AptarGroup Inc. (ATR -0.44%) released better-than-expected third-quarter 2017 results on Thursday after the market closed, detailing strong demand across its portfolio of products led by the consumer healthcare and injectables markets. Similar to last quarter, though, AptarGroup's Beauty and Home segment still lagged the others -- though it has a plan to return the troublesome business to profitable growth -- and the company once again issued seemingly conservative earnings guidance for the coming quarter.

With AptarGroup shares down 1.2% on Friday, let's take a deeper look at how the dispensing systems specialist started the second half of the year.

Various products that use AptarGroup's dispensing solutions, including dis soap, mayonnaise,, honey, and baby formula

IMAGE SOURCE: APTARGROUP.

AptarGroup results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Growth

Revenue

$624.3 million

$589.7 million

5.9%

GAAP net income

$53.5 million

$53.1 million

0.8%

GAAP earnings per diluted share

$0.83

$0.82

1.2%

Data source: AptarGroup. 

What happened with AptarGroup this quarter?

  • Three months ago, AptarGroup told investors to expect lower earnings per share of $0.77 to $0.82.
  • On an adjusted (non-GAAP) basis, which excludes the positive impact of foreign currency exchange, core sales grew 3%, and core earnings per share declined 2.4.%.
  • Lower custom tooling sales -- particularly in the pharma segment as compared to last year's third quarter -- reduced sales growth by roughly 2%.
  • Per-share earnings also included a $0.05 benefit related to foreign tax settlements, and $0.01 from stock-based compensation.  
  • By segment:
    • Beauty and Home sales climbed 6%, including 3% core sales growth and a 3% positive impact from foreign exchange.
    • Pharma sales grew 4%, including 1% core sales growth and a 3% contribution from foreign exchange.
    • Food and Beverage segment sales increased 10%, including 8% core sales growth and a 2% contribution from foreign exchange.

What management had to say

AptarGroup CEO Stephen Tanda elaborated:

We are pleased to report sales growth in each of our business segments. Our Pharma segment, the leading provider of drug delivery systems to the pharmaceutical industry, grew sales despite a difficult comparison to the prior year, which included a significant amount of custom tooling sales related to a specific project. Demand for our products was broad-based across each end market, and was especially strong in the consumer healthcare and injectables markets. ... Offsetting the positive effects of our segments' sales growth were several factors that negatively impacted our earnings. We continue to address the operational challenges at our decorative facility in Europe, which had a negative impact on our quarterly results. We also experienced higher professional fees related to specific projects, increased raw material costs and negative currency transaction losses related to our operations in Argentina.

Looking forward

Keep in mind AptarGroup cautioned last quarter that year-over-year sales growth could be difficult to achieve given the headwinds created by last year's custom tooling projects. And it's encouraging that the Food and Beverage segment managed to post modest core sales growth despite uncertainties surrounding economic growth rates in the U.S. and Brazil.

In the fourth quarter, AptarGroup expects revenue growth from each segment. And though higher raw material costs and its decorative facility challenges will persist, Tanda insisted those headwinds are "transitory and thus not affecting our long-term view."

Meanwhile, during the subsequent conference call, Tanda added that the company is working through "several initiatives across the business to drive change" and return the Beauty and Home segment to sustained, profitable growth.

He stopped short of providing the specifics of those initiatives, though, promising instead to share updates on their progress along with AptarGroup's fourth-quarter results.

To that end, AptarGroup expects fourth-quarter earnings per share in the range of $0.68 to $0.73, excluding one-time costs related to its growth initiatives. By comparison -- and though we don't usually pay close attention to Wall Street's near-term demands -- consensus estimates predicted fourth-quarter earnings near the high end of that range.

Of course, investors should also keep in mind AptarGroup has made a habit in recent quarters of under-promising and over-delivering. But even with its relative outperformance in the third quarter, it was no surprise to see shares modestly decline on Friday in response.