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Investing.com -- S&P Global Ratings has revised its outlook for AptarGroup Inc (NYSE:ATR). to positive from stable, citing the company’s strong performance in the pharmaceutical sector and its ability to lower leverage. The credit rating agency has also affirmed Aptar’s ’BBB-’ issuer credit rating.
Aptar’s robust performance and profit margin expansion have allowed the company to strengthen its balance sheet and reduce its leverage to 1.10x by the end of 2024. S&P Global Ratings expects Aptar to maintain a financial policy that keeps the agency’s adjusted debt to EBITDA ratio below 2x.
The positive outlook for Aptar is based on expectations that the company’s adjusted debt to EBITDA will remain well below 2x over the next 24 months. The company is forecasted to increase its organic revenue in the low-single digit percent area while maintaining a high profit margin. Aptar is also expected to prioritize share repurchases and external growth, leading to leverage staying below 2x through 2026.
Aptar has demonstrated a conservative financial policy, maintaining leverage at the low end of the company’s 1x-3x long-term target range. It further reduced its adjusted debt to EBITDA in 2024, bringing it down to 1.10x by the end of the year. Over the past three years, Aptar has bolstered its balance sheet by increasing earnings and reducing outstanding debt. The company’s solid earnings growth, driven by its pharmaceutical segment, and consistent cash flow conversion have enabled it to reduce its adjusted debt by $360 million since 2021, reaching $914 million at the end of 2024.
The company has also reduced its acquisition spending, focusing on organic growth and higher return capital expenditure. Over the past three years, the company has invested more than $350 million in capacity additions and production improvements. In comparison, it spent only $21 million on acquisitions and $99 million on equity investments. Aptar has continued to return capital to its shareholders through dividends and share repurchases.
Aptar’s pharmaceutical segment is expected to continue driving revenue growth through 2026. The segment has performed well in 2024, with double-digit growth in its drug delivery systems to the prescription drug market. Growth in this market has helped offset the negative impact from a decline in core sales of its products to the consumer health care and beauty markets. Aptar’s pharmaceutical segment, particularly its proprietary drug delivery systems and injectables division, is expected to be the primary drivers of revenue and earnings growth through 2026.
S&P Global Ratings expects Aptar’s adjusted EBITDA margins to remain flat in 2025, following significant improvement in 2024. The company’s margin expansion exceeded expectations, with EBITDA margins expanding more than 250 basis points to 23.1% in 2024. This increase in profitability was due to a favorable mix of higher-margin pharma services and product sales, improved operational performance, and cost-reduction initiatives. The company’s EBITDA margin is expected to remain between 23.0% and 23.5% in 2025, at the high end of the company’s long-term target range.
S&P Global Ratings could revise its outlook on Aptar to stable if the company’s earnings significantly weaken, causing its debt to EBITDA to rise above 2x for an extended period, or if the company pursues more aggressive shareholder returns or debt-funded mergers and acquisitions. Conversely, the agency could raise its rating on Aptar if the company maintains leverage below 2x and adopts a more conservative financial policy, or if it significantly increases the scale and scope of its operations while maintaining debt to EBITDA below 3x.
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