Aptargroup Inc (ATR) 2003 Q2 法說會逐字稿

(CALLER INSTRUCTIONS) Ladies and gentlemen, thank you for standing by. Welcome to the AptarGroup's 2003 second-quarter results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Introducing today's call is Mr. Ralph Polterman, Vice President and Cheshire of AptarGroup. Sir, please go ahead.

Good morning everyone. Before we began I would like to point out that the discussions to follow includes some forward-looking comments and actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause the actual results to differ materially from those projected, or contained in the forward-looking statements, please refer to AptarGroup's SEC filings. The information in this conference call is relevant on the date of this live call. Although the company will post a replay of this conference call on its Web site as a service to those investors who were not able to listen today, the information contained in the replay will be dated. It should be used for background information only. The Company undertakes no obligation to update material changes and forward-looking information contained therein. Our speakers for today are Mr. Carl Siebel, President and Chief Executive Officer of AptarGroup; and Mr. Steve Hagge, Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Mr. Siebel.

Thank you, Ralph. Good morning everyone. This is Carl Siebel speaking, I will briefly discuss the quarter and the outlook before turning it over to Steve Hagge who will provide more detailed information about our results. In yesterday's release, we reported quarterly earnings per share that were an all-time high. We also announced that we increased the quarterly dividend rate by a penny per share. Our ability to offer innovative new products and further penetrate the markets we serve mitigates the effect of continued price competition. Overall sales increased due to strong organic growth and from the impact of the weaker dollar on the translation of our foreign sales.

Particularly strong was the sales for the food and beverage, personal care and fragrance cosmetic markets, while sales in the pharmaceutical market were slightly higher than the prior year. The higher cost of imports to the U.S. continues to offset the favorable impact of the weaker dollar on the translation of foreign denominator results; and adversely affected operating income as a percent of sales. However, operating income in dollars increased over the prior year, mainly due to increased sales and our continued focus on cost reduction. The higher operating income and the lower net interest costs have drived earnings to a record level. Now taking a look at the third quarter, our horizon of visibility of sales continues to be short. We are seeing a modest reduction in the incoming order rate from our fragrance cosmetic customers and we expect this to be more than offset by increased sales to the other markets. We expect the organic growth and sales in the third quarter to be in the area of 5 to 10 percent over prior years level. Also we are currently anticipate diluted earnings per share for the third quarter 2003 to be in the range of 50 to 55 cents. At this time, Steve will review the financial results.

Thanks, Carl, and good morning everyone. I will review the financial information and then Carl and I will be happy to answer any of your questions. For the quarter, reported sales increased 24 percent, whereas excluding the impact of foreign currency translation sales grew approximately 11 percent from the prior year. Now looking at sales at each of the markets for the quarter excluding changes in foreign currency, in the food market we were up almost 50 percent on a year-to-year basis. Personal care, up in the upper teens, fragrance cosmetic, we were up in the low teens percentage-wise. Pharmaceutical up low single digits. Our household business was down in the mid-single digits, and our other non-packaging business was down approximately $1 million from last year.

The increase in sales includes approximately $6 million more tooling sales recorded in the second quarter of this year than in the prior year. Our cost of sales as a percentage of sales during the quarter was 1.7 percent higher than we reported the prior year. This percentage was adversely affected by the higher cost of imports into the U.S. that Carl mentioned earlier; the increase in tooling sales which bears a gross margin somewhat less than our normal product sales,; resin increase is passed on to customers, again with no increase in the margins; and also price competition. All of this was offset by continued cost reductions in all of our operations.

Higher G&A, higher cost sales percentage was offset by slightly, by the improvement in the G&A percentage and resulted in the operating margin for the quarter being less than the prior year. However, operating income in dollars increased over the prior year. Below the operating income line, lower net interest expense helped improve our bottom line, and allowed us to report record high quarterly earnings of 58 cents per share for the quarter. From a geographic basis, sales to customers by European operations represented approximately 59 percent of net sales in the quarter, and that compares to 52 percent last year. And sales to customers by our U.S. operations accounted for 32 percent of sales in the quarter, versus 40 percent last year. The increase in our European percentage is largely due to the strong euro when you compare to the prior year. Excluding changes in exchange rates, the Dispensing segment sales increased about 13 percent, and are Seaquist Perfect sales increased approximately one percent.

Cash flow from operations for the quarter was approximately $34 million, which was slightly above our prior year level. Looking at our balance sheet, our return on average equity was approximately 12 percent, and our net debt to net capital is approximately 14 percent at quarter end. Our capital expenditures for the quarter were approximately $17.5 million.

Now looking on a year-to-date basis, our reported sales increased 22 percent whereas excluding the impact of foreign currency transaction sales grew at approximately 10 percent from the prior year. Our cash flow from operations was approximately $56 million compared to $64 million in the prior year, and CAPEX for us was through the first six months, $36 million compared to $42.5 million in the prior year. As we look forward, our total cash outlays for capital expenditures in 2003 are expected to be in the area of 80 to $85 million, with depreciation and amortization expected to be in the same range. And I would like to point out that both of these may change depending on what happens with the exchange rates. Our overall effective tax rate is still expected to be in the range of 33 to 34 percent for the full year. At this point, Carl and I would be glad to take any of your questions.

(CALLER INSTRUCTIONS) George Staples (ph) with Banc of America.

I wanted to get a little bit into the margin question. You enumerated several things that impacted margin. Obviously resin pass-through hurt your margins. If you could, somehow extract out the impact of transaction tooling, etc., were your margins still down in your businesses quarter versus quarter? And Steve, could you tell us what the transaction impact was. If you had said previously, I missed it.

I guess if you -- let me answer the first part of the question -- if you take out the impact of tooling and the net translation transaction impact on margins, would have been even to slightly even up over last year. So first of all, in the tooling side as we mentioned, tooling sales were up about $6 million over the previous year. Our margins on the tooling are considerably less than our overall margins. Most of that relates to custom projects by our customers. And we are actually selling in tooling to get future business, so our margins in that area tend to be between 5 and 7 percent, basically to cover our cost. The net translation transaction impact on the operating income line, George, is around 2.5 to $3 million negative. So it is somewhat less than that as the cost of sales. However, we don't have that number calculated.

Fair enough. That was a pretty big slug. You always mention in your press releases some element of pricing pressure. And that is the way of the business. But the tone I read into the press release seemed like it has been maybe a little bit more intensified. I don't know if that is true or not, but could you comment in terms of what's been going on with pricing and what the outlook is for the next six months?

George, the question is naturally somewhat difficult to answer in a general way because it is very -- it is somewhat different from market to market we serve. But overall, we did not want to convey that this has intensified. As you said, it is a continued effect of the business, we have seen it varying from market to market, but overall we do not think it is intensifying. And it continues to be offset by our new product introductions, product introductions for our customers and so one.

Last question and I will turn it over to the other guys. In terms of the order reduction that you're seeing in fragrance, can you give us a little bit more color in terms of what that relates to, and how short-term your customers have said this should be or how long of duration it should take? Thanks.

George, it relates to a comparison between the first and the second quarter. In effect, as we said before in the first quarter our order income was very significant, very strong, was higher than sales and so on. It has flattened out somewhat in the May, June period. That can be interpreted as being usual ahead of the vacation period. We have also seen at some of our major customers that they have most likely following the 35 hour week organization in France, we organize their annual manufacturing and we've seen several of our larger customers closing down their operations for several weeks in August in France. And most of our business as sold in France. And that may be one of the reasons why we have this downturn in our order rate income. We are not saying that we've seen that in the sales as such. So we are cautious for the third quarter. We have a continued very short visibility in the business, that's true for all our businesses but it is also true for the fragrance cosmetic business. So the judgment is very difficult. What is the reason? We certainly don't see the same inventory levels we have seen in the second quarter of 2002. So we rather believe that this is a short-term effect. We don't interpret this at this time as being to be compared to the beginning of a downturn, which we had in 2002.

Okay. Thanks, guys.

Tim burns (ph) with Cranial (ph) Capital.

I guess you can look at the tooling increase, you know it's like a dual- edged sword. It hurts margins, but obviously there is a lot of project that were going on. Could you speak to that? Should we see a benefit from this tooling investment at the expense of margins longer-term?

Let me touch on a little of that. I think that first of all, I think you are correct; it negatively impacts the margins. But tooling isn't our main business, it selling product. So you're right, long-term it tends to benefit. What we are seeing I think is a couple areas. Number one, as I mentioned, we continue to expand our food sales. And what this is really doing you're seeing some of this tooling coming in for new customized food packages that our customers are paying for, which is helping that growth. Secondly, we are continuing to see our pharmaceutical customers add new projects, which also come into the tooling side. So while this was an uptake, we continue to see a positive. It does reflect more customization by our customers versus some of the standardization we saw in the past.

Well, it's a good thing, I guess, net-net.

Net-net we would consider it to be positive.

It's an investment, right. It's like buying a new machine or something.

Fortunately, it's an investment paid by the customer, not paid by us.

Right, yes, that's a good point. You're using their capital. So the, Steve, and Carl, we had talked -- I guess there's been some conversation about the food and beverage market. I mean high-volume, historically less sophisticated, more cutting-edge pricing. But it appears you are slugging ahead there, and I wondered if you could give us some idea as to the experience because it looks like that segment is a target growth market. And it looks like it has been hindered margins yet.

No, the contrary. In this market, where does our growth come from? It comes from our innovative products, which are seen as help for convenience and also for the differentiation of convenience for the consumers and differentiation potential for our customers and if you remember, the Heinz Catsup introduction in the United States, with the advertising around it, and by the way their very strong success, which has let them led them now to go into Europe and to introduce the same product in Europe. We have just seen in England the introduction, where they have come up with a $40 million investment in marketing and advertising for the product, highlighting again our closure. And highlighting the considerable convenience advantages of the product based on our closure. Because of all these advantages, with these products the customers are able to justify higher prices, which in higher margin for us. In effect while I think it's an important point to be made, that you are right. The food business is a very competitive business in general, and you would expect that there would be margin pressure. For us, the addition of sales with higher margin, with better profitability than our normal closure business.

So it is net-net so far it's working out. I guess my last question is there has been some significant ownership change, i.e. Risdon, Risdon Pharma on top of the previous purchase of Risdon made, and there is also lets a some instability in the ownership of certain assets out there who largely competitive with you guys. Has that helped you, or have customers come to you because of stability, I guess what I'm worried about is could pay our friends UK Risdon, and others become, let's say stupid on price just to make a mark? And are you seeing that, or do you anticipate seeing that?

No, we have not seen that. Risdon has, as we would judge a comparable policy in marketing and pricing in other areas where they have been competing with us in the past. So they were rather like us, banking on innovations and good margins rather than cutting the pricing. And if you talk about the risk in Pharma acquisition they did, that in effect is a business which is not really directly completing with us. This is a contract molding business for pharmaceutical devices like the dry powder in (indiscernible ) and that is the business we are presently not in. But anyway, the more important response to your question is that we do not believe that Risdon will be trying to buy market share.

Good. Well, thanks very much, Carl. Steve, Ralph, thank you.

Ghansham Panjabi (ph) Lehman Brothers.

You know the volumes in the personal care business for much better than we had expected, especially while some of the major customers are reporting, you know, the best way to say the sort of sluggish volumes especially they are data-tracked by IRA (ph). Can you help us reconcile the difference?

The major reason again I think is that we were also successful in the personal care market with a number of new product introductions. We have been selling to one of our major customers being Biosoft (ph) an upside-down pump system for suntan lotions, which was innovative and is improving the performance of the product for the consumer. And I just give you this as one example. This is drawing other potential customers to this device from Aptar, and we believe that essentially we are improving our position in the personal care markets by innovations successfully.

I think also in that area, you've got a couple things. One, the sun care market as a whole, while it may not be growing in total, it is growing into dispensing side systems. So that has helped us, and also some of that tooling income that I talked about earlier, related to the personal care market. So there's a combination of things impacting the marketplace.

Okay, and also in terms of guidance, over the last couple of quarters you seem to have easily beaten your own guidance that you have given us? And I just was wondering why the cautious tone from third-quarter, especially where consensus is? Is there something specific that you're seeing, are you more worried about fragrances?

The only specific we mentioned is the order situation in the second quarter for the fragrance cosmetic business. And as I explained already, that may very well be viewed to reorganization of the manufacturing in some of our major customers in France. And in general, the very short visibility, which continues to be the case in all of our businesses. And that is true since about 1.5 years.

And finally, what is your outlook for the pharmaceutical business in the second half?

We believe that we will have reasonable growth in the single digit area for the second quarter.

Great. Thank you.

The second half.

David Saks (ph) with Hockey (ph) Capital.

-- caught a couple of ones I was focused on. If you could just give us -- you can talk in terms of the second half outlook for food and personal cosmetic, if you could just talk about what drove the second quarter in terms of volume growth, and how those trends portend into the second half? And then just a question a balance sheet, you raised the dividend a penny a quarter, but the Company has rapidly delivered. What are your thoughts in terms of your balance sheet in future dividend policy or share repurchase going forward? Thanks.

To start answering your question, David, on the side of the second quarter growth in personal care and in the other areas of the business. As we mentioned, the biggest growth we have seen in the second quarter was in the food and beverage area where we were close to 50 percent increase. And that was driven by very strong momentum of new product introductions by our customers using our closure Simpli-Squeeze for inverted packaging. And there has been more and more appearances of this these kinds of products on the shelves, drawing continued new interest in our Simpli-Squeeze closure system.

On the personal care market, we have been very successful with a couple of new product introductions over the last two or three years, and that drive continues as the certain conversion of customers from non-dispensing to dispensing. In the personal care area there is also utilization specifically, that we see a trend beginning in the United States of customers trying to differentiate their products, using our special activator spray caps and so on. That's another trend which is helping us. We also have in the personal care sector more and more interest for Simpli-Squeeze again, not only the food area but also the personal care area. And in the perfumery cosmetic business, there was a comeback from below levels of the year, the second part of 2001 and the first half of, in the first half of 2002. And also renewed and a very strong new product introduction by our customers in the perfumery cosmetic business. Maybe Steve, you can take the financial.

I think David as you mentioned the balance sheet continues to be in pretty good shape for the company. We feel strong balance sheet, as you mentioned. We, as the dividend payer, we pretty much targeted to be the dividends in that 10 to 15 percent in terms of the payout ratio. I think we are that reflects I think the one cent per share increased to that. In terms of share repurchase, our focus has been historically to make, to try to have share repurchase be balancing option exercise and we're pretty much at that, certainly is the cash, as you said, it accumulates on the balance sheet. We continue to look at investing in potential acquisitions as we do on a normal basis. And we always continue to revisit where the dividends are. So that is an ongoing process that we will continue to reevaluate on a quarter by quarter basis.

Lastly, quickly, inventory levels at your customers in the channel, you mentioned I think it was in fragrance and cosmetic that you thought the inventory bubble from a year ago had sort of worked its way off. Are inventories pretty clean as you look at your customer relationships?

That is naturally very difficult to gauge, David, but our perception, it can't be more than a perception is, that we certainly have not reached the inventory levels which have been built up in 2001 and in the beginning of 2002. And the big question is what inventories have already been built for the Christmas, upcoming Christmas season, how good were the sales on Mother's Day -- we don't have any figures on those yet -- what was the influence of the Iraq War and the SARS effect on travel in the first part of this year. There are so many influences going positive and negative, we see a continued growth of the demand for fragrance cosmetic, for example and also for personal care product in Eastern Europe and in Russia. Very strong increases, if you look at press information given by our customers like Avon and so on, you see very strong growth in those areas. So it is for us from our perspective very difficult to see. And at the very end, we do not believe at this point that there has been any comparable buildup of inventory in the business as has happened in 2001.

Great. Thanks. Good quarter, I appreciate it.

Greg Halter with Great Lakes Review.

Wondered if you could comment specifically on SG&A increasing about $7 million on a year-over-year basis, any specific line items that would account for that increase?

The biggest part of that growth as currency. If you look at our foreign currency is up on a year-to-year basis, the euro is probably almost 20 some percent over, so as you can see percentage-wise it has actually gone down as a percent of sales. So in terms of spending, there hasn't been any major shift. Our R&D, which is a major piece of that, is running 3 to 3.5 percent to overall sales. But the major increase in terms of the number is actually coming out of foreign currencies.

Okay. Regarding cash receivables inventories each one of those are up, as well I presume part of that is due to currency, but can you comment on each one of those three areas?

Sure. Let me give you, on the inventory area we are actually seeing what we do is we do a real rough calculation. We take our most recent quarterly sales how much have we had in receivables and inventory. Both of those are basically consistent with where we were prior quarter and actually somewhat better than where we were a year ago. So in terms of days sales, we've actually improved in receivables and inventory. So again, the dollar growth that you see is foreign currency based. Cash is really increased by foreign currency. That is about 8, let's say about $8 million of that would be foreign currency based. But we are also generating excess cash, which would be due to the profitability and the balance sheet positives.

And what breakdown of cash is in the U.S. versus in Europe?

The majority the cash that we have on the balance sheet is outside the United States.

Okay. And the short-term debt piece is about $100 million now. I presume that is some of the long-term switching over or --

What happened is, we have a revolver that comes due in June of 2004. We are in the process of renegotiating that revolver since it was due in 2004 it has always been reflected as long-term. And since we are now within a year period, it has moved to short-term. We don't anticipate, we've had ongoing discussions on negotiation of the revolver and don't anticipate a problem in renegotiating our position. But we just hadn't completed it by the end of the quarter.

Great, and do you have a figure on your blended interest rate as well as how much is variable and whether or not you're going to fix any there?

I would say our blended rate is in the area of about 4 percent, and we are roughly 50-50 fixed to variable. And right now, kind of looking where rates are at, we think that gives us some flexibility on the variable side and so that we got it really between like 60 and 40 percent, we try to gauge -- that is kind of the windows we look between, fixed and variable.

Okay, and Carl, I know you always love to do this but I would like to get an update on the new products that are potentially out there. Or some of the new products.

Maybe the one which has been getting the biggest attention on the market is the texture changeover from normal plastic bottle with the normal snap top closure, dispensing closure to an inverted package, using our Simpli-Squeeze system. Heinz was very successful in the U.S. markets. Their competitors have also moved to that package, and now Heinz is there with a major advertising campaign in Europe. Again, using our closure and what is really happening here is that the move to inverted packaging is helped so much by our closure system. So the combination of our closure system and a plastic bottle which sits on its head is really a category change, as we would say. And it rolls also to other sources; to honey, to mustard, and all, so there is a huge potential of conversion to our systems, which our patented also.

To move to household products, again inverted dishwater wash product is now on the market, and as I mentioned, mustard, and there is cream toppings. So there is a huge potential in that market. So from -- and again, with the Simpli-Squeeze product line, we are able to increase our margins, and the same sort of it is happening at least in some areas of the world with bottled water.

Again, a market which is already big, it's a 10 percent growth in general reported in Europe and the U.S. for bottled water, and so it is already a big volume. Some of those are using a more old-fashioned closure, and some of them are still -- a very large portion is still using a normal screw-on cap. We have some very interesting projects going in the pharmaceutical industry. We have one major customer who has already invested in the area of $10 million with us to prepare a product launch in the pharmaceutical area. That has also then one of the reasons why our tooling sales are going up, that pharmaceutical customers are introducing -- when they introduce major new products like this that they are willing to finance the investment (indiscernible) and assembly equipment.

The lack between the investment by the customer and the real marketed deduction may be considerably larger than what you would see in the food and beverage industry. But on the other hand, the potential then also in volumes and margins for us is excellent again.

Okay.

So, overall, the new product activity in really all our markets continues to be at a very high level.

And can you comment on acquisition prospects, given the company's much improved balance sheet?

Greg, we don't ever comment specifically on acquisitions, dispositions or whatever. But as you said, we've always been and we continue to be looking for good fits for us that make sense strategically. So that hasn't changed.

And one last one, in the past you've discussed insurance costs and pension costs. Any comment on either one of those areas?

I can give you on the pension side; we've been running -- last year, our pension total expense for the year was around $4 million. We would expect that to be up to around 5 or about a $1 million increase from overall. As we've mentioned on previous calls, we've tended to be very conservative to that in terms of our discount rate and assumptions. And that has all been reflected so far into the financials for the first six months. We are continuing to see some increases, but the increases are slowing down in the insurance market. So probably our biggest increases that we saw was in the director and officer premiums. But again, nothing nearly as high as what we saw in 2002.

Thank you, and good quarter.

Robert Dilelio (ph) Neuberger Berman.

It appears a fair amount of your momentum in some of these markets is clearly being driven by Simpli-Squeeze. Can you give us what your revenues have been year-to-date for Simpli-Squeeze, what the comparison looks like against last year, how powerful that driver is to the organic growth you're seeing?

Well, I think Simpli-Squeeze overall to date is going to be -- we expect it to be running in the area of 40 to $50 million in 2003, in terms of total sales. That is going to be up almost 70 percent over what it was in 2002, 70 to 80 percent. We are pretty much on that pace going forward. So we, like you said, we see a lot of momentum. So we think that that business has got significant potential to go forward.

Is there any way to size that market? I mean, you get in a situation where Heinz, for instance, sticks it on their ketchup and then all of a sudden, everyone else has to imitate them to the extent it is successful. I would think that would happen in lots of different markets. What is the market potential for this thing?

I'll let Carl speak to it, but I think -- you are right, is you are getting good category changes where inverted, for example, there is all kinds of dispensing systems now moving to inverted, given Heinz's success. So the food market itself could be -- it's so big, it's tough to quantify that. Carl?

For example, the other market, the bottled water market is estimated to be in the area of 12 billion units between the U.S. and Europe, not counting Asia and other parts of the world. And that market is estimated to grow about 10 percent. So you have -- some part of that as using the so-called push-pull closures. Most of it is still using the simple screw-on closures. So you have the growth of the total markets plus the conversion effect potential to our products. And we have seen some of our customers using our Simpli-Squeeze system, really making major efforts in advertising and to stress the improvement of the packaging of the content of the bottle. And you see this more and more. You've seen this, you may remember, about the ketchup bottle from Heinz where you saw all over the place on the bottle highlighting the improvement of the packaging. And you see this on the mustard package, you see it on the honey packages, and it's really a very broad movement. And these numbers in these markets are astronomical.

So then it's anybody's guess how much of that could potentially move. But the inverted packaging is so logical compared to, and the problem in the past with the inverted packaging, if you open the bottle, you get this huge quantity, potentially immediately, of product coming out. And now we are -- it meets the pressure on the bottle even once you've sort of opened it in order to get the other product come out. So it makes -- you also have the action from consumers. Some consumer tests have shown that people are going back to the bottled water. When they try to drink that, they get too much water coming out. And now they can control it with a very simple device being Simpli-Squeeze. So there is a real important consumer convenience improvement with this system.

You've been working with a number of European bottled water companies, as I understand it on Simpli-Squeeze. And you said they're advertising it aggressively, but is there any indication or is it too early to know -- I would assume that their success in the market will (indiscernible) that adoption by others to some extent. Is it just too soon to say, similar to the ketchup experience, this is really taking off?

Naturally, on the other hand, these kind of customers are conservative because they have filling equipment, which is adopted to the present packaging. So they have to go through some changeovers on their filling equipment before they can use our closure system. Other than that, we believe that we have seen very, very strong interest over the last two years in our closure system, and we believe there is a very strong momentum going.

And we have quite a few number of products in the European market, where in Italy on a product from San Pelligrino, we are in Germany in several products, we are in France in several products. We are some high visibility sports drink in England. So we have achieved already a very good visibility, especially due also to the advertising which I mentioned on television and so on, which our customers are making, highlighting our products.

Just another question on the pharmaceutical side, a drug for delivery systems, there was a recent approval by (indiscernible).

Plumis (ph), you're talking about?

Yes, it was sort of the adopted syringe for inhalation therapy.

Yes.

Does that say anything about the speed with which we are going to see additional --

The positive side on this is that this is -- I mean, it is not a real pump system as ours. It is, as you just mentioned, a syringe type product. But still, it will most likely get the consumer familiar with another way of putting the flu vaccination into the body. So we believe that this is the beginning of a movement. As we've said always, we have a lot of project with several customers, which we are working since quite a few years. And we are expecting that with this first breakthrough that the FDA has finally approved a nasal delivery for the first time on flu vaccinations, that there will be others, potentially bigger ones which will come to the market eventually, but it's very difficult again due to all the circumstances you are aware of to predict when that will happen. But we have a lot of projects in this area.

And from your standpoint, and understanding we are dealing with the FDA here, the applications that appear to be the closest in the pipeline would be what? From your standpoint?

We cannot comment on that unfortunately due to our confidentiality agreements with our customers.

But in terms of just general therapies, are we talking for diabetes, or flu or what?

Well, in this case, both, we have projects on insulin and we also have quite a few projects or flu vaccination.

Thanks.

Vincent Rivers with Fidelity Investments.

I had a technical difficulty so if this was already asked -- but I was wondering if you guys can give us a little help on the resin side, I know it's a pass-through for you specifically, but what are you seeing in the market out there?

First of all I think when we talked pass-through, the pass-through for us relates primarily to our closure business, which is the heaviest user of plastic resin. So that is a pass-through both up and down. But in terms of the overall marketplace, certainly we saw significant increases in resin occurring in the middle of the first quarter going through a good part of the second. Most recently, what we had seen is that market slowed down where we are now seeing some downward movements in prices on the resin side. We expect that to be kind of flat to down in the third and the fourth is still opens. But right now we see some of the upward pressure certainly subsiding.

If we look at the 3Q versus 2Q, then, you think it will be -- you were on an upward slope and now it is slight and down, do you think you end up about the same, or do you end up still with a higher average than in 3Q than 2Q?

Depending on the timing, I would still probably, right now what I'm giving you is pretty broad, because we are also talking a worldwide basis. I would say on a whole that we would anticipate Q3 to be probably at about the same level because we had increases going throughout Q2, they are coming down but I'm not sure we are going to abate all the increases when we get to the end.

Thanks. That's all I had.

Anthony Kingsley with Fenway (ph) Park.

I'm just curious, on the pharmaceutical side, I think previously you had indicated that you expect growth to accelerate in the second half to the maybe the 10 percent plus area. And unjust wondering is this now growing a little bit more slowly than expected?

We are expecting growth in the single digits in the second quarter, the third quarter. And the reason is (indiscernible) some other major customers which are always very difficult to gauge or to forecast from our side. But there's no fundamental change, we have a lot of projects going on. We continue to expect that over the long haul we are growing this business double-digit.

Right, And how does the visibility look into 2004?

Very difficult at this point. Visibility in all our -- in all our businesses has shortened over the last two or three years. And that is true also for the pharmaceutical business. So we continue to have the issue of not being able to understand the inventory movement of customers. And there's no way, in spite of all the trying, to improve that. So for us we are very much relying on what the customers give us as forecast, and to a very large extent, unfortunately, these forecasts up and down, by the way, prove to be not very accurate.

And just another question, on the third quarter revenue guidance of 5 to 10 percent, just trying to get a better understanding here, what are the swing factors between being at the low and the high end of a range? Is it fragrance cosmetic, or have you put a pretty prudent outlook for fragrance cosmetic, and is there a swing factor between getting the 10 percent something else?

The third quarter, Anthony, is always the worst for us to forecast. Remember that you have the, in Europe you have the vacation period, where quite a few of our customers close down in August. So there is a very, very short-term visibility and also very short-term order patterns. A make estimate what they need. The may be right, they may be wrong. They may come back and with very short-term placements, they will suddenly realize we need something more. So it is really difficult for us to make an accurate forecast for the third quarter.

Okay. Thank you.

George Staples (ph) with Banc of America.

On that topic related question, realizing that in all your markets visibility has lessened over the years, which market or markets to do you feel you or your customers have the best visibility on, and then I had two follow ones.

The best visibility.

Is it lousy all across the board? Where is it best?

I guess there is not very much difference, George, between the markets. Maybe at the very end at least we believe after today that the pharmaceutical market was the best until we got hit in the last one, one or two years with some of our -- remember that in the pharmaceutical business there are only a few large customers. So one customer making a change, good or bad, makes a big difference to us. So except for those kinds of inventory movements we believe that our judgment on the pharmaceutical side in the visibility is the best.

You serve a number of sophisticated customers. I can't believe that P&G or L'Oreal don't have pretty sophisticated market tracking systems and data. And I find it surprising. Do you think that the visibility is not so much on their end, but that they are reluctant to share that with their suppliers? Is it perhaps a function of the fact that they just don't want to carry as much inventory as they used to? What do you think is behind it?

There is no question, the just in time movements around the world with all large customers has meant that when every small change of the demand which they get is translated immediately and adjust in manufacturing and adjust also supply arrangements with their suppliers. So that's naturally might apply to the situation. On the other side, I think that our customers also naturally have the same problem with their customers. The big marketers, nobody wants to -- I mean the large retailers, they certainly don't want to have anything on there where they pay for as inventory. So they try to move all the rest to the suppliers, to the marketers and then again try to move the rest to us. So there is a very short-term reaction, there is a very fast activity, sort of, and that makes the visibility for us so difficult. And then you have certain businesses like for example in the fragrance business, where large retailers force their suppliers, being the marketers, to take unsold product back. So it must be hell for the marketers to predict their requirements. If they have a retailer customer who can send them back product suddenly. The whole system has changed significantly over the last five to ten years. As I said, the just-in-time, the very low inventory levels at all places, and then also don't forget that these customers are now serving the world. They are not only -- they are not only relying on the U.S. market or the French market or whatever. They have to gauge the demand from Russia and from France and from India and whatnot. It is very difficult.

Carl, fair enough, good luck in the quarter. Take care.

(CALLER INSTRUCTIONS) Tim Burns with Cranial Capital.

With the old adage, you're in pretty good shape for the shape you are in? I think I heard that at the doctor's office the other day. I had a question for you. Carl, is that new product the soap product, is that made by Method, it looks like a lava lamp, upside-down type of thing?

The one that is sold, -- I think right now, it sold through the Target Stores. I'm not sure who it is made by, but we are on the product.

It is definitely an upside-down dispenser, I just bought one last night. It's very, very attractive. I think that's it. It looks like a lava lamp, though I think.

It has an interesting looking package.

I haven't seen it yet myself.

I'll send you one, Carl. $100 round-trip. Carl, I had heard that there was a shortage of closures, but this may have been for carbonated soft drinks as well as water in Europe, that one of the big companies that is not based in the York State, something like 8 billion closure shortfall. And I'm just wondering, I know there is demand for a lightweight carbonated soft drink cap, but I'm just wondering if you couldn't capitalize on that, because I think Pepsi I know cannibalizes -- well they basically use the same closure for both caps, it's kind of like a --.

It is a screw-on, I guess or is it a push-pull?

It's a screw-on, it's kind of a real monster cap for water, because it is built to endure carbonation but they buy it so large that it is still cost-effective. But I'm hearing there is huge shortfall, so I'm wondering if they wouldn't be happy to get any kind of closure.

What we have, our strategy as you know, has been based on selling product with several added values for the consumer in terms of convenience and so on. And we have, in effect, when we made a major acquisition of the closure field a couple of years ago, that company was only partly in dispensing closures, because of better returns we are getting and the higher innovation potential, we have reduced the investment there in terms of just (indiscernible) on closures. So based on our strategy, the risk, if you go with a huge customer like this, in enormous quantities you have a tremendous investment. That's what the investment community and in a relation to AptarGroup is all always very much scrutinized, how much we put into capital and those kind of things would be very capital- intensive and potentially very low return. So that is why we have not gone after this kind of volume business rather trying to convert the market from a simple screw-on closure to a dispensing closure.

I think the other side, the other difficulty has been, certainly ours has been primarily focused back to non-pressurized containers, so that was the other --.

But I know, sometimes they, water is hot, carbonated soft drinks are not, but I was wondering if the overall shortfall would lead them to be more accepting of a non-traditional closure for carbonated, not necessarily just for carbonated, but for water as well. Just a though, because somebody was making water closures, straight screw-on water closures could focused their efforts on carbonated soft drink and then let you guys enjoy the water business. Maybe that's what's happening, I don't know. Steve, one question for you I missed, you said the second-quarter cash from operations was $14 million.

No, cash from operations was around $34 million, which is a slight increase over last year.

And what do you think the full year will be?

Again, it's difficult to predict because you've got certain currency impacts to that. If you look at six-months we're (technical difficulty) between Europe 56, $57 million. So we kind of extrapolate that back out, I'm guessing it's in the $120 million rough number.

And I want to know the name of that company that is doing the nasal syringe. I missed it, was it Plumis (ph)?

The brand name is Plumis (ph), and I think it's Wyeth.

Thanks very much, guys.

At this time I am showing no further questions and I would like to turn the meeting back over to Mr. Siebel for any closing comments.

Thanks a lot. I would like to thank everybody for participating in our call today. So thank you, and good-bye.

I would like to thank you for joining the conference call. And you may now disconnect from the audio portion.

(CONFERENCE CALL CONCLUDED)