AptarGroup's Q3 2025: Contradictions Emerge on Emergency Medicine Sales, Consumer Healthcare Recovery, and Inventory Challenges

Date of Call: None provided

Financials Results

• Revenue: Reported sales increased 6% YOY; core sales increased 1% YOY (Q3 vs prior year period)
• EPS: Adjusted earnings per share $1.62, up 4% YOY on comparable foreign exchange rates
• Gross Margin: Consolidated gross margins declined by 80 basis points year-over-year
• Operating Margin: Consolidated adjusted EBITDA margin 23.2%, up 30 basis points YOY (23.2% vs 22.9% prior year)

Guidance:

• Q4 adjusted EPS expected $1.20 to $1.28 per share
• Q4 effective tax rate expected 19.5% to 21.5%
• Q4 depreciation & amortization expected $75M to $80M (reflects BTY closing and FX/timing)
• Guidance assumes EUR/USD = 1.17
• Continued pharma strength (notably injectables); softer emergency medicine expected to decelerate into 2026 (~35% lower 2026 revenues vs 2025), partially offset by other pharma growth
• Beauty: positive core sales expected in Q4; closures product volumes to continue growing

Business Commentary:

* Pharma Segment Performance: - AptarGroup's pharma segment reported a core sales increase of 2% in Q3. - Growth was driven by strong demand for proprietary drug delivery systems for central nervous system therapeutics, asthma, and COPD therapeutics, as well as injectables, particularly due to increased demand for elastomeric components for GLP-1 medications.

• Consumer Healthcare Challenges:
• The consumer healthcare segment saw a core sales decline of 11%.

• This was primarily due to lower sales of nasal decongestant and nasal saline products, despite stable growth in ophthalmic solutions.

• Emergency Medicine Market Dynamics:

• Emergency medicine sales contributed 5% to total company sales in Q3, with forecasts indicating a revenue decline of 35% in 2026.

• The reduction in sales is attributed to elevated inventory levels at a large customer and anticipated normalization of these inventory levels into 2026.

• Beauty Segment Regional Differences:

• The beauty segment reported flat core sales in Q3, with regional variations observed.
• Sales were robust in Asia, Latin America, and certain North American end markets, whereas Europe experienced softness in higher-value products like facial skincare and prestige fragrances.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted adjusted EPS growth (up 4% YOY), expanded adjusted EBITDA margin, active M&A (Somaplast acquisition), larger share repurchases and a dividend increase, and reiterated a long-term pharma growth target of 7%–11% while acknowledging a temporary emergency-medicine headwind.

Q&A:

• Question from Ganshan Punjabi (Baird): Clarification on 2026 pharma assumptions — is 7%–10% the pipeline growth expectation and is emergency medicine ~11% of pharma that will be down ~35%?
  Response: 7%–10% is a reiterated long-term pipeline contribution (not specific 2026 guidance); emergency medicine represented ~10%–11% of pharma in H1 and management expects it to be ~35% lower in 2026 versus 2025; cough-and-cold destocking in Europe has largely run its course with Q4 potentially returning to growth.

• Question from Ganshan Punjabi (Baird): Why did litigation cost assumptions change versus initial Q3 guidance?
  Response: Actual atypical litigation costs came in lower (~$4.4M) than earlier ~ $5–6M quarterly estimate; litigation timing is uncertain so costs are excluded from adjusted metrics as atypical and not indicative of operating performance.

• Question from Paul Knight (KeyBank): Can you quantify GLP-1 and Annex I contribution to growth?
  Response: No precise breakout provided; GLP-1 is the top near-term growth driver, Annex I closely behind, and biologics remain strong — injectables showing high-single to low-double digit growth with catch-up from validated capacity contributing to recent acceleration.

• Question from George Stafos (Bank of America): What will drive margin improvement in beauty and is Unidose where most recent product activity is concentrated?
  Response: Beauty margin improvement will be driven primarily by volume recovery (regional mix improvement and North America recovery), continued productivity and innovation; Unidose is a key high-value product with broad activity across indications and contributed materially to recent product demand.

• Question from Matt Leru (William Blair): Confidence in maintaining the long-term 7%–11% pharma growth target given recent quarters?
  Response: Company reaffirmed the 7%–11% long-term target based on pipeline, injectable growth, and other contributors; emergency medicine is an identifiable exception and was disclosed separately.

• Question from Matt Leru (William Blair): Will injectable capacity need major expansion soon?
  Response: No immediate large-capex step planned; current large 'boxes' provide room to add equipment incrementally and management does not foresee a near-term need for another major capacity expansion.

• Question from Daniel Rizzo (Jefferies): Is Narcan/emergency medicine higher margin than other products?
  Response: Yes — emergency medicine products are among the highest-margin items in the pharma portfolio due to high regulatory and quality requirements (no specific margin disclosed).

• Question from Matt Roberts (Raymond James): Are other emergency medicine categories still growing and how does inventory at the large customer affect recovery?
  Response: The category includes multiple products (e.g., Baqsimi, others) beyond Naloxone; inventories are elevated at a large customer which will drive a near-term normalization, but management expects recovery as inventories are worked down.

• Question from Gabe Hady (Wells Fargo): Is the implied H1 2026 revenue headwind from emergency medicines roughly $40–$45M and are Nephi products still being supplied given litigation?
  Response: Management indicated the math is in that general neighborhood consistent with a ~35% decline in emergency-med share of pharma; to their knowledge they continue to supply Nephi products commercially.

Contradiction Point 1

Emergency Medicine Sales and Impact on Pharma

It involves differing perspectives on the impact of emergency medicine sales on overall pharma sales growth, which is crucial for investor expectations and financial planning.

Does 2026 pharma growth exclude the new product pipeline and reflect a 35% decline in emergency medicine? How is Europe's cough and cold destocking progressing? - Ganshan Punjabi(Baird)

2025Q3: Emergency medicine will see a 35% decline, affecting 10%-11% of pharma and 5% of total company sales. - Stephan Tanda(CEO)

Can you elaborate on the impact of naloxone on pharma sales growth? How will pharma sales growth in the second half compare to the first half? - Ghansham Panjabi(Baird)

2025Q2: Naloxone, part of emergency treatment, grew to 5% of revenue. Growth is expected to be muted due to inventory buildup and federal guidance uncertainty. - Stephan B. Tanda(CEO)

Contradiction Point 2

Consumer Health Care in Pharma

It highlights differing views on the recovery and growth prospects of the consumer health care segment within pharma, which has a significant impact on overall pharma sales.

Does 2026 pharma growth exclude the new product pipeline, and will emergency medicine decline by 35%? How is Europe's cough and cold destocking progressing? - Ganshan Punjabi(Baird)

2025Q3: Consumer healthcare returning to growth, and active materials. - Stephan Tanda(CEO)

What caused the decline in consumer healthcare in pharma, and have you lost market share in Europe? - George Leon Stafos(Bank of America)

2025Q2: Pharma's consumer health care downturn resulted from inventory buildup post-COVID, cold and cough season fluctuations, and withdrawal from the Russian market. - Stephan B. Tanda(CEO)

Contradiction Point 3

Inventory Situation and Sales Performance in Consumer Healthcare

It reflects differing perspectives on the inventory situation and sales performance in the consumer healthcare segment, which is crucial for understanding the company's financial health and market positioning.

Will the 2026 pharma growth exclude the new product pipeline and see a 35% decline in emergency medicine? How is Europe's cough and cold destocking progressing? - Ganshan Punjabi (Baird)

2025Q3: European cough and cold destocking is largely complete, with Q4 expected to show potential growth. - Stephan Tanda(CEO)

What is the current inventory status for cold and cough products, and when do you expect an inflection point? - Ghansham Panjabi (Baird)

2025Q1: The US saw an inflection in cold and cough, but not outside the US. The visibility at different supply chain levels is low outside the US. The guidance is to extend this for another quarter. - Stephan Tanda(CEO)

Contradiction Point 4

Pharma Growth Expectations

It involves differing statements regarding the growth expectations for the pharma segment, which is a key pillar of the company's business strategy.

What are the growth expectations for pharma, given recent performance and the emergency medicine situation? - Matt Leru (William Blair)

2025Q3: The 7% to 11% growth rate is a long-term target. Injectables, consumer healthcare, and active materials are expected to contribute to growth. Emergency medicine will have a temporary impact, but overall pharma fundamentals are strong. - Stephan Tanda(CEO)

Can you provide clearer insight into injectables' core sales growth for 2025? What factors might influence the achievement of growth expectations? - Matthew Roberts (Raymond James)

2024Q4: We are cautious about the gradual beginning to the year with new capacity validation. Overall demand is solid, but we expect some gradual ramp-up challenges. The pipeline looks good, and we are prepared to meet quality standards. - Stephan Tanda(CEO)

Contradiction Point 5

Impact of Regulatory Concerns on Pharma Growth

It relates to differing perspectives on the impact of regulatory concerns on the pharma segment's growth potential, which is crucial for strategic planning and investor confidence.

How do emergency medicine margin differences affect the overall portfolio? - Daniel Rizzo (Jefferies)

2025Q3: Regulatory concerns are more about customer worries than evidence. Pharma R&D budgets were up in 2024. Pipeline continues to grow, and long-term trends remain positive. - Stephan Tanda(CEO)

How will regulatory changes affect pharma's mid-term growth outlook? - Matt Roberts (Raymond James)

2025Q1: Regulatory concerns are more about customer worries than evidence. Pharma R&D budgets were up in 2024. Pipeline continues to grow, and long-term trends remain positive. - Stephan Tanda(CEO)