Aptargroup Inc (ATR) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Aptar's 2021 First Quarter Conference Call. (Operator Instructions)

Introducing today's conference call is Mr. Matt DellaMaria, Senior Vice President, Investor Relations and Communications. Please go ahead, sir.

Thank you. Hello, everyone. Thanks for being with us today. Joining me on today's call are Stephan Tanda, President and CEO; and Bob Kuhn, Executive Vice President and CFO.

Our press release and accompanying slide deck have been posted on our website. If you are following along on our website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. As always, we will post a replay of this call on our website.

Today's call includes some forward-looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from what we are discussing today.

I would now like to turn the conference call over to Stephan.

Thank you, Matt, and good morning, everyone. I hope that you are doing well. Starting on Slide 3, you will find a few highlights from the quarter. We serve patients and consumers across a variety of end markets, and this makes Aptar a resilient business through economic cycles, and the most recent period is no exception. We have the industry's widest range of dispensing systems, active material science solutions and drug delivery technologies and services that we leverage across our reporting segments. Our customers benefit from our commitment to research and development and the new innovations that allow us to help them grow their own businesses.

We had also maintained our strong focus on sustainability, and Aptar was recently named among the top 10 companies for reducing environmental impact by JUST Capital alongside Dell, IBM, Microsoft, Mastercard and several other large companies.

As you saw in our press release issued yesterday, reported sales increased 8% and core sales increased 1%. This is, of course, compared to the first quarter of 2020 and COVID-19 was not yet a major factor in our quarterly results. We also achieved an adjusted EBITDA margin comparable to the prior year while absorbing the mix shift within our Pharma segment and the relative mix across our 3 segments.

Our Food + Beverage segment delivered a stellar performance this quarter as consumers continue to cook at home during the pandemic, driving strong demand for our innovative food dispensing closures. Price increases also contributed to our top line growth as we are passing on increased resin costs to our customers. Demand from the beverage market was below the prior year, though sales grew modestly on the resin price adjustments.

In Pharma, the increased demand for our injectable components, including supplying some of the COVID-19 vaccine distributions and increased demand for our active material science solution, including those for COVID-19 test kits, offset declines in the prescription drug and consumer health care markets.

As we had mentioned when giving guidance for the quarter, fewer noncritical doctor visits and the lower incidence of cold and flu illnesses have resulted in certain Pharma customers drawing down inventory levels of allergy and other respiratory treatment delivery devices. We continue to be well positioned in niche health care sectors, and we see these pandemic-related supply chain adjustments as transitory.

In Beauty + Home, sales to the personal care and home care markets increased, while sales to the beauty market declined due to the continued low level of retail beauty activity related to the ongoing pandemic-related lockdowns. We are cautiously optimistic that the second half of the year will show a recovery in the beauty market. We are also maintaining initiatives to contain costs and manage inflation that includes raising prices to offset increases in raw material and other costs while investing in key growth areas, including adding capacity to supply the beauty market in China.

Many of our customers remain optimistic that consumers are harboring pent-up demand for the beauty products that will help bring a feeling of normalcy to their lives post-pandemic. In addition to the beauty market, we also expect the hair care category to recover as more consumers go outside and move about, and we are already seeing small but positive trends in Sun Care in the U.S.

Turning to Slide 4 and new product launches. I would like to briefly comment on several product introductions that will highlight the breadth of our offerings. In Pharma, our active material science technology was selected to protect 2 new at-home COVID-19 tests that recently received Emergency Use Authorization from the FDA. These tests provide convenient access to testing without the need to visit the doctor's office. Our technology is integrated into these diagnostic kits to protect against moisture and other environmental conditions that would otherwise impact test accuracy.

In the prescription drug market, our Unidose Powder device is being used in a pivotal trial of intranasal powder-based naloxone by Nasus Pharma. Also, Glenmark's new nasal spray treatment, which combines an antihistamine with a steroid to treat allergic rhinitis was recently approved in Europe with our nasal spray device. This confirms that the ongoing conversion to nasal delivery continues in this important area. In the injectables market, we continue to support various COVID-19 vaccine distributions in all regions, with the most recent projects being added in India and Latin America.

In Beauty + Home, our e-commerce-capable high-flow pump was chosen by P&G for their new indie brand shampoo called Native. And our post-consumer recycled resin closure was selected by P&G for their Planet KIND refreshing face wash. We're also supplying a PCR solution to Unilever for their Dove brand Purifying Charcoal and Clothe Hydrating Body Wash.

In Europe, we are providing the pump for in-store refillable personal care products in aluminum bottles for The Body Shop. And our fragrance pump is featured on the Flora and Guilty Gucci Perfume by Coty. Finally, L'Oréal is using our airless jar for its Revitalift facial skin care product in China.

In Food + Beverage, Aptar's infant nutrition closure was selected for Crème de la Cream instant enriched milk powder for Europe and for HiPP Combiotic in China. Our closures with valves for inverted condiments are the dispensing solutions for several barbecue, mayonnaise, ketchup and jelly products in Brazil. Also in the condiment aisle, our dispensing food closures are featured on Mike's Hot Honey Original Sauce and Burman's Hot Sauce Original here in the U.S.

Finally, in the beverage market, our sports closure is featured on 2 new flavors of the well-known functional drink beverage in China.

With that, I will now turn it over to Bob, who will provide additional comments on our results. Bob?

Thank you, Stephan, and good morning, everyone. I will walk through some of the details around our first quarter performance, starting with Slide 5.

As Stephan stated for the first quarter, we reported sales growth of 8%, with core sales up 1%. I will go into our growth by market shortly but want to comment on our earnings first. We reported earnings per share of $1.24, which is an increase of 48% over the prior year.

Current period reported earnings included a noncash pretax gain of $17 million or $0.19 per share related to an increase in the fair value of an equity investment. This investment happens to be our investment in PureCycle Technologies, our strategic partner pursuing ultrapure post-consumer resin that will one day be part of our circular economy.

Turning to Slide 6. First quarter adjusted earnings per share, excluding restructuring expenses and the gain on the equity investment, increased 10% to $1.09 per share on a comparable basis with the prior year, including adjusting for currency effects. Our earnings also reflect certain tax benefits, including the tax deduction that we received from stock-based compensation that, as you know, can fluctuate from quarter-to-quarter.

Aptar's adjusted EBITDA increased 6% to $152 million compared to the prior year, and this included the positive effects of currency translation rates as well as the impact of the shift in business across our markets and resin cost increases.

Next, summarizing our segment results. Our Pharma business performance was mixed across the different divisions, with total segment core sales even with the prior year and an adjusted EBITDA margin of approximately 35%.

Looking at sales growth by market compared to the prior year. Core sales to the prescription market decreased 8%, and core sales to the consumer health care market decreased 1% for the reasons that Stephan mentioned earlier.

Core sales to the injectables market increased 14% with higher demand for our vaccine components. Price accounted for approximately 2% of the total growth, and about 1/3 of the remaining growth is from COVID-related sales, mostly to supply vaccine distributions. Core sales of our active material science solutions increased 5% primarily due to increased sales of our active containers used for probiotics.

Turning to our Beauty + Home segment. Core sales decreased 3%, and the segment's adjusted EBITDA margin was 10% in the quarter and was negatively impacted by increased resin and other raw material costs, which are passed through where possible, albeit through a process that has typically been on a 60- to 90-day lag.

Looking at sales growth by market on a core basis. Core sales to the beauty market decreased 10% due to continued localized lockdowns, especially in Europe, and global travel restrictions, which have caused a significant reduction in traditional retail and duty-free sales. Core sales to the personal care market increased 2% due to continued strong demand for our hand sanitizer and liquid soap dispensers. Core sales to the home care market increased 13%, and strong demand for our cleaners and disinfectants and some automotive products.

Turning to our Food + Beverage segment, which had a solid performance. Core sales increased 14%, and the segment achieved adjusted EBITDA margin of 17% primarily due to the ongoing strength in the food market.

Looking at each market. Core sales to the food market increased 19% as consumers continued the dine-at-home trend because of the pandemic. Core sales for the beverage market increased 2% primarily due to the pass-through of higher resin prices.

Moving to Slide 7, which summarizes our outlook for the second quarter. Current underlying demand conditions in most of our markets are not expected to change dramatically from what we experienced in the first quarter. We anticipate the demand for our prescription drug and consumer health care devices will remain under pressure compared to the prior year as customers continue to work off existing inventories.

However, in some of our other markets, including beauty, we will have easier comparisons to the prior year second quarter, which was the most difficult period when you consider the impact of pandemic lockdowns.

We expect our second quarter adjusted earnings per share, excluding restructuring and any change in the fair value of equity investments to be in the range of $0.91 to $0.99 per share. The estimated tax rate range for the second quarter was 26% to 28%.

In closing, we continue to have a strong balance sheet with a leverage ratio of 1.4. On a gross basis, debt-to-capital was approximately 37%, while on a net basis, it was approximately 31%. In addition, we continue to invest in innovative growth projects, and we are confirming our forecasted range of capital expenditures for the year at a range of $300 million to $330 million.

At this time, Stephan will provide a few closing comments before we move to Q&A.

Thank you, Bob. In closing, on Slide 8, I'd like to mention that the broad range of end markets that we serve makes Aptar a very resilient company through economic cycles, and the most recent period was no exception. The wide variety of technologies and solutions that we provide, combined with our commitment to R&D and new innovative solutions, will further build upon our solid customer pipeline.

We have a profound respect for the environment that drives lower energy consumption, landfill-free facilities and sustainable product designs. We will continue to advocate to a circular economy in which packaging is reused and recycled. Therefore, our positive mid- and long-term view is unchanged. And when we look past this global pandemic-induced crisis, the future is quite promising. We look forward to growing Aptar for the long-term benefit of all stakeholders.

With that, I would like to open up the call for your questions.

(Operator Instructions) Your first response is from George Staphos of Bank of America Securities.

I guess the first question I had is really more a point of clarification. Bob and Stephan, when you talk about not much change in trends in 2Q versus what you saw in 1Q, I assume you're talking about the year-on-year change that you saw in 1Q in terms of volumes more or less occurring at the same rate in 2Q. You're not saying volumes are flat 2Q versus 1Q. Just want to clarify on that.

Yes. That's correct. Basically, when you look sequentially the pattern that we've laid out, I think we will continue to see some destocking in -- on the Pharma side. And the recovery in Beauty + Home, which really depends on Europe reopening, will not be in full swing yet, but of course, sequentially improving and compared to quarter 2 of last year, which was the bottom, very strong growth. But the overall demand pattern similar to what we saw in Q1.

Okay. I appreciate the additional color there, Stephan. If we talk about Pharma and both consumer health and Rx, we're still going through the destocking. Is there anything that's unique about this destocking period that we're going through relative to others that you've seen in the past? And if you can remind us whatever that context might be then, when you think we begin to see some inflection on the volumes in those categories as well.

Yes. I think Bob can speak a bit to history. But what I've learned is that when these happen, it usually is a 2-quarter affair. So we certainly expect this to be behind us in the third quarter.

It's -- you see, of course, potential inventory buildups at multiple levels at our direct customers, at the drug manufacturers in the trade, in the homes. And clearly, in hindsight, there has been some buildup as people were getting ready for the pandemic, making sure everybody is stocked. And now we see the result with a nonexisting flu season.

A muted allergy season last year as people were staying indoors and masking up. On the other hand, it will run its course. I can't -- you may hear from my work. They can personally attest the allergy season is in full bloom and strong. When people go outside, they will be affected. And we have no doubt that, unfortunately, flu season also come back as people are running out and about.

You saw that with the Glenmark approval, we continue to see conversion to nasal delivery in the allergic rhinitis category. And then of course, on top of that, we have a strong central nervous system franchise. So there's no reason not to believe that the long-term growth rate of around 6% for this category and 6% to 10% for Pharma overall will not return.

But maybe, Bob, you can speak a bit more to history.

Yes. No, I think you nailed it, Stephan. Typically, 2 quarters is about what we've seen in the past, I can [prospect]. So I think that Stephan mentioned, we do see us returning to growth starting in Q3. So I don't see anything unusual about this fact compared to any others.

My last one, quickly. Just you mentioned that beverage was relatively flat. Could you talk about the regional trends there? And are we still seeing the lingering weakness in Asia come back? Or is that -- was that a nonevent in the quarter?

Yes. Actually, China, as you know, has reopened already a year ago. So they're in full swing. And there, the beverage category is no exception.

Clearly, what we're missing is the on-the-go beverages in Europe and still also in the U.S., as the U.S. is really reopening just now. I think New York is going back to normal in the coming weeks. And Europe is really a quarter to 4 months behind the U.S.

Now, thankfully, we see more and more definition also in Europe that things are coming together. Germany is getting its act together around vaccines. The U.K. is doing better. France is going to reopen in May 15. Hopefully, that's going to stay open. So we certainly have some confidence that Europe will reopen about a quarter, maybe 4 months behind the U.S. And that will be very good also for the on-the-go beverage business.

Yes. I would just add a little more color on the geographic side. So really, beverage was up in every region except for Europe. And if we just look, generally speaking, across all the segments, Europe was either flat or down in Europe for the other segments. So I think that the remarks about mid-quarter Europe reopening are going to be very helpful and beneficial across all 3 segments.

Midyear, you mean, on the quarter.

Well, May 15 in Europe reopening. So mid-quarter, we'll start to see a things turn around.

Your next response is from John Kreger of William Blair.

Stephan, could you just maybe go back to your -- I know you quickly just sort of reiterated your long-term expectation for the Pharma business, but maybe just kind of reset that a little bit. What is the pipeline of opportunities that you guys have been seeing recently tell you about the various components within the Pharma business and what you think that will kind of do long term as we get beyond the pandemic?

Yes. If we just walked through the categories, the punchline is we really don't see any change to the 6% to 10% long term. When you start with allergic rhinitis, clearly, the base allergy business is kind of low single digit. But you will have additional conversions going on, see the Glenmark approval. And then you have geographic growth in that business, as allergy is obviously not just a Western phenomenon.

And then continuing in Rx. Of course, the central nervous system category continues to grow nicely. We called out the clinical trial with the powder naloxone. Just this morning, Hikma got approval for a higher-dose naloxone drug called KLOXXADO. So -- and we see good project flow in the central nervous system category.

So then you go over to consumer health care, of course, decongestions, saline, ophthalmic, all target-rich environment. Injectables, as we've discussed on calls before, we've been really heartened by the new project activity and kind of the recognition of Aptar's capability as part of the whole vetting of the COVID supply chain. We're still a small player in this large market, but we see good project activity and continued good growth there.

And then the active packaging. We're calling out the approval of in-home COVID tests as another proof point for the powerful technology that our active materials solutions business provides for important tests, whether it's diabetes, whether it's COVID. And of course, the probiotic product care continues to grow.

So across the board, a lot of reasons to support the 6% to 10%. As you know, we've been for a number of quarters well above that. Clearly, there's inventory program normalizes some of that, but no reason not to continue to see that 6% to 10% growth.

That's helpful. And then maybe for a follow-up, can you just talk a little bit about any supply chain pressures you're seeing and how you're managing it, both from the standpoint of raw materials and also just sort of labor and productivity across your facilities?

Yes. I think you touched on all the things. Clearly, there are friction losses as the economy starts to sputter up to higher speed again, whether that's logistics, availability, freight rates, air freight rates, labor availability and pricing. Clearly, as we have to hire people, train them, there is more cost there. And we, of course, are working hard to pass that on. But clearly, we are very cognizant of a more inflationary environment and on making sure that we pass that on. So we have price increases slotted in for later in the quarter. Some of those will be announced, some of them will just be put through.

So clearly, As I said, I think last time, you don't just push a button and the economy goes back to full speed. There are friction losses, but we're working through those and so do our suppliers and so do our customers.

Your next response is from Mark Wilde of BMO Capital Markets.

Stephan, I wanted just to start out, if you could give us a little more color on what you're hearing from your beauty and fragrance customers. Earlier in the week, one of your peers was suggesting that they were starting to see some pickup in fragrance activity. And you sound a little more cautious about that. So I wondered if you can just update us on what you're seeing kind of around the world in beauty and fragrance.

Sure. Of course, it always also depends on what you're comparing to. If you compare to quarter 2 of last year, of course, it's better. But you're comparing to the beat with quarter 2 of last year.

But if we walk around the world, China is in full steam. Very happy, for example, with this L'Oreal project that we highlight. We're Eclipse pre-pandemic level since some time, and project activity is good. India is a bit worrisome. So while it's not a big factor in our numbers, the -- clearly, the pandemic there is in fully active with significant impacts. And that will also impact a bit our beauty business there, less so the Pharma business.

Latin America has remained quite resilient through the pandemic, and obviously, very concerning what's going on there, but it hasn't impacted the consumptions level as much as it has in other regions.

In the U.S., clearly, we start to see the opening now. So we see improvement there. And the key question for us is Europe. And of course, that's for us a very important question because that's where a significant part of our business is. And Europe is not where the U.S. is in terms of reopening. As I said, we expect the 3- to 4-month lag in the reopening of Europe. That puts its clip squarely in the second half.

And then for us, in addition, of course, it's very important that travel activity resumes and that impulse purchase in the duty-free aisle gets triggered. And customers are very positive. They have a bunch of launches in their planning. We are working with them, but they're not going to pull the final trigger until the travel activity resumes. And certainly, we're not going to [get] Mother's Day in Europe. And then the next big events are in the fall in China and end-of-year Christmas in the Western world.

All right. That's helpful. And Bob, just a couple of financial items as a follow-on. Can you, first of all, give us some sense of how big you estimate the resin headwind to be in both the first quarter and second quarter? And then can you just talk briefly about the tax rate? It's been dancing around a lot in recent quarters.

Sure. So on the resin side, roughly, we had about $6 million across all segments kind of negative impact on EBITDA. The majority of that was going to be inside Beauty + Home. And then majority of that relates to resin increases. But there's also other substrate increases that we've seen like aluminum, metal as well, that are contributing there.

We're actually anticipating approximately the same impact in Q2. So if you think about it, we'll be passing them, the price increases, as Stephan mentioned. But essentially, we'll be catching up for Q1. While we believe that the input costs are going to continue to increase in Q2. So it will be the second half of the year before we get on Q2 increases, again, assuming some stability in input cost for the second half of the year.

On the tax rate, so this is -- so there's a couple of items. The most significant was the additional benefit we get from stock-based compensation, which really is the delta between the in-the-money exercise price for legacy options versus book expense. So those are virtually impossible to forecast. But as you can see, with the share price having the run-up that it's had, you do tend to get additional option exercises. And then in Q1, we had some RSU vestings as well. So it's the benefit of the increase in the share price that's triggering outside tax deduction. But that's a good thing. That's a real cash statement.

I won't take that.

Absolutely, right? That's not a deferred benefit. That's a true cost saving. So we did also see some state tax law proportion changes in Alabama, which benefits our active material solutions business down there, but that's a lesser impact on the tax rate. So You see that we guided slightly lower than we typically have for tax rate, 26% to 28%. And that was really kind of looking at exercises to date already and kind of putting that already baked into the rate. (inaudible)

So it's really challenging to forecast what those exercise is going to be because it relates to things that are kind of outside of our control.

Thank you our next response is from Ghansham Panjabi with Baird.

So on the Beauty + Home segment, so I mean, just looking at our model, it looks like volumes have been down for -- on a year-over-year basis for about 8 quarters. I mean, obviously, a ton has happened in between there in terms of COVID and so on and so forth, channel destocking, et cetera. But Stephan, how would you benchmark that progression relative to the end markets over that time period?

And then on the flip side of that, as vaccines get deployed in some of the bigger markets that you're exposed to in Europe, et cetera, will we see a commensurate rebound that's actually faster than maybe your peers just as a consequence of the -- coming out of the flip side of this COVID issue?

Yes. Overall, I think, with the exception of some personal care, hair care, misses in the U.S. before we went into pandemic, I think we certainly have been in line with market. There are other areas where I would certainly hear from our people that we've gained market share. So on balance, I would say, those things cancel each other at least out and certainly think that we are in line with market.

And on the speed of recovery is whatever assumptions you're making about the reopening of Europe and the travel assumptions, I think the commensurate bounce back of especially fragrance sales but also duty-free sales, we'll go with it. So I'm not sure how much color I can give you there. But maybe, Bob, you have a different way of describing it.

No. I don't. I think you've adequately described it, Stephan.

Okay. Then on the -- for the second question, in terms of your customers. I mean, clearly, you've seen the velocity increase for beauty products in China as they came on the flip side of COVID, et cetera. Can you just touch on activity level for maybe your larger customers specific to B&H as they position in front of the vaccine deployment and potential reopening of Europe?

And then a separate question on active material. You called out some of the technology being used for COVID tests and stuff like that. Are there other opportunities associated with active material that you can sort of leverage into other future growth verticals within testing and so on and so forth in Pharma?

Sure. I'm going to let Bob address the active material. So let me take the first part of the question.

Project activity in China is very brisk. And while I wish we had a much larger footprint there and larger -- and therefore, a larger share of the growth, given our footprint and given -- our current footprint, given our current activity level is very high -- and as I mentioned before, customers appreciate, of course, our global capability to execute, especially on projects that are cross-regional. And while many customers are in the middle of shifting some of their filling and execution capability in Asia, there's still a lot being filled in Europe that is for China. So very happy with the activity level in China.

In Europe, I think -- I'll use a different analogy. I think basically all their horses are in the gates, and they're waiting for the gates to open. Clearly, people have not launched new fragrances in -- during the pandemic, but they have new launches ready. We are on our fair, or maybe unfair share, part of those launches. Sampling activity certainly has picked up also more in the e-commerce format. But having said all that, the proof of the pudding is in the reopening, and we need the reopening in Europe to happen.

And so on the active materials solutions, so we've had a presence in the diagnostic category. If you think of diabetes test strips, obviously, that's a form of diagnostics. There's also some applications in Europe that are using our technology on DNA test kits as well.

So this whole new in-home COVID testing is really interesting and exciting for us. We're also on customers flu kits, and that was even pre-pandemic as well. So we do like this space a lot. The technology certainly is increasing at warp speed in the space.

And it will be a crowded space, right? And you already see some in-home COVID test kits that are out there, but you have a lot of people talking about this as just the beginning of being able to provide more than just COVID testing. You could have a -- you can imagine a diagnostic meter in the home or you could test for -- using separate strips for flu, for bronchitis, for -- you name it. And that could be the first step before you reach out to your doctor. So we'll see how it all pans out. But definitely, we like this space, and we think it's going to continue to progress.

(Operator Instructions) Your next response is from Gabe Hajde with Wells Fargo.

I was curious if you guys could comment at all on how some of the joint venture/minority interests are performing. I'm kind of thinking about Kali Care and maybe some of the connected devices. And I appreciate that they're relatively small and still embryonic, but I think this is an area where Aptar has been successful in the past in terms of kind of nurturing and cultivating these technologies, and then once they're kind of more widely adopted, being able to leverage your distribution and global footprint. So just anything that stands out to you, I guess?

Sure. And maybe just as context for everybody, I mean, we look at M&A invention really to complement our organic activities, complement organic growth with bolt-on acquisitions and complement our in-house R&D and innovation with venturing investments. These venturing investments are really there, not to necessarily drive an internal venture capital business, but really get a front-row seat of innovations. Usually, with a venturing investment, we combine Board seat or some kind of license or rights, so things that make good linkage with our business.

So you mentioned Kali Care, Of course, we've done Propeller, which then was sold and we made a good gain on. We've had Sonmol in the connected device space. And in the food area, we've looked at -- or we've invested in Loop and in a second system in Eastern Europe in terms of refillable containers at retail.

And in between the bolt-on M&A and the venture investments in joint ventures, and sometimes, those joint ventures are acquisitions in stages. So mainly, I would highlight BTY in China, which really is an acquisition in stages, but we are already now leveraging their capability to build our beauty project pipeline in China.

So by and large, this is a very rewarding area. Sometimes, you win from a capital gain point of view, I mentioned already Propeller. Of course, we recorded a big gain this quarter. But that's not the main purpose. The main purpose is really to make sure that these innovations happen.

And if we stick with PureCycle for a moment. I mean if the main purpose for PureCycle investment was really to make sure that food-grade, post-consumer recycled polypropylene becomes a reality because that's what we need. We certainly have no intention of getting into the basic materials business, but we need food-grade fully recycled polypropylene. And the PureCycle technology certainly has seen very promising when we did our due diligence, and certainly, it seems like the capital market agrees.

That's really the purpose of these investments. And if we make a gain on them, that's also great, but the purpose is really to advance the innovations and advance our organic efforts.

And I guess my next question comes down to the transformation plan of restructuring that you guys kind of initiated 3 years ago, give or take. I think it's supposed to yield $80 million in savings. And obviously, the pandemic kind of threw a wrench on that. But I think you guys have delayed some footprint consolidation efforts. I was curious if you could update us on how those are progressing, I guess, given a little bit more stability in the operating environment.

And then again, I guess, just for us in the outside world, understand that you would still envision came back to kind of mid-teens margins in Beauty + Home, again, assuming some sort of normal volume environment.

So the short answer to the last point is yes, that is the expectation. And certainly also with that, I'll use the analogy of the horse being ready in the gates ready to go.

On your question on the delay, yes, we have delayed the North American footprint optimization with the pandemic moving equipment around starting up equipment in different locations proved more challenging. So that will be with us through the middle of this year, but we should be done by the middle of the year.

So certainly, between raw material being a drag of about a margin point and the delay in North American footprint optimization, another margin point, those are transitory and will go away. And specifically, on the footprint of optimization, that should be done by the middle of the year.

Your next response is from Adam Josephson with KeyBanc.

Stephan, just on Beauty + Home, just to follow up on a couple of Gabe's questions. So appreciating that beauty and fragrance which is not coming roaring back as yet and Europe is still on lockdown and you have the resin-related hits concentrated in Beauty + Home, what do you think is a reasonable expectation in terms of when you can get back -- either get back to mid-teens EBITDA margins or recover a good chunk of, say, the $50 million EBITDA that you lost last year?

I think the best guidance I can give is what we said before. In a normal post-COVID volume environment, we should get back to that 15 range and go from there. So the question is when is that post-COVID normal volume environment. I'm not going to put a pin in the calendar. We've all sat here a year ago were never expecting that this pandemic would still be with us a year later. But that -- we're standing by that guidance.

And the resin pass-through, yes, it's slower in the Beauty + Home business than it is in the Food + Beverage business, but it is -- it will happen. So that I'm very confident about -- in addition to passing on the other inflationary increases. And as I mentioned, the North American footprint optimization will be done by middle of the year.

Got it, Stephan. And also following up on one of Gabe's questions on the restructuring in Beauty + Home. That was over 3 years ago. Much has happened in terms of currency, COVID, personal care issues, et cetera, et cetera. But what have you learned since then compared to what you were initially expecting in terms of generating that $80 million of savings? What has gone as you expected it to? What has gone differently? And what lessons have you learned since then?

If you go through the different elements, so in terms of restructuring the front end of the business, you can really divide it up in 2 things: one is creating smaller accountable entrepreneurial units with dedicated sales forces; and then advancing the practices to contemporary best practices in terms of sales force management, customer project management, customer project conversion tracking, moving from longer cadences to weekly cadence and then making sure the car doesn't go into ditch and you course correct before.

I think, by and large, I'm very happy with what we did there. You're never finished with this. You never -- you need to keep training those muscles. For example, the price increase muscle again needs to be trained here as we enter this period. But by and large, from the commercial front end, very happy and we keep building there. We have much stronger leaders in place in those smaller entrepreneurial units and very happy with that.

I think I spoke earlier about the learnings on the operational improvement. Some of those took longer. And in a few places, we had to go back and do it again. Those of you who are schooled in Six Sigma know that after -- with each project there, at the end, there's a control plan to make sure you don't slip back. In some cases, the control plan was not as good as I would have hoped. So that is probably a lifelong learning. The changes you make for them to stick, you've got to make sure that those changes are irreversible and don't move out the door with the next organization change or people change. That's a painful learning you make every time, but that's part for the course, I guess.

At this moment, I'm quite happy with the operational performance of those sites. The KPIs are in the right place. Over the same period of time, our safety performance, just to use one benchmark, moves from being much worse than industry average to being now close to world class. That is just one indicator how we've improved how we do these operations. But of course, we need the volume to go through them.

Then when you get to the fixed cost improvements. I think there, we are quite happy with what Bob's done in building up a shared service center in the Czech Republic in streamlining the back office. Only partially happy with the fixed cost reduction in Europe. The learning certainly is that [Work Council] in France are not the easiest to deal with, but we make progress piece by piece by piece, and that continues.

Now the -- having said all that, the operational improvement, though, have been quite significant enough that we were able to take plants off-line sooner than we thought. In Europe, for example, the plant in Ireland, the plant in Spain, in the U.S., we got hit by the pandemic. But certainly, going into the transformation, we were not expecting to take 3 plants off-line in the Northeast, which we will now be doing. So there's also some positive surprises.

I think overlay of all that is, of course, the massive shift of growth to the East. And we've never done, and we will have to continue to make sure that we are very well positioned to capture the growth in the East. It's kind of a long answer but -- to your question.

Your next response is from Neel Kumar with Morgan Stanley.

Great. In food, you've had a few quarters of very strong growth. Do you think that some of that strength can carry through into the second half of the year as that home consumption starts to come down? And do you see any structural changes in the market post-COVID that Aptar could benefit from?

Well, I mean the food team is really doing an excellent job. It's probably a bit underreported with all the attention to Beauty + Home, but we have a strong team in place there. And the growth is not only a mathematical result of the pandemic and in-home consumption but competitive wins for new projects, strong expansion in Asia. And certainly, with beverage coming back, I have no doubt that they will continue to grow also in the second half.

And I would say on the post-COVID advantages, so we're going to get some puts and takes. I think what's important that we're keeping an eye on is how robust does the sanitizer and the cleansing environment, the washing of hands, is that going to stay? Is that here to stay? But certainly, as people move out of the lockdown into getting out and vacationing more, we would expect categories like sunscreen and things like that to improve. Even if people are dining out more on the food side, and we see a little bit of a pullback on some of that in-home consumption -- remember that we've got a struggling part of our food business, which is food safety, that we should see a rebound on.

So as one goes up, the other one may -- it wouldn't go down, rather the other ones come up. And certainly, we talked about an improving beverage situation once people are back out traveling on the go and gyms and things like that.

Okay. And then in terms of some of the input inflation you're seeing, are the non-resin raw materials also contractually passed through at a similar 15- to 90-day lag as resin? Or does that work differently? And then from a cash flow perspective, do you expect the higher resin raw material prices to negatively impact working capital?

So on the other substrate increases, those are more, in general, in many cases, you're talking about complex multi-component products like pump scenarios, or valves and things like that. It tends to be a little bit more of a basket-of-goods approach. So when we trip certain thresholds, yes, we'll pass it on. And certainly, with some of those increases that we've seen, we have tripped some of those. So that is kind of an additional pass-through on that.

On your cash flow question, I would say the $15 million decrease in free cash flow that we saw last year, first quarter of this year, is primarily coming from slightly higher inventory levels. And that, I would think, partially could be due to slightly higher cost. But I think it's probably more due to some of the supply chain disruptions that we experienced in Q1, right, not having containers to ship internationally, issues in truck capacity and things like that. So we were carrying a little bit higher levels of work in process in finished goods in some of our plants than we have in the past. So I see that as also transitory.

Your next response is from Salvator Tiano with Seaport Global.

So firstly, I want to touch base a little bit on personal care, where I think you mentioned that the core sales growth year-on-year was 2%. And if I remember correctly, last year, you were still comping against -- well, you should have been comping this year against the destocking you saw. And I'm wondering if that 2% growth shows that there's acceleration in personal care demand now.

Not sure I can follow your question.

So from...

Go ahead.

I was just going to say that -- I was going to say just give a little bit more color on personal care. So we're still very strong from a product category in our lotion product category. And that's typically products that you would see for personal cleansing, sanitizers and body lotions.

We're still suffering a little bit on the hair care side and a little bit on the sun care side. So that's meeting somewhat that growth coming from personal cleansing category.

Okay. Perfect. My second question is if you can provide, I think, some more color on what was the price contribution in Food + Beverage and core sales growth and also if there was any meaningful price in Q1 for Beauty + Health and Pharma as well?

Yes. So on -- overall -- let me start at the top. Overall, for the company as a whole, it was about positive impact on the core sales growth. It had a stronger impact on Food + Beverage. It was about 6% positive of the 14% positive. And then it was less than 1% positive on Beauty + Home. It's about 0.5% there.

Okay. Perfect. Just my last question. When we look at Pharma -- and obviously, you have Q1 and also Q2 with softer prescription and consumer health care demand. But you mean -- my understanding is, for example, in this quarter -- last quarter, I guess, injectable growth was about 400 basis points roughly from COVID tailwinds. So when we put everything together over the past year, how would you judge COVID's effect on Pharma's bottom line when we take into account demand, margins, everything?

I'm going to yield to my CFO on that one.

It's tough, right? I mean we haven't gone through that math. I would -- again, it's similar to kind of what I was just discussing in personal care, right? We are getting a positive on the injectable side of the business. We're getting a positive on the active material side of the business. But really, those are smaller divisions compared to the total Rx and CHC contribution. So how it depends on how you categorize it, right?

If COVID is responsible for the lower incidence of cold and flu, that's a negative on the nasal decon right? If less doctor visits and primary care visits a reason for the allergy and asthma-related products' destocking, then that's a negative. And that's about all. But we really haven't gone into that level of granularity on the Pharma business.

I mean, just as a reminder, if you zoom out overall, the prescription unit has by far the highest margin followed by consumer health care, then comes active packaging and injectable, is in line with the industry. But -- and this line up the lowest in terms of profitability.

So certainly, as the top line mix moves, so does the profitability. We've been able to absorb a good part of that this quarter. But certainly, if you have the top line in mind, I think you can approximate the bottom line impact.

There are no further questions in the queue at this time. I will now turn the call back over to Mr. Tanda.

Thank you very much. This concludes our call today. Certainly, this year will be a story of 2 halves. We're very optimistic about the second half of the year. And I would like to thank everyone for joining us.

Thank you. This concludes today's conference call. You may now disconnect, and have a good day.