AptarGroup, Inc. (ATR) Earnings

Management highlights

### Leadership Transition - Outgoing CEO Stephan Tanda retires in late 2026, with CEO designate Gael Touya (current President of Aptar Pharma) assuming the role September 1, 2026. Tanda highlighted that the company enters its next chapter from a position of strength, with a strong culture, consistent execution focus, and innovation pipeline. - Tanda and incoming leadership confirmed a smooth multi-year transition process, with Touya affirming confidence in the company's existing foundation and long-term growth trajectory. ### Pharma Segment Operational Milestones - Filed new patent applications for inhaled and nasal GLP-1 delivery technologies in early development stages, expanding the company's capabilities in high-growth biologic and therapeutic areas. - Received US patent approval for NSORP, a first-of-its-kind packaging solution that reduces nitrosamine impurities in pharmaceutical products to help manufacturers meet FDA regulatory requirements. - Announced a new collaborative system framework for injectable therapies that provides customers early data on assembled system performance, speeding development timelines and supporting regulatory compliance. - Multiple products using Aptar's PMDI inhaler platform received FDA approvals for asthma/COPD rescue and maintenance therapies. Chiesi gained UK regulatory approval for the world's first PMDI using low global-warming potential HFA-152a propellant, leveraging Aptar's technology and FDA-partnered research on next-generation propellants. - FDA updated generic inhaler guidance to remove unnecessary clinical and bioequivalence testing requirements, a positive development that will streamline generic product launches and highlight the value of Aptar's existing regulatory and scientific expertise. - Ongoing litigation against ARS Pharmaceuticals for trade secret misappropriation of nasal delivery technology received a favorable court ruling: the court granted Aptar's motion to maintain its state law claim, denied ARS's motion to dismiss remaining claims, and transferred all related cases to a single jurisdiction, with litigation still ongoing. ### Beauty and Closures New Product Launches - Launched Aptar's auto-loading dosing dropper technology commercially for Dermalogica's new skincare booster line, addressing consumer demand for dosage control, convenience, and clean usage. A new line of Middle East fragrances launched with Aptar's prestige fragrance pump. - Heinz launched a new North American dipping sauce line featuring Aptar's tab-top closure for clean directional dispensing. A new on-the-go hydration product in China launched with Aptar's simple squeeze valve closure for one-handed, spill-free use. ### Sustainability Recognition - Named a CDP Supplier Engagement Leader for the sixth consecutive year for climate action across the supply chain. - Included on Time Magazine's list of the World's Most Sustainable Companies for the third consecutive year, and ranked top 5 in the engineering, manufacturing, and medical technology category on Time's inaugural list of America's Best Companies, and top 10 nationwide for sustainability and transparency. ### Balance Sheet and Capital Return - Year-to-date free cash flow increased $8 million to $99 million. The company returned $212 million to shareholders year-to-date via dividends and share repurchases, repurchasing 1.1 million shares for $150 million. Ended the quarter with $190 million in cash, net debt of $1.2 billion, and a leverage ratio of 1.49, indicating a strong balance sheet.

Guidance

- Q3 2026 adjusted EPS is guided to a range of $1.45 to $1.53, assuming an effective tax rate of 22.5% to 24.5% and a euro-to-US dollar exchange rate of 1.14, representing a 2-cent sequential FX headwind from Q2. - Full year 2026 capital investments are maintained at a range of $260 million to $280 million, with depreciation and amortization expense expected between $310 million and $320 million. - The anticipated $65 million full-year 2026 headwind from emergency medicine destocking remains on track: two-thirds of the decline was realized in the first half of 2026 (with most of that decline in Q2, in line with prior expectations), the remaining one-third will hit in the second half (primarily Q3), and the year-over-year headwind will fully abate by Q4 2026. - Gross margins are expected to improve in the second half of 2026 as the emergency medicine headwind eases, with continued sequential margin improvement expected in both beauty and closures as operational issues are resolved. The lag in input cost pass-through for beauty (which impacted Q2 margins by ~80-90 basis points) is expected to be resolved in Q3. - Management reaffirmed confidence in the company's long-term 7-11% core sales growth target for the pharma segment, based on a robust pipeline and strong market position.

Segment performance

Aptar reported total Q2 2026 reported sales of ~$1 billion, a 6% increase year-over-year, with core sales (adjusted for currency and acquisitions) up 1% year-over-year. Adjusted EBITDA was $213 million (-3% YoY), with an adjusted EBITDA margin of 20.7% (-190 bps YoY). Adjusted EPS was $1.42, down 15% YoY at comparable exchange rates. 1. **Pharma Segment**: Core sales increased 1% YoY; excluding the anticipated emergency medicine destocking, core sales grew 8% YoY, contributing ~45% of total company revenue. Prescription core sales fell 7% YoY overall, but grew 8% YoY excluding emergency medicine, driven by central nervous system and asthma/COPD therapeutics. Consumer healthcare core sales grew 15% YoY on strong demand for nasal decongestant, eye care, and dermal solutions. Injectables core sales grew 9% YoY on strong demand for elastomeric components for GLP-1 therapies, biologics, and vaccines. Active material science core sales fell 2% YoY, with growth in probiotics and oral solid dose offsetting customer inventory normalization for diabetes test strips. The segment's adjusted EBITDA margin was 33.6% (-180 bps YoY), with the decline driven by the loss of high-margin emergency medicine sales; margin would have improved YoY excluding emergency medicine. 2. **Beauty Segment**: Core sales increased 1% YoY, contributing ~30% of total company revenue. Prestige fragrance, facial skincare, and color cosmetics core sales grew 2% YoY, while the turnkey indie beauty business continued strong performance. Personal care core sales were flat, with strong hair care demand offsetting lower year-over-year tooling sales. The segment's adjusted EBITDA margin was 12.2% (-190 bps YoY), improved sequentially from Q1, with the decline driven by lower product volumes, unfavorable mix, and a lag in input cost pass-throughs. 3. **Closure Segment**: Core sales increased 4% YoY, contributing ~25% of total company revenue. Food core sales fell 1% YoY due to lower tooling sales, partially offset by ongoing demand for sauce and condiment closures. Beverage core sales grew 14% YoY, driven by strong bottled water and functional sports drink demand. The segment's adjusted EBITDA margin was 14.9% (-200 bps YoY), temporarily impacted by new production line ramp-up and ongoing maintenance initiatives, with sequential improvement recorded through the quarter.

Risks & headwinds

- Higher input costs stemming from the ongoing Middle East conflict were largely offset via customer price increases in Q2, though a timing lag created temporary margin pressure in the beauty segment. Management continues to monitor the situation and will take additional pricing action if needed. - The beauty segment has underperformed relative to expectations, particularly in North America, with ongoing operational issues, unfavorable product mix, and lagged cost pass-through weighing on margins. Brazilian beauty sales are also experiencing a period of weakness tied to a feast-or-famine cycle concentrated among two large customers. - Closure segment margins were temporarily pressured by new production line ramp-up and ongoing plant maintenance initiatives, though sequential improvement has been recorded. - Ongoing litigation with ARS Pharmaceuticals around trade secret misappropriation remains ongoing, even after a favorable preliminary ruling. - FX volatility creates ongoing headwinds to earnings, with a projected 2-cent Q3 2026 headwind relative to Q2 from euro-dollar exchange rate movements.

Analyst Q&A

• Q: Weakness has persisted in the beauty segment, particularly in the Americas and now Brazil. Will you pursue structural fixes in the next year to return beauty to sustained volume and earnings growth?

  A: Management confirms recent weakness in the Brazilian beauty market, tied to the segment's typical feast-or-famine cycle concentrated among a small number of large customers. Europe's beauty segment has completed a successful turnaround and is meeting margin targets, while Asia is performing above target, but North America continues to face unresolved operational issues. Incoming CEO Gael Touya is conducting a fresh review of the business, engaging with customers and teams, and will take open-minded, appropriate action to correct underperformance, with updates to come in due course.

• Q: Should we expect gross margin expansion in the second half of 2026 after the Q2 compression?

  A: Most of the Q2 gross margin compression came from the emergency medicine destocking headwind, which was largest in Q2 as expected, with two-thirds of the full-year headwind already realized in the first half. As the emergency medicine headwind eases in the second half, gross margins will definitely improve. Sequential margin improvement is also expected to continue in both beauty and closures as operational and maintenance issues resolve.

• Q: Incoming CEO Gael Touya, will you change capital allocation or consider separating the three current business segments, given the large margin gap between pharma and the lower-margin beauty/closures businesses?

  A: Touya notes he has worked across all three segments during his 30-year tenure at Aptar, and is updating his perspective on current business performance as he prepares to take the CEO role. His core priorities will be delivering on financial commitments, consistent execution, and thoughtful, disciplined capital allocation across all segments, while protecting the unique strengths of Aptar's existing business model and focusing on value creation for both customers and shareholders.

• Q: Can you update on the injectable therapy collaborative framework you mentioned, and what value it creates for Aptar?

  A: The framework is designed to simplify customer validation and qualification processes for integrated injectable systems. Instead of customers qualifying individual components separately, Aptar collaborates with pre-filled syringe suppliers to deliver a fully pre-validated integrated system, with full performance data available for customers at the start of their development process. This deepens Aptar's strategic relationships with other industry players, speeds customer development timelines, and positions Aptar as a more comprehensive, value-added partner rather than just a component supplier.