclude the emergency medicine negative impact, I mean, the year-over-year margin for Pharma is improving.

Your next question comes from the line of Paul Knight with KeyBanc.

Gael, if EvaluatePharma is to be believed, which seems to be a credible source, of course, they're looking at a 14% growth rate in the top 10 intranasal drugs. Do you think with this increased higher level of sales in intranasal that your long-term range, your long-term goal in Pharma of 11% at the top side has got some room above that 11%.

What we said or shared, Paul, is we are pretty comfortable with that corridor, the 7 and the 11. This is a long-term trajectory. Obviously, some quarters or some years we're going to be above or under. But what I'd like to say, we are very confident with our pipeline. And the pipeline is robust, but not only robust, I'm quite satisfied with the progress programs are making true development. So the robustness of the pipeline, the growing, recurring nasal business is quite positive. And when you look at the market fundamentals, I mean, we see market tractions around biologics, the GLP-1, the different SNDD, CNS, central nervous system. So I'd like to thank you for calling out nasal, because this is a great business. But what is very important is to say we've got a good quality pipeline, and we are really happy with the kind of support we give to big pharma, early-stage biotech company.

And then lastly, the Stevanato joint venture, when do you expect that to start delivering on revenue? Is it something for next year? Or when do you expect it to become revenue generating with Stevanato?

First, we are really happy with that partnership with one of the key leaders in the market. This integrated solution is really offering the market. I mean, the right profile for better stability testing and moving through the validation to approval by the regulatory bodies. So that's going to contribute to the pipeline build and the pipeline conversion.

Your next question comes from the line of Matt Roberts with Raymond James.

Looking at prescription medicine, I believe that ex emergency, that was up 6% in 3Q, down slightly from 2Q. Maybe you could just talk about any changes quarter-over-quarter what happened in that category? I think 4Q for Pharma royalties is a tough comp ex emergency. So basically, excluding emergency, what are your expectations for Pharma and specifically prescription now that the emergency headwind is over?

Yes. So I'm not reading anything specific from quarter-to-quarter with prescription. I mean our preliminary business is solid, that we are supporting the propellant switch, and we are one of the key partners of different players in the market. Outside Naloxone, I mean the impact, our emergency category has been growing. I could think about severe epilepsia, severe hypoglycemia, anaphylactic shock. This is some of the categories where we see a good growth in the business. And what is key for us is we continue to be, what I call, a partner of choice to the ecosystem. We are on top of our product quality. And I believe we've got the best portfolio in the market. We can support our customers through formulation development, through analytical testing and regulatory capabilities for them to be approved first time whenever they reach the last stage of their development programs.

That's great. I appreciate that. Maybe [indiscernible] you highlighted North American Beauty as a priority, you spent time in reacquiring with that business. Where do you see the biggest opportunity in [Technical Difficulty]

Matt, we're not sure it's your connection, but we cannot hear you. Could you repeat the question?

Is it better?

No. This is the same. Are we the only one on [indiscernible]

I'll try again. Sorry about that.

Our next question comes from the line of George Staphos with Bank of America.

Thanks for the details.

This sounds so much better, George.

Okay. Well, Matt is better looking and funnier than me. So in any event. So listen, don't let that go to your head, Matt. So anyway, first question for you, Gael, we look forward to working with you in the new role. I guess, with emergency medicine, I think you said revenue, the decline you expected this year was $65 million. And I guess then without trying to draw too fine a point on it, what has been the revenue hit so far so that back to Ghansham's question earlier, we could gauge how much is left in terms of the destock for this year and into the first quarter, you said, Gael, we could gauge a trajectory. Do you expect that E-Med, emergency medicine, the margin on that business will be comparable to what it had been prior to the destock? And then I had a follow-on.

So George, I don't think so. I think the Naloxone market moving forward. So first, we need to understand what is the best line we're going to get a better visibility by Q1. But I don't think, I mean, the growth will be as before the inventory situation. And why? Because in 1 to 2 years, the market transition from prescription to over-the-counter and public market interest, from prescription to generic, this is something that we have never seen before. Life cycle management in the Pharma is taking years due to the emergency situation. And the government has been pushing strongly into fast track generic and to open large distribution. And the positive news, you've got far less people dying from opioid overdose. And I believe that the accessibility of Naloxone is one of the triggering points. And -- But I think and from the discussion with our different customers, we should see a GDP, GDP plus type growth for Naloxone moving forward.

Okay. So lower margin GDP plus going forward, how much is left of the revenue decline in the fourth quarter?

We've lapped. Yes, of course, we've lapped. We've lapped in Q4. Yes, we've lapped in Q4. And the comments on the margins, the product margins should be comparable going forward, but the growth rates, as Gael just articulated, will obviously not replicate what it was historically.