Aptargroup Inc (ATR) 2022 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2022 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 to 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 the 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.

Thanks, Matt, and good morning, everyone. We appreciate you joining us today, and I hope you're doing well.

Turning to Slide 3. As highlighted in our press release, we reported very good performance in the first quarter with core and reported sales growth in each of our segments resulting in total reported sales for Aptar increasing 9% and core sales increasing 13%.

Before I cover our segment results, I would like to spend a few moments talking about our continued resiliency as a company during this uncertain economic environment, where we face pandemic uncertainties, rising inflation, supply chain issues, labor shortages, the war in Ukraine and the recent COVID-19 variant outbreaks and lockdowns in China.

To briefly comment on the latter 2 subjects, we are deeply saddened by the invasion and ongoing war in Ukraine, and our hearts and solidarity go out to everyone who is unfairly caught up in the midst of the tragic event unfolding. And on the recent COVID-19 variant outbreaks and lockdowns in China, we are focused on the health and safety of our employees, and we are updating our COVID-19 protocols where needed. While only a few of our facilities have been temporarily affected thus far, we are closely monitoring the impact on consumer consumption levels and demand patterns.

Neither the war in Ukraine nor the COVID-19 outbreak in China has had a significant direct impact on our first quarter results. However, we are seeing indirect effects, including soaring energy costs in Europe and some supply chain disruptions in both regions. We will continue to monitor the evolving situation closely and adapt our approach as necessary to serve patients, consumers and customers to the best of our abilities.

We achieved earnings per share in the quarter that were in the middle of our previously issued guidance despite a variety of headwinds that Bob will briefly touch on.

Turning to our first quarter segment results. Our Pharma segment achieved double-digit core sales growth with growth in each market. Significant sales growth in the active material science market along with increased demand in consumer health care and injectables were strong contributors to our results. Demand also began to recover for our drug delivery devices for allergic rhinitis treatments in the prescription market. I'm also pleased to share that our elastomeric component capacity expansion in France is progressing nicely.

In our Beauty + Home segment, increased demand from the beauty and personal care markets and price initiatives related to input cost recovery contributed to double-digit core sales growth. I would also like to share that earlier this month, we celebrated with customers and employees the out-of-shelf completion of our new facility in Oyonnax, France, where we are investing in a new state-of-the-art prestige custom beauty site, which will be operational by the spring of 2023. With this initiative, we are consolidating 5 legacy operations into a new and dynamic facility, which further asserts our leadership as the driving force behind customizable luxury solutions with more sustainable features.

In Food + Beverage, we also achieved double-digit core sales growth on top of a very strong prior year. The growth was driven by increased demand and price initiatives to recover rising raw material and other input costs.

Turning to sustainability. We were pleased to announce progress in testing and transforming PureCycle Technologies' ultrapure recycled polypropylene. Working with PureCycle, we have recently converted prototype material from the PureCycle feedstock evaluation unit into multiple colors of hinged closures, a technically demanding application, with performances similar to conventional resin for food, beverage and cosmetic applications. This type of industry collaboration, which started with an early-stage venturing investment, is essential to achieve a more circular economy where plastic is reused and recycled.

Now I would like to highlight a few recent launches by customers using our technologies in the next few slides, starting with our Pharma segment on Slide 4.

In consumer health care, our airless system for dermal, which is based on airless technology used on many of our Beauty + Home facial skin care products, is the dispensing solution for a facial acne cream by Galderma called TWYNEO in the U.S.

In the eye care market in India, Cipla has launched Brimocom, used to treat glaucoma with our ophthalmic squeeze dispenser.

Turning to the prescription market. The FDA approved Viatris and Kindeva's Breyna, a generic version of budesonide and formoterol, an inhaled medication used for the maintenance treatment of asthma and chronic obstructive pulmonary disease, using an Aptar metered dose valve. And our nasal spray pumps are the dispensing solutions for both the Ventus and Monax brand allergic rhinitis medications in Brazil.

Finally, our elastomeric components are featured on several animal care antibiotics in Mexico and an animal care sedative in the U.S.

Turning to Slide 5 in Beauty + Home. In the European prestige fragrance market, Aptar's spray pumps are the dispensing solution for the launch of several new fragrances by brands such as Chloé, Guerlain, La Perla, Valentino and more. In China, our pump is featured on a perfume called Scent Library.

In addition, a well-known beauty retailer is featuring our airless pump made from post-consumer recycled resin on its line of facial skincare masks.

Next, our unique combination between a dropper and a bottle for a precise and clean application with SimpliSqueeze flow control valves, the flow control technology often found in our Food + Beverage dispensing solutions along with some pharma applications is providing a soft and accurate drop dispensing for 2 new skin care products in Europe.

And finally, our FusionPKG beauty business is providing a customized package for MAC Cosmetics' skincare renewal emulsion product.

In Food + Beverage, Aptar continues to see success with inverted closures featuring our SimpliSqueeze flow control technology, which was recently launched in a new range of flavored honey spreads by Kraft Heinz in the U.S. In addition, with this flow control technology, we have entered into new businesses in China with a leading oyster source and ketchup brand.

Also in other market, we partnered with Chacauhaa Brazil to convert the former glass with metal cap for its Mel de Cacau honey to an inverter closure with SimpliSqueeze flow control valve. This is yet another example of how we partner with our customers to differentiate the product and provide added convenience to the end consumer.

Finally, in the beverage market, our sports cap is the dispensing system for H2Only's purified drinking water in Europe.

With that, I will now turn it over to Bob, who will share some additional comments on our first quarter results. Bob?

Thank you, Stephan, and good morning, everyone. I would like to summarize the quarter starting on Slide 6, where you can see our reported and core sales results.

When we neutralize currencies and acquisitions, we grew core sales solidly by 13%. About 8% was coming from increased demand with the remainder coming from price initiatives across the majority of our markets, which I will detail in a minute.

As shown on Slide 7, we achieved adjusted earnings per share of $0.96 and adjusted EBITDA of $156 million. Adjusted earnings included currency translation headwinds, a net negative inflation impact of approximately $4 million, a reserve against the note receivable of approximately $1.5 million and start-up costs related to our elastomeric component capacity expansion of approximately $2 million.

We also continue to face ongoing supply chain disruptions, primarily in the U.S. Prior year's adjusted earnings per share reflect a lower tax rate. And if we would have equalized the tax and currency rates, our adjusted earnings per share would have increased 7%.

If we isolate net price cost effect, including the margin compression impact from passing on the higher costs, our consolidated adjusted EBITDA margin of roughly 18.5% would have been approximately 150 basis points higher.

Turning to some of the details by segment. Our Pharma segment's core sales increased 13%, with approximately 11% coming from strong demand and 2% coming from price adjustments related to inflation cost recovery. Pharma's adjusted EBITDA margin of 34% included customary start-up costs related to our elastomeric component capacity expansion and the impact of the notes receivable reserve.

Looking at sales in each pharma market. Core sales to the prescription market increased 3%, primarily due to the recovery in demand for nasal devices for allergic rhinitis treatments. Core sales to the consumer health care market increased 13% on strong demand for nasal decongestant, nasal saline and dermal devices. It was again a solid quarter for solutions for vaccines and other injectable medicines with core sales increasing 7%, primarily due to strong demand for our elastomeric components used with biologics and vaccines.

Our active material science solutions market had a very strong quarter with core sales increasing 58% and strong demand across a variety of applications led by our Activ-Film technology that enhances the integrity of at-home COVID-19 tests. In addition to the strong Activ-Film growth linked to COVID-19 diagnostic test, the remainder of the business is also putting up strong core growth numbers, including vials for probiotics and diabetes-related diagnostics.

Turning to our Beauty + Home segment. Core sales increased 10% over the prior year first quarter, with 6% of the growth coming from price adjustments related to inflation cost recovery. The segment's adjusted EBITDA margin was 11% in the quarter and slightly higher than the prior year and included the net negative inflation effect of approximately $5 million. Had we not had this net negative, including the margin compression effect of passing through higher cost, EBITDA margins would have been approximately 200 basis points higher. In addition, we also had approximately $2 million from the significant labor shortage and supply chain disruptions, primarily in the U.S.

Looking at each Beauty + Home market, core sales to the beauty market increased 16% due to strong demand across all beauty applications led by the fragrance market, especially the prestige market in Europe. Core sales to the personal care market increased 8% due to increased demand for hair care and sun care dispensing systems. Core sales to the home care market decreased 9%, primarily due to a reduction in demand for surface cleaning products.

Turning to our Food + Beverage segment. Core sales grew strongly in the quarter, increasing 18%. In addition to volume growth, pricing adjustments related to inflation cost recovery also contributed and accounted for approximately 12% of the segment's core sales growth in the quarter. This segment's adjusted EBITDA margin was 14% in the quarter.

We continue to pass through rising costs. And therefore, the margin compression effect on passing through higher cost and EBITDA was approximately 300 basis points. Looking at each market, core sales to the food market increased 18% due to price adjustments and continued steady demand for foodservice trays and dispensing closures for a variety of home food staples. Core sales to the beverage market increased 16% due to price adjustments and recovering demand for premium bottled water dispensing closures.

Cash flow from operations totaled $92 million for the quarter, up $20 million from the prior year, primarily due to improvements in working capital.

Moving now to Slide 8, which summarizes our outlook for the second quarter. As Stephan covered, we are expecting some of the momentum we saw in Q1 to continue. Currency exchange rates have recently reflected a strengthening U.S. dollar. And we anticipate that we will face ongoing currency headwinds in the near term as well as supply chain and inflationary pressures.

The euro rate for the prior-year second quarter was 1.21, and our guidance for the coming second quarter is assuming a 1.07 euro rate. We have said that roughly for every $0.01 move in the euro rate, that equates to approximately $0.02 per share for the full year. So for the coming quarter, we could be looking at approximately a $0.05 to $0.06 currency drag on earnings compared to the prior year. Based on recently published economic and currency forecast, we could also potentially be looking at similar headwinds in Q3 and Q4.

We expect our second quarter adjusted earnings per share to be in the range of $0.92 to $1.02 per share using an estimated tax rate range of 27% to 29%. You may recall that the prior year second quarter effective tax rate was 25%. The midpoint of our guidance range represents an 18% increase over the prior year's second quarter adjusted earnings per share when currency translation effects and tax rates are neutralized.

Looking to our current estimate for depreciation and amortization, we expect $240 million to $250 million for the current year. For capital expenditures, net of any government grants, we expect between $300 million and $330 million, which includes $109 million net for our 3 important growth projects that we discussed during our previous earnings call.

In closing, we continue to have a strong balance sheet with a leverage ratio of 1.8, which allows us to continue to invest in the business, pursue strategic opportunities and continue to return value to shareholders in the form of dividends and repurchases. In addition to our cash dividend payments to shareholders, which totaled $25 million in the quarter, we repurchased approximately 140,000 shares of common stock in the first quarter for approximately $16 million, leaving $184 million authorized for common stock repurchases at the end of the first quarter.

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

Thanks, Bob. In closing, on Slide 9. Looking ahead to the second quarter, we expect the broad-based momentum we experienced in the first quarter to continue with growth in each segment, including strong growth of our prescription drug device business, which will help compensate for lower demand for at-home COVID-19 tests.

The war in Ukraine and the COVID-19 outbreak and lockdowns in China are expected to have some impact on our business in their respective regions, though the near-term visibility for both in these situations is expected to remain highly uncertain and fluid for the next several quarters. Nevertheless, the near-term overall business outlook is solid with strong demand and a high focus on mitigating inflation, supply chain challenges and prudent cost and margin management going forward.

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

(Operator Instructions) Our first question comes from George Staphos of Bank of America.

I will use my first question on margin and particularly in Food + Beverage. You had very strong core growth. Obviously, I think you said pricing and pass-through was 12% of that, but that still suggests that you had 6% or so volume growth. Yet the incremental margin -- so the profit change relative to revenue change was negative.

Can you talk about what was driving that performance? I recognize there was pass-through effects and so on. And how you can turn Food + Beverage into a much more predictable grower of earnings and margin, guys, on a going-forward basis? And then I had a follow-on.

Sure. George, I'll take that one. Part of it, the biggest reason, obviously, is it's a heavily closure-based business. So the resin pass-through dollar for dollar is impacted by about 300 basis points. But in addition to that, the growth in the quarter was primarily coming from some of our lower-margin foodservice trade business as well as some tooling increases. So it was also a mix of business issue in the quarter that also had some compression on the margin. And we expect that (inaudible) going forward.

Yes. And just -- so looking forward, how do you turn Food + Beverage into more predictable grower of earnings, just to finish up that first question?

Yes. George, just to follow up on -- look, the condiments business is a very important part of the business for us. And clearly, North America this quarter was impacted by some of the supply chain issues. So it's primarily a mix situation for Q1. Other than that, I think this business keeps chugging along. And the cost yield is a predictable grower of earnings.

Okay. I'll come back at another point. And then just can you talk a little bit about some of the one-off items in the quarter? There was a note receivable on the venture. There Was a $1.1 million miscellaneous net on P&L. Can you talk about what was in those items?

Yes. Let me take the venturing and then Bob follows up on the other one. As you know, we had a venturing program to complement our early-stage R&D. This is related to a venturing investment where the business did not work out quite as well as we hoped, and it's being sold. And we still have a note to the venture and we just wrote that down to be prudent.

Overall, our venturing portfolio is actually performing very well and has enabled significant pipeline growth. We talk later maybe about PureCycle Technologies and other (inaudible) where we needed to write down that note.

Yes. George, on the miscellaneous net, it was an expense of about $1.1 million comparable really to last year at about $1 million. The majority of what goes through that line is going to be FX losses. So we've seen a fair amount of currency fluctuations in the quarter. And so that's where that would show. And then you obviously can see the rest of it in the P&L. But most of that miscellaneous net is going to be FX.

The next question comes from Ghansham Panjabi from Baird.

This is actually Matt Krueger sitting in for Ghansham. I was hoping that you could give us a real-time sense of how your business is being impacted by the following 3 factors. So one, the ongoing war in Ukraine and its impact on the operating environment in Europe; two, the China COVID lockdowns; and then three, at least aside from those lockdowns, the dynamic of growing and improving consumer mobility across the other regions across the globe.

Sure. Let me kick off and Bob, please jump in. So the war in Ukraine led to the tremendous tragedy. It impacts the 3 segments differently. Just as a reminder for everyone, before the war, we had roughly a $60 million business in Russia. Roughly half of that produced locally, the other half imported. And we continue to operate the facility in Vladimir to support primarily essential customers and products in the pharma space, basic nutrition, especially infant nutrition and other essential products.

And clearly, demand in pharma has not been impacted. Anecdotally, I can tell you that some customers in Ukraine have restarted. Essential food products have also not been impacted. Beauty + Home has, of course, been a bit more impacted.

Now what we do not know and is almost impossible to know, what is the indirect impact? Products we sell in the West that would have gone to Russia. Clearly, you've seen many of our customers have shut down their retail locations but still continued operating in country, although nobody, including ourselves, is doing anything new in the country.

Now having said that, demand in Western Europe is rebounding so strongly that whatever we use on the back end in Russia, it's hard to decipher. So that indirect impact is not as big as we once feared. And that's what you also see, solid growth numbers, and we expect it to continue.

The much bigger impact of all this is the inflation impact, especially on energy in Europe and anything we buy in Europe, if you want materialized energy. We buy a lot of aluminum, heavy energy component, transportation. Most of our customers do not have locked in some of their energy costs. So that just leads to inflation of anything we buy in Europe. I think that's probably the biggest impact of the war in Ukraine.

The second point for China. Clearly, the lockdown has an impact on economic activity. So far, most of our facilities have been spared. We have some shutdowns for a couple of days here and there. Construction projects have been halted here and there, but everything is resuming. Having said that, the consumer is being locked down and some of our customers not operating. Clearly, demand has been impacted in April.

And the big uncertainty for us is what's going to happen in May and June for the balance of the quarter and, ultimately, what will be the impact on overall demand. Just as a reminder, about 10%, 11% of our revenue is in Asia. Roughly 6% of that is in China. And certainly, if we have a significant drop for a quarter, that will have an impact on us.

Now what was the third one?

The dynamic improvement in raw mobility.

Yes. So clearly, in the U.S., Europe and mobility between the U.S. and Europe, things are booming for the lack of a better word, and we see that in the demand. We clearly don't have the mobility in Asia, what we just discussed.

But given the overall rating of our business, this is probably a long time. I'm somewhat happy that China is larger for us. The impact of the recovery in Europe and between Europe and the U.S. and in the U.S. is a much bigger impact on us than the headwinds in China.

Great. That's super helpful and excellent detail. I promise just one part for my last question here. When do you think it's realistic to expect price cost across your business to turn positive for 2022? And do you need to implement incremental pricing actions to get there? Or are we simply waiting for already implemented pricing and contractual pricing to roll through the P&L?

Yes. It's very hard to give you a date certain here. Of course, we continue to lay in new price increases depending on the business. We're on wave 5 or wave 6, and they are not getting easier. Of course, the comps keeps rolling in, especially since we don't know when the increases -- inflationary increases, especially in Europe, will stop. It's very hard to give you a date certain when that will be behind us.

I'm looking at Bob, whether you can add anything here.

Yes. I mean it is very difficult to project. But I would tell you that at the beginning of the year, we would not have anticipated the net $5 million negative that I talked about in my opening remarks. So the war in Ukraine has added a whole new element, as Stephan has mentioned, on the energy prices and then the indirect ripple effect is that it rolls through all the different substrates and everything that we buy. So it's really difficult. We are -- as Stephan said, being very diligent in passing on. Now it's cumulative, and those pricing increases are taking hold. But we're really at the mercy of where the costs go from here, right?

While we saw some resin abatement in Q1 in North America and an increase in Europe, we thought that resin was kind of on its way down, only to see now that resin is starting to trend higher again in both North America and Europe. So it's a very fluid situation, as we said. And it's more dependent, I guess, on where the costs go from here.

The next question is from Mark Wilde of BMO Capital Markets.

I wanted just to start off, if you could give us any sense just to sort of activity levels across the business in April.

Yes. Look, we really don't speak about individual months within the quarter. I gave you some sense that we see Olympics in China from the lockdowns. You will not be surprised. But in general, our guidance for the quarter is based, of course, what we see throughout the quarter.

And just to repeat, we see a very good momentum across the business. We see the prescription drug business accelerating. We had some tough comps in emergency treatment Narcan in quarter 1. And those comps will be much easier in quarter 2. So we see good growth in prescription. Rolling in consumer health care continues to do very well, injectables and -- as well as the consumer-facing business. So overall, we see good momentum.

Okay. And then for my follow-on. I want to go to geopolitics and geopolitical risk. Just given what's going on with Russia and the Ukraine, I'm just curious how this may have affected your thinking around the pace of growth in China. And we've had China acting fairly aggressively in the South China Sea and around Taiwan. So I just -- I'd like to get some sense of how you think about this and whether it's had any impact on your thinking.

Well, I think what we have guided for, first and foremost, is really by consumer and end-user and patient demand. And that's driven by demographics. And certainly, the demographics are not changing. It's one of the most stable trends. And despite the political rhetoric that you're hearing and animosities you have, which we all can understand, business goes on. And at the local level, provincial level, governments are extremely supportive of investment and engagement. And I don't think you can turn your back on one of the biggest growth drivers for the coming decades.

Now we're not (inaudible) of stakeholder nervousness around that. But I think when you look at the U.S.-China relationship, there is tremendous codependency and self-interest of everybody to keep the business moving.

The next question comes from Kyle White of Deutsche Bank.

On Pharma, I just wanted to update on the destocking issue you had in prescription. It seems like it's largely behind you based on the commentary and the outlook. Is that what you're seeing as well?

And then as you go forward, do you have good visibility for prescription getting back to the high single digits to even possibly double digit core sales growth given the inflation that you're seeing?

Yes. Certainly, the destocking seems to be behind us. And maybe there is even some catch-up of demand. And as we get into quarters where easy comparison, I would not be surprised, if we start touching the double digit for quarter or 2. So overall, that outlook seems very solid.

If you allow me, coming back to Mark's point on China, I wanted to make one additional point. Clearly, we are living in a very different world today than we were 3, 4 years ago. We are all very cognizant that we were in -- all our business was growing up. And then everything was starting to converge; globalization, convergence of trends and so on. And it's much more complex world with many more tariff, nontariff barriers, political issues.

Having said that, it's a lot easier for a global company to navigate that, that has always had a philosophy of local [followers] with strong local leadership than it is for small and local competitors. So while we see, of course, the headwinds from some of the run rates, we also see fewer threats from local competitors kind of becoming too aggressive in some of our other markets.

And we also see customer behavior changing, where customers were maybe buying from overseas for low-cost only reason. I'd rather buy now a new (inaudible) capacity in the U.S. or Europe because I no longer want to buy only for low-cost reasons. And the supply chain is long. Response times are long. The carbon footprint of transportation is long. So the more complex world is not a negative for us. It's actually, in the long run, a positive for us. Sorry to add that on.

No, I appreciate that. I wanted to stick in with prescription though. On active materials, I think you said core sales were up 58%. But then in the press release, you talked about potentially slowing sales of at-home COVID tests as those begin to decline.

How should we think about that going forward in terms of -- is there any way to quantify maybe the benefit that at-home COVID test had for you to core sales growth over the past year? And maybe what kind of headwind that could present here going forward if that demand reverses?

I will mainly look at this as a relay race between the at-home COVID tests. We're kind of having the first one in maybe quarter 4 and especially quarter 1. And then our prescription picked up the baton, but it should soon be out overall for the corona growth.

Yes. I would just add, Kyle. It's been super lumpy, right? We are starting to see at-home COVID test kit demand in Q2 of last year. And then as Stephan said, again in Q4, not much in Q3. And then we see a big -- and then we forecasted a very big growth in Q1.

Right now, we're just not assuming that that's going to continue. We're going to wait and see where the demand is. Obviously, there's a lot of discussions and philosophies around testing. And certainly, the government doesn't want to get caught off guard with lack of test kits again. That's partly the reason why we received that brand to make sure that we had enough capacity should we need it.

But I think it's just going to be very lumpy going forward. But as Stephan said, the resurgence in the prescription side should make up for any decline comparatively speaking with the COVID test kits.

We now have Adam Josephson from KeyBanc Capital Markets.

Just one -- Stephan or Bob, one question on your second quarter guidance. So on the one hand, you're talking about broad-based momentum, seeing this momentum in April. So you're off to a good start in the quarter. On the other hand, your range is, correct me if I'm wrong, $0.02 wider than it normally is. Normally, there's an $0.08 range. Now there's a $0.10 range, and you're talking about a highly uncertain environment, not only for this quarter but for subsequent quarters.

So can you just help me square those two things as it relates to your confidence level in the second quarter and why the wider range if you have all this momentum in April and perhaps even into May?

Yes. Look, as Bob mentioned, if you just list foreign currency, the euro is dropping significantly. You have the inflationary impact of Ukraine. It isn't so much demand that we're worried about. It's the massive spike in energy. You saw the cutoff to Poland and Ukraine. You have a cutoff to Germany. Energy costs are through the roof. And it happens very fast, including then anything we buy.

And then you have the China situation. We have no crystal ball for what's going to happen in May and June. Our Head of China -- our Head of Asia, it took her an extra month to go back to China at the end of February, as she was here in January, because there were no flights. And since then she was been locked down. So it's just -- and one, we have people leaving the plant. So if that continues for another 2 months, that will have an impact.

So that's on the down. On the up is everything we talked about. We see prescription accelerating. We see good demand in Europe and in the U.S. We still have supply chain issues in the U.S., but they are abating. So that's why the broader range. But yes, overall, you read it right. We're very confident. And at the midpoint, it's an 18% earnings growth. So nothing to sneeze at, with uncertainty both on the up and the down.

No, I appreciate it. So -- and back to the China question. I know when you came in, China was a big focus area for you. And you thought there were tremendous growth opportunities there. And you fast-forward to today. I know you talked about reshoring to some -- your customers are looking to reshore to some extent.

But you fast-forward to today with the increased tensions between China and the West and obviously the lockdowns, the fact that China's population growth last year, I believe, was the slowest in 6 decades, it's a rapidly aging population. So I wouldn't think there are the same growth opportunities there that there used to be. How, if at all, has your perspective on China and the growth opportunities there changed, Stephan, from the time you took over to now?

Look, I'm trying to see whether I have additional things to say than what I said before. Remember that half of our business is beauty. The Asian, including the Chinese consumer basket, is overindexed by 2x the American or European consumer basket. So beauty is very important, continues to be very important. And that has not changed.

Food, healthy food for aging population extremely important. And the numbers are just significant. Now there was always also a more defensive view. Occupy the space before you give too much food to competitors. Maybe that defensive view is a little less pronounced. It gives us a bit more time to develop our position. But anyone who bets against Asia and China from a growth perspective, I think it's not prudent.

But you got to manage it. And I think we are growing steadily. I'm very happy with the moves we've made. Yes, this quarter and next quarter, it (inaudible) but the following quarters, we're going to be back. And let's not forget that we've been in lockdown for 18 months. So -- and yes, China shows a different strategy. And so they are now in lockdown.

The next question is from Angel Castillo of Morgan Stanley.

This is actually Sebastian Rivera sitting in for Angel. I just wanted to kind of get a little more color. Of course, sales to the beauty market increased 16%. And just kind of hear where your expectations were coming into the quarter and just how we should think about how that market works out to the balance of the year. It seems like the impact of European consumer and resurgence of COVID in China would impact this segment in particular. So any color on kind of (inaudible).

Yes. Overall, demand has certainly been strong, and we expect that to continue. This surprises a tad on the upside. March was very strong. And that allowed us to offset some of the headwinds we talked about, the $1.5 million reserve, the FX headwinds and still we stand in the middle of the range of the guidance we gave. So with the caveat of the China lockdown, I think that we see demand continuing.

Got you. That's helpful. And just a quick one, I'll turn it over. Regarding the capacity expansion for customer components, do you expect to have any start-up costs in second quarter?

Yes. The start-up costs that we're experiencing in the elastomeric division are expected. We're going to continue to incur those. Remember, this is a kind of multiyear ramp-up. So they'll be getting less over time. But we do expect to continue to incur some of those start-up costs for the remainder of the year.

We now have Justin Lin of William Blair.

I want to focus on the Pharma segment here. Regarding your prescription business, is there any key product conversion opportunities coming up, for example, converting injectable to nasal in the short term?

Yes. Thanks, Justin. Look, a big part of the prescription growth is all about conversion. Whether it's milestone that they converted from injectable to nasal, whether it's some of the other emergency treatments (inaudible) and so on, or the allergic rhinitis business going from oral solid dose to nasal delivery. So that is what's fueling the pipeline. We cannot talk about any individual project unless customers revealed it.

Growth in the injectable business is really driven by biologics growth, by vaccine growth and the migration from the large multidose vials to single-dose vials and prefilled syringe. You can call it conversion, if you like. But clearly, the injectable unit is all about the power of biotech coming into the pharma space in a major way and us being ready with strong product to fulfill that demand.

Got it. And I'm glad you mentioned that. In terms of injectables, how is the quarter in terms of your order book? I understand that it's not a big part of your business currently, but are you still seeing COVID orders coming through? And what about non-COVID biologics?

Yes. We continue to see good order -- a good order book developing both in vaccine and biologics. And again, as I mentioned earlier, what we see is the kind of people focusing on the next-generation vaccine and the annual vaccine, maybe combination vaccine with the flu and converting that or migrating it from the multi-dose vial to single-dose and prefilled syringe, which will only help us and more favor our premium COVID products.

Okay. Understood. And just the last one for me, I promise. Do you have any early read on your clients' view of the COVID flu season coming for this fall? Will this be a normal upcoming season for prescription and consumer health? Or I guess asked another way, where do you think we are versus (inaudible)?

Well, I'm not sure that I can give you a crystal ball. But clearly, this is a normal, maybe strong cold flu season. You hear and see colleagues around you getting normal colds and flus as opposed to COVID. You see it in our consumer health care business, which is pulling very strongly. And you would think that people who go through that experience better want to get their flu shot. So this portfolio is not a crystal ball, anything I can do.

And maybe I should add that with this kind variance of Omicron, it has much more cold and flu like symptoms. And so you have people treating it like they would the normal cold and flu anyway. So you kind of have a convergence of the two as well. It's runny nose, sore throat, those types of things. So that's also kind of now melding together.

We now have Daniel Rizzo of Jefferies.

I was just wondering if and when costs do roll over, how sticky are your prices? How much price concessions do you have to make in a deflationary environment?

Yes. I mean (inaudible) is what is contractual, which is mainly raw material on the polymer side. Everything else is negotiated prices. And (inaudible) those things and by and large, we have differentiated products. And we should be able to hold on to that.

And if -- I mean things keep going higher. I mean could we see some demand destruction or continuous, I guess, mix degradation? I mean just given consumers pushing back. I guess, is that something that's happened in the past where you've seen demand destruction amongst your products? I mean, obviously, I would think mostly outside of Pharma.

I would say, historically, in the past, you have certain trade-offs, right? So you may see smaller packaging, right, which is (inaudible) which is a positive for us, right? More units sold. You may see the shift to private label, less expensive products. We serve that market as well.

So I would say that past historical pressures on the consumer have been met with different choices. And that's the beauty, I think, of where we play. We play across the whole spectrum, right? We serve prestige fragrance as well as masstige fragrance. We serve private label on personal care as well as branded.

So those are the types of historical patterns that you've seen. I mean what I would say is COVID has certainly been a significant negative for us, including missing a year of demand for cough and cold and allergic rhinitis. But a generic recession, if there is such a thing, we should fare fairly well and have done in the past.

We now have Gabe Hajde from Wells Fargo Securities.

Not to, I guess, belittle in trying to revisit the price-cost situation, Bob. I just put some numbers around it. I want to say you were $27 million behind on price-cost from 2021. I think I heard $5 million, so now we're at $32 million. I appreciate the treadmill seems to be just getting turned up and it's going faster. But the expectation would be you get that back at some point? And maybe it's 2023 when kind of margin or price-cost restoration transpires.

Is there a risk? So first, can you confirm those numbers? Two, is there a risk that some of it gets lost in translation? So some of that prior question was that you don't get it all back.

So yes, your numbers are pretty close. I had between $27 million, $28 million for last year and roughly $5 million for this year. So your numbers are pretty spot on to what we're tracking too.

Is there a risk we don't catch up? It's really hard to say. The further on, if you go, everything kind of blends together. But I mean we have put out multiple price increases, right? So those have to kick in and cumulatively.

Like I said, it's really more on what happens on the cost side. I'm convinced that the pricing that we pushed through should be sufficient for what we've seen in the past. What I can't foresee or foreshadow is how much more it's going to keep increasing and how much more price increases we'll have to push through. So whether it takes to '23 or whether we'll catch up at '22 is really difficult for us to put a target out there.

No, understood. And then one, I guess, quick housekeeping question. Corporate was a little bit elevated this quarter. And I want to say the $1.5 million at reference was in the Pharma segment. I'm assuming it was directly in there. So is there anything that we should be mindful of kind of forecasting going forward or that occurred this quarter?

Sure. So yes, Q1 is a little bit higher than what I would kind of project going forward. I would probably target more in that $15 million to $16 million range for corporate. Like we've seen in the past, some of our equity awards, the accounting rules change when people hit certain substantive vesting threshold. Meaning that awards which normally might have been expensed over the 3-year LTI period get expensed immediately.

So you got a little bit more of an increase in Q1. You've also got, comparatively speaking, a higher accrual level for STI due to the improvement in the business compared to the prior year. And we've got a little bit more on the professional fees. But I would say run rate, Q1 will be now historically a couple of million higher than the other quarters. So I would target more in that $15 million to $16 million range.

We now have a follow-up question from George Staphos of Bank of America.

It's late in the call, so I'll ask these in parallel. First, it seemed like, Stephan, from the new product discussion that there's a bit more momentum, more interest in SimpliSqueeze. Is that a fair assessment? Or is it just coincidental in terms of what you're seeing now in terms of the pipeline?

And if it is a little bit more traction you're seeing in SimpliSqueeze, is there a margin implication across your business? Is that better or worse for you mix-wise, if you can talk to that. And then a lot of questions, obviously, on margins, on price-costs and so on. And you talked about the momentum that you're seeing across your businesses. And you ultimately think you'll be able to get the pricing that you need.

Pharma aside, Food + Beverage, Beauty + Home have still been sort of lagging on, on margin. We'll assume a lot of that is just the price cost. Is there anything you have left to do that you don't already have contemplated in the transformational Beauty + Home or any of your other manufacturing plants that could improve your cost side?

So forgetting direct margin, forgetting about resin, is there anything left that you need to do to improve your margin traction in Beauty + Home and Food + Beverage from an ops standpoint?

Thank you, George. So yes, on SimpliSqueeze, I would say we certainly see it also moving to Pharma, into Beauty + Home. And whenever the valve is in there, that is a positive for margins.

So a reminder, no single product launch moves the needle. But if I just pick one from last quarter, the new dishwash product by a major company that starts with a P and then a G is the game-changer. And that will certainly bode well.

On Beauty + Home and Food + Beverage, from that order, we are never done. I think I mentioned in the last Q, we have some additional ideas of what we do there. We are not quite in '19 levels volume-wise. Clearly, volume is good, that's great, but we're not done on the margin side. Clearly, we have margin compression with the pass-through but that's not making us rest. So yes, there are additional ideas and the teams are busy with that. And when we can discuss it, we will. But we remain committed to get there.

As we have no further questions, I'd like to hand it back to Stephan to close.

Thank you. Thanks for joining us, and we look forward to see you on the road including virtual and in person.

Thank you. That will conclude today's conference call. Please have a lovely day. You may now disconnect your lines.