Aptargroup Inc (ATR) 2008 Q1 法說會逐字稿

Welcome to AptarGroup's first quarter 2008 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 conference call is Mr. Ralph Poltermann, Vice President and Treasurer of AptarGroup. Please go ahead, sir.

Thank you, Howard. Before we begin, I would like to point out that the discussion to follow includes some forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause 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 website as a service to those investors who were not able to listen today, the information contained in the replay will be dated and to be used for background information only. The Company undertakes no obligation to update material changes in forward-looking information contained therein. Participating on this call today are Peter Pfeiffer, President and Chief Executive Officer of AptarGroup, and Steve Hagge, Executive Vice President, Chief Operating Officer and Chief Financial Officer. I would now like to turn the conference over to Mr. Pfeiffer.

Good morning, everyone. This is Peter Pfeiffer. I will briefly summarize our press release and then comment on our Beauty & Home segment. Steve will then provide insight on our Closures and Pharma segments, and follow his second specific comments with his usual review of our financials.

I would like to take a moment to briefly discuss the successes in the acquisition area that were mentioned in our press release. Near the end of the quarter, we completed the acquisition of a 70% interest in a small specialized company in the U.S. called Next Breath, which provides contract services for the identification, evaluation and analytical testing of drop formulations with formulary and nasal drop delivery devices. This is a good complement to our existing pharmaceutical business, as it provides us with expertise that can help us further improve the performance of our system for the pharmaceutical market. This company's results will be included in our Pharma segment.

Shortly after quarter end, we bought the Bag-On-Valve assets of CCL Industries, who was a competitor in North America. The results of this activity will be included in our Beauty & Home segment and provides us with additional capacity in our growing niche as well as new Bag-On-Valve customers.

Turning to our overall results. 2007 was a record year for us; and, as a result, we are up against tough comparisons throughout 2008. In light of these comparisons, I'm especially pleased to report that we had record sales and profits in the first quarter of 2008. Sales increased in every segment. Segment income increased in the Parma and Beauty & Home segments, whereas the segment income for Closures decreased.

Now I would like to provide some color on our larger segment, the Beauty & Home segment. For the first quarter of 2008, excluding changes in exchange rates, Beauty & Home segment sales increased 7% over prior year. This is mainly comprised of a 6% increase in sales to the personal care market, a 7% increase in sales to the fragrance/cosmetic market, and a 6% increase in sales to the household market. Sales of our fragrance/cosmetic pumps and sampling systems, aerosol valves and specialty accessories increased in the quarter. We are seeing a slowdown in some incoming orders from the fragrance/cosmetic market, but our existing order book remains strong. Presently, we see reasonably good growth in the second quarter of 2008 for the Beauty & Home segment. I would now like to turn the call over to Steve.

Thanks, and good morning, everyone. I'll provide my comments, and then Peter and I will be glad to answer any of your questions. First, looking at the Closures segment. The first quarter for Closures was challenging, especially in light of the strong results of the Closures segment in the first quarter of last year. Compared to the prior year, first quarter reported sales increased 12%, mainly due to exchange -- changes in exchange rates, resin pass throughs and higher tooling sales. Excluding changes in exchange rate, the Closures segment sales increased 4%, which was mainly comprised of a 4% decrease in sales to the personal care and household markets and a 30% increase in sales to the food/beverage market, of which 19% related to higher custom tooling sales. The Closures segment income decreased mainly due to an unfavorable mix of products sold and weakness in demand from the personal care market and household markets which resulted in underutilization of capacity. We expect the Closures segment's result to improve going into the second quarter over the first quarter, and we continue to see increased interest in our unique dispensing systems and have many interesting projects that are expected to hit the market in the second half of 2008.

Now, looking at our Pharma segment, we had an outstanding first quarter with increases in both sales and profits in the segment. Reported sales grew 30%, while sales excluding changes in exchange rates increased 16% in the quarter mainly due to increased sales of our nasal spray systems. The improved profits of the Pharma sector in the quarter reflect higher product sales and better overhead utilization. From a new product standpoint, we had previously mentioned that Glaxo's Veramyst nasal spray for the treatment of allergy was approved in Europe during the first quarter. And yesterday, our customer Alcon announced that they had received FDA approval of their allergy drug Patanase that uses one of our nasal spray pumps. And besides these projects, we continue to have a high number of projects in the pipeline.

And finally, to meet local production needs of our Pharma customers in South America, we have just installed and qualified a new clean room in Argentina.

Now I would like to summarize our consolidated results for the quarter. As you've seen, our overall reported sales increased 18%. Changes in exchange rates accounted for 10% of this increase, resulting in an organic growth for the quarter of 8%, of which 1% related to tooling, giving us an organic growth rate in our product sales of 7% in the quarter. From a geographic standpoint, sales to customer by European operations represented 64% of net sales this year, versus 62% of sales last year, while sales to customers by our U.S. operations accounted for 25% of sales this year versus 27% last year.

We also benefited in the quarter from lower stock option of -- expenses, which had a benefit of about $1.5 million on a pre-tax basis, and due to our strong balance sheet, reduced net interest expense of $2.1 million again on a pre-tax basis. Our overall tax rate in the first quarter was 30% compared to 31.5% a year ago, and is due to lower tax rates in Germany and Italy, as well as higher research and development tax credits that we're obtaining in France. Diluted earnings per share increased 27% to $0.52 per share from $0.41 per share in the prior year.

Free cash flow, defined as cash flow from operations less capital expenditures, for the quarter was a negative $3 million versus a positive $8 million in the prior year. Our cash flow from operations for the quarter was roughly $39 million in the current year, compared to $34 million in the prior year, while capital expenditures were around $42 million in the current quarter compared to $26 million in the first quarter of last year. We spent approximately $16.6 million to repurchase roughly 450,000 shares during the quarter at an average cost of $36.82 per share. At the end of the quarter, the remaining number of shares authorized for repurchase was around 1.5 million. The mix of debt at the end of the quarter continues to be roughly 40% fixed versus 60% variable. And the average interest rate is around 4.5%. On a gross basis, our debt to cap is approximately 24%, while on a net basis, it's approximately 4%.

Looking forward, presently we expect our depreciation and amortization in 2008 to be in the area of $130 million, while cash outlays for capital expenditures in 2008 are expected to be in the area of $170 million. Again, both of these amounts could vary depending on changes in exchange rates. The effective tax rate for 2008 is expected to be in the area of 29% to 30.5% for the year. Looking forward, diluted earnings per share for the upcoming quarter are expected to be in the range of $0.60 to $0.63 per share versus the $0.52 per share we reported in the second quarter of 2007, which represents an increase in the range of 15% to 21%.

At this time, Peter and I would be glad to answer your questions.

(OPERATOR INSTRUCTIONS). Our first question or comment comes from the line of Ms. Claudia Houston from JPM. Your line is open.

Hi. Thanks very much. Just a couple of questions. I was curious, when you look across the business what evidence do you see, if any, the economy or consumers slowing. And when you think about your product pipeline across your businesses, how does it compare versus past years?

Hi, Claudia. You see, 2007 for us was a very strong year. I mentioned it already in my comments here that it is difficult to compare. If I would have to describe the situation today, we are somehow back to normal. We have fields were there is some downturn, some slowing in business, but we also have some fields where there is growth, especially in the emerging markets and specialty of, like, pharmaceuticals, in the Closure business or food and beverage. So in the future, we are very well situated with our diversity, in markets, in products, in the regions, so we don't really feel the economical downturn in one of these regions.

And I guess, Claudia, the other thing to add is, if anything, we're seeing a slowdown in fragrance cosmetic in terms of incoming orders. But we're seeing increasing projects for us in terms of the food beverage market and the pharmaceutical markets, and also our personal care business continues to do well. So it really is kind of a mixed bag as we go forward with an overall continuing positive emphasis because of the diversity of all of our products.

That's helpful. Can you notice any shift sort of in terms of the U.S. versus Europe from a demand standpoint?

You know, when I think you look at it from ours, from the U.S. and Europe, we're seeing, again, in the fragrance cosmetic, a bit of a slowdown in orders from both of those. But again, that is being balanced, frankly, by pretty strong movements in the developing markets, which has been strong throughout 2007 and still is very strong. And so then, when you look at our personal care and household markets, we pretty much see average growth going for both U.S. and Europe going into the second quarter.

Okay. Thanks. And then I just had a question. Last quarter you talked about your business improvement plan and rolling that out. I was just wondering if you could give us an update on how that's going so far.

Well, the one we talked about last quarter was the implementation of a new information systems program we're doing. That program has actually completed its first phase, which was kind of the blue printing of the project. Overall we are on time and on budget. We will be starting to roll that out as we go into 2009. So overall process continues to do well, as I said, we're on time and on budget.

Okay. Thanks very much.

Thank you.

Our next question or comment comes from the line of Ghansham Panjabi from Wachovia. Your line is open.

Hi, guys. Good morning.

Good Morning Ghansham.

How much additional capacity did you acquire with the CCL assets on Bag-On-Valve.

The CCL on the Bag-On-Valve in 2007 was approximately $10 million worth of business that CCL has done with those assets. Now, that's what they did last year. We actually think, based on the capacity, we can actually increase that reasonably significantly as we go forward. So I think we have a good base in North America markets for the assets we acquired.

And in terms of the fragrance business, going back to that for a second, have you seen any sort of pattern? Is it the high end that remains strong and the low to mid that's somewhat weaker? Because we're getting a lot of mixed data points out of your customers. Just some thoughts on that would be helpful. Thanks.

For the time being, we don't see anything specific on the high end or the low end. We are seeing some slowing incoming order on both sides. We think it is because of some inventory corrections. It may be because the Christmas season wasn't as good as expected. But this is a pattern which is true for both areas, high and low end.

So as we look at, you know, the rest of '08, is it fair to say that maybe fragrance is going to be a little bit slower compared to last year, Pharma in line or better than last year, food and beverage somewhat better and personal care maybe recovering the back half? Is that the right way to think about it?

It's difficult to say how long the corrections in inventory will last. We have some hope that the second half of the year, it comes back. But basically, you're right.

Okay. Great. Thanks.

Our next question or comment comes from the line of Mr. Ross Gilardi from Merill Lynch. Your line is open, sir.

Good morning, thanks, guys.

Good morning, Ross.

Good morning, Steve. Just a couple of questions. When you guys continue to talk about, you know, the strength of Russia and Eastern Europe and how that's been a key driver, can you give us a little help? You know, as a very rough passenger of sales, can you talk about what those two regions mean to the company in terms of what you sell directly there and what your customers might be supplying to those areas?

You know, it's a good question, but it's very difficult, because again, we supply those directly out of our European operations, which shows up as part of our European sales, or we sell them indirectly, where we sell to one of our fragrance and cosmetic customers. So really, Ross, what we're relying on is kind of the same thing you're doing. We continue to see companies like Loreal and some of those other competitors continuing to say that they're very strong, and that's whether we hear when we talk to the customers, but we don't have a bench point to be able to give you.

Steve, what about if you just take what you sell directly? How significant is that?

Well, again, what we do is, we only track where we're selling from, not into. So o I don't even have those numbers, Ross.

Okay. And on the Pharma business, it's just sort so if interesting, you're obviously seeing great trends there. But it just seems like this is an industry or end market that seems to be struggling and facing a lot of challenges, yet you seem to be thriving, a good problem to have. But can you just talk a little more about just sort of what you think is really contributing to your success here. And just in terms of patent expirations, are you on any significant drug platforms where patents may be expiring anytime soon, in the next 12 to 24 months?

Well, I think if you look at -- I think it's important to note, when you talk to the pharmaceutical industry, we participate in a very small segment that industry. So while certainly there are some macro trends on the Pharma, within our sector, weave been seeing continued growth, particularly in the asthma and allergy markets. So that's been one side. When you look at in terms of patents coming up, none of our customers that I'm aware of over the next 12 to, let's say, 18 months, have any major patents expiring. You may have some as you get into 2010 and 2011, but nothing over the short term. So as you look at it for the fourth the first quarter, we did have a relatively bad flu and cold season both in the Europe and the States which, I think, is helping our products, and also they're anticipating the allergy season also being difficult in both of those markets, which is also probably helping the sales of our products.

Okay. Thanks for that. Just one last one. I noticed you didn't raise the dividend this quarter as you did this time last year, and you're continuing to build cash. Can you just talk a little bit more about the acquisition environment?

Well, again,, you know, we typically not always raise dividends in any one particular quarter. So we have done it. We have raised dividends on a consistent basis over the time, but it's not necessarily been related to the first or the second quarter. Secondly, if you look at the acquisition market, as we talked about in the first quarter, we still think, based on the company's strong balance sheet, that we have very good opportunities in the market, particularly as we go into the second half of the year as kind of the credit market settles down a bit. So we tend to be bullish. As you see in the numbers, we've done a couple small transactions in the first quarter, and we still have a lot of opportunities as we go forward.

Okay. Great. Thanks, guys. Well, done.

Thank you.

Thank you.

Our next question or comment comes from the line of Meggan Friedman from William Blair. Your line is open.

Hi. Good morning.

Good morning.

You said that there are a number of products in the Pharma pipeline. Can you characterize how strong it is historically?

You know, I think it is as strong or stronger than what weave seen on a historic basis. And as I reported a little, we have seen just recently as yesterday, one of our customers getting FDA approval for a new allergy drug. So it's always difficult to predict when those come to market, but overall, the number of projects we're working on are at the same level or even higher than what we've had historically.

And then the next acquisition, presumably that's going to be consolidated into the Pharma segment?

Correct.

How do you see it contributing?

I think the biggest issue for us, what they do is work with our customers and devices to test for our customer devices and how it impacts the drug. For us it will give us better ways to improve our products to be able to meet the demanding needs of the Pharma industry. So it is a relatively small company. It's about only a couple million dollars in 2007 revenue. But it raises, really, our expertise in a very demanding technical market. So we think it is a significant plus to our overall Pharma organization.

And then my apologies if I missed this, but did you talk about custom tooling revenue?

Yes. Custom tooling revenue was up about $7 million this year from last year. To give you a brief look at that in terms of reported numbers, in the Beauty & Home area, again, this will be unreported now, not on constant currency, but tooling was about $3 million in both '08 and '07. On the closure side, we had about $9 million of custom tooling in the first quarter of '08, $4 million in '07. And in the Pharma area, about $3 million in custom tooling compared to $1 million a year ago. So this year, we have $15 million in tooling. Last year, we were around $7 million.

Our next question or comment comes from the line of Mr. Timothy Burns from Cranial Capital. Your line is open, sir.

Good morning, Peter. Good morning, Steve.

Good morning, Timothy.

If I'm following up on that Next Breath acquisition, we have seen companies who are actually integral to either device manufacturers or pharmaceutical product producers to getting FDA approval, and obviously, it's usually with their packaging product or, in this case, your device or dispensing system. Is that kind of the angle you're playing?

Well, I think it's both. Tim, we're looking at this to kind of continue to gain expertise. Next Breath is an independent lab. So they will not only work with us, they will also work with competitors, testing, because they work with our customers. They'll be working with our customers testing other dispensing devices. What we can gather is better ways to be able to improve our devices long-term from them and also better serve our customers long-term. Today we still do quite a bit of testing even before the Next Breath acquisition within our own facilities. Those were primarily European. So this also gives us a balance to that in the United States.

Does next breath have customers that you're not doing business with currently?

The majority we're doing business, but we do have some customers that we don't have much business with at the present time.

Okay.

And we also have the other way. We're probably also being able to direct customers to them to help their business.

Gotcha. And then the food and beverage side, an area where 10 years ago, you guys wouldn't have dreamed of entering seems to be doing very, very well. What's going on?

I think, if you look at it, it's really what's driven our business over the last 10 to 15 years. The food beverage is continuing to demand more market differentiation and more convenience. As we look at it, anywhere from spray salad dressings to inverted condiments, and now today, we're seeing increased use of our beverage closure in places like China and starting to see an improvement in business in the United States. So it's really a way for our customers to differentiate in the market. And also to add more convenience. And I think that's been a drive, and I think what we're finding is our customers, by doing it, are seeing increases in their market share. So it is a win for us, and it is also a win for them.

Gotcha. And I would retract that. I guess beverage was not an area you were focused on 10 years ago. And is it true that Ralph Poltermann did the taste testing for the spray salad dressing.

He did, and has done it several years ago. We don't even want to bring that up anymore. It's not one of his finer moments.

I saw his weight watcher reservation. So I was just checking it out. Thank you.

Thank you.

Our next question or comment comes from the line of Greg Halter from Great Lakes Review. Your line is open, sir.

Good morning, guys.

Good morning.

I wondered if you could comment on your resin cost situation both domestically as well as Europe maybe on a year over year basis and what you see as the outlook?

Well, you know, as you know, resin has been a challenge. To give you some rough numbers, resin, these are U.S. numbers. Resin on a year to year basis is up a little over 30% from 2007 in the United States, and going from fourth to first, it is up a little over 7%. So we have seen significant increases. If you look at that from a European side, on a year over year basis, in Europe it's up about 11% and not much of an increase in the first quarter due to the strength, or the weakness, frankly, of the dollar. As we go forward, we had initially anticipated that we would see resins flattening to dropping in the second half. But I will also tell you that when we did that, we didn't see oil at $115 a barrel either. So there is expected to this additional capacity coming on in the polypropylene area in the second half of '08 into '09, which should help the supply. So right now, our hope is we will see it flattened to come down, but it's really difficult for us to predict.

And you still have the lag effect on your business?

Correct. We've got, you know, a couple things -- and you can see that impacting our closure business. The resin pass through is a dollar for dollar pass through, which has the impact of squeezing the margin percentage. And, secondly, we're anywhere from two two weeks to three months on passing through the resin, which in an increasing resin market, has a deteriorating effect on the overall profitability, at least for that period of time, until we get a pass-through. However, we are continuing to pass the resins through to our customers.

Okay. And I think, on the last call, you had talked about the use of LIFO accounting and how it impacted your results in the fourth quarter. Is that a similar event for the first quarter as well, and if so, what was the amount?

Yeah, it is still a fact, again, with rising prices, LIFO, which we have primarily in the United States. The negative impact comparative to last year, about a $500 ,000 negative impact in the first quarter.

Okay. And on the Closure side, I know you've had some productivity issues at the French plant, and just wondered if you could bring us up to speed there.

Well, I'm glad to say that, from a productivity standpoint, our French operations, and Peter was just there a week ago. If you look at the productivity today, it's basically back up to almost the standard with the rest of our business units around the world. So it has improved significantly over a year ago. The negative we have right now in the French side, particularly in the quarter was more of a lack of sales than it was productivity. So we've moved that up, and we hope to be increasing the overall throughput as we go through the remainder of 2008.

Okay. And also, I think there was a commentary regarding a potential inventory contraction in the personal-care area maybe several months ago, and I just wondered if you could, in hindsight, make any comments whether or not that was, indeed, the impact or if there's something else behind that.

Well, I think there's what we talked about for the Closure side, because I think, as you look at it, it wasn't in the beauty and home area.

Correct.

I think what we're seeing, if you looked at our closure results last year, we really saw an extremely strong first half and dropping off in the second half. What we've seen kind of this year is, while we have seen improvement over the fourth quarter in our closure business and expect that to improve. So we do think there was inventory taken out of the channel, and we're starting to see that pick back up. That together with the new projects, we're hopeful will be able to improve the closures result as we get to the end of the year.

O kay. That sounds good. Thank you very much.

Our next question or comment comes from the line of Mr. Mike Hamilton from RBC. Your line is open, sir.

Thank you. Good morning.

Good morning, Mike.

Wondering if we could just start on overall organic growth. Is there any acquisition growth in there year over year?

No, there's not.

Okay. Thanks. You've talked in the past on Pharma about potential for payments on benchmark achievements, and we haven't seen anything material enough to be called out in recent quarters. Is there anything in the pipeline where we've got that kind of potential?

We've actually had a couple projects that we have started. You're right, Mike. They haven't been material in the nature, but we're seeing these in areas, for example, related to some of our dry powder inhaler business and also with our counting system for our meter dose inhaler. Both of these we have some ongoing projects. So we're continuing to be optimistic about both of those areas. Neither one of those by itself are overly material, but I think it's a good trend as we go forward.

Could you comment a little bit on areas where you've been somewhat capacity-constrained strained in recent quarters and how things are looking on debottling.

Yes, we have had some capacity constraints, especially in the sampling area and in the low-profile pumps. In both areas we are increasing the capacity as it will come on stream in the course of this year. And we are working to reach the supply and to satisfy our customers. For the time being, there is no additional capacity constraints.

Thanks. And then, finally, any new product releases in the quarter that are worth mentioning?

Yes. We have had two new product releases in the United States. One of them is from Proctor & Gamble, a moose, a cleansing moose, which uses our one inch cut valve specialty actuator. It's called Quench. And the other is a body spray from CV brand, using our twist to open actuator. Very interesting, because this is a private label product, and it shows that even in this area, people are going to more sophisticated packaging to compete with the brands. So for us, it's a new and a very good trend.

Thanks, and congratulations.

Thanks, Mike.

Our next question or comment comes from the line of Mr. Chris Manuel from KeyBanc. Your line is open, sir.

Good morning or afternoon gentlemen.

Good morning.

Good afternoon.

I might be the first to congratulate you on an outstanding quarter as well.

Thank you.

A couple housekeeping items I want to touch on first. I think, in the quarter, stock option expense was about, you said, a $1.5 million lower. Do you have a projection at this point as to what you anticipate the difference will be on a full-year basis, '07 versus '08.

You're correct Chris. The stock option was less, by about a$1.5 million. We expect it to be down from last year's level by about $700,000 and not materially different in the third and the fourth quarter.

O kay. So there's a little -- okay. So that's helpful. And then with respect to your landmark product, and there's a new facility. I think that's why your CapEx is up a bit. A new facility coming online later this year. Can you give us an update as to the projected timing that may be on board as well as when that extra meter capacity comes online?

The new facility is on time, which is expected to be basically completed by the end of May. It looks like we will be in production starting in June and July. So we'll be in production in the second half of the year. So again, we are on time and on budget on the facility. In terms of the landmark, we did end up signing a development agreement with a major customer in the first quarter. That customer has got product today in phase three trials, and we're going to be productionizing the landmark for production when they come into the market. So that should be, in 2009, late 2009 into 2010.

And is the new landmark device, is that FDA-approved, that you could go back into existing products, like Albuterol and things of that nature today?

Again it's going to be going through the process with the customer. So we need to go through these with our customers.

Okay. So it's a different enough delivery that it has to come out of a new product, then?

At least initially. And then we'll have to see where we'll go when we get it out with the first customer.

Okay. That's helpful. Steve, I noticed that you brought the tax rate down a little bit. Or the guidance for the tax rate. Is that indicative of seeing a little bit more slowing here in North America and a little bit more strength in some of your international areas where the tax rate is lower? Is that a fair way to think about that?

Well, I think what we've been able to do. Partly that's true; and I think, when you take a look at where currency is at and where our sales are at, that blend is really the reason we brought it down. And as you pointed out, Germany is down in the tax rate. Italy is down. So when you put all of this together, we're probably going to be a little bit lower for the full year than what we had originally anticipated.

Okay. Very good. And my last question is, the Next Breath acquisition you guys completed, I realize it's on the smaller side, but two parts to the question. The first is, does it actually has some revenue, or is it developmental stuff today?

It has revenue. I mean, in 2007, it's still pretty much a smaller company just starting up, and a little over $2 million worth of revenue. So it will have a small increase on the revenue side. We would expect it to be accretive in the year; but again, given its side, it will not be material.

And then the second part of the question with respect to acquisitions was, given you've got two of your smallest deals done already this year, I wouldn't anticipate any of these would preclude you from continuing to look for other opportunities, number one. I think you commented on that. And two, in your view, have the multiples that folks are expecting begun to break and actually -- has the market gotten a little more friendly for deals to get done, in your view?

First of all,, I think, to answer your first question, the two transactions certainly don't come back and stop us from doing additional transactions from going on. Both are small, nice tuck-in transactions for us. In terms of the second part, what we're seeing is the multiples, if you will, the seller expectation compared to the market continues to get closer. So I would anticipate, as we even go through the second half, that there will be even more opportunities. But, yes, in general, what we're finding is a closer alignment; and frankly, companies with a strong balance sheet are in a much more favorable position than they were a year ago.

And who knows? Maybe in a back-door sort of way, if a Democrat gets elected, that raises capital gains taxes, that will encourage more folks to want to sell something sooner than later.

Yeah. I'm not even going to comment on the political side.

Okay. Well, congratulations, again, on a terrific quarter, and we'll talk to you again soon. Thanks.

Thank you, Chris.

Our next question or comment comes from the line of Mr. George Staphos from Banc of America Securities. Your line is open, sir.

Hi, everyone. Good afternoon and good morning.

How are you?

Good. Good quarter. I just want to dig into closures for a minute. Obviously, comparisons are difficult. You're starting to see some initial improvement. Would we expect, would you expect profits to be up in the second quarter versus a year ago? Steve, you said you had expected improvement later in the year. I just wanted to get a little more color on that.

At this point, we would expect profits to be up on a year on year basis going into the second quarter.

Okay. Fair enough. Now, fragrance and cosmetics. You've given us a lot of color. We've heard a lot about your customers taking down SKUs or working the supply chain. Realizing the supply chain is slowing, should we expect that anytime this year, that fragrance might be better down year on year on EBITDA standpoint? Obviously, again, you've done a great job here last few years.

George, for the time being, our books are still pretty strong, so we don't see it on the short term, a downturn in this area. What happens in the rest of the year is very difficult to predict. I already mentioned that. There is some correction in the pipeline, inventory. How this will turn out toward the end of the year depends. We know that there are not as many new product introductions this year than usually is done, but this has not necessarily something to do with on the short-term for us. So we are still cautiously optimistic that we will fulfill our expectations for this year in the fragrance area.

And I think the other side, too, that helps that this year compared to maybe even the past is some of the strength we still see outside of North America and Europe.

Okay. Fair enough, Steve. I guess one question I have for you as a follow-up, what do you do different in this kind of environment if your customers are maybe taking down SKUs? How do you grow more quickly or grow your share in the environment? How do you help them perhaps restage products? Anything that you do differently in terms of new product launches from your end or marketing your products in this kind of environment?

I don't think it's significantly different than what we would do any other period. We try to go back to them with ways to make their product more profitable for them in the market. Kind of like when we went out with the aerosalized sun care. If we can help them repackage it to make it more profitable, because they have the same problem with the Wal-Marts of the world getting price increases through. So we tend to work with them on repackaging, reformulation and also working with them on the growth in developing markets as they start to grow those. I don't think it's dramatically different. I also think it's important when we talk new products for Aptar, it's not that they're always more expensive. We're also looking at new products that can be either costing the same or less, but adding more features and benefits. So those are other areas we're looking at.

Maybe one last one. Is it a little like on the fragrance side, like in the beverage area, in a tough environment where there is inflation, your customers keep the price point flat but maybe reduce the amount of content in the product, and maybe you see smaller package size, which actually could be better for you from a margin standpoint in terms of the dispensing system?

Well, certainly historically it's always difficult one to say that, but historically that's what we've seen. Where people have come back to try to on the personal care side as you said, George, instead of 8 ounces, it's 6 ounces. I think in the fragrance cosmetic, you may see a little of that. The other area that is still key for us, on the cosmetic,that is still our forecasters growing segment, and there, what we are doing is still seeing quite a bit of conversion going from screw-off caps to dispensing systems, and that whole -- the aging population really helps us there where you can use the lotions, et cetera to end up looking younger.

Now, within closures -- and I realize a lot of this is comparisons, you don't believe that you're losing any market share, do you? The trends have been fairly recently, but quite strong for sales through at-home consumption and markets. So specifically you're seeing supermarket sales picking up again where before they had been languishing, and we're hearing that from other analysts here. That would seem to suggest that closing sales would be doing better. Again, do you think you're losing any share, or is it surely destocking at your customers.

I think off couple things. When you say losing share, I don't think we'll be losing share on a comparable closure to closure. Now we have seen over the last couple of years some changes where, for example, these wipes that may be used may have been wipes that have taken away some of what may have been in a bottle with the dispensing closure. You've seen sun care, the copper tone spray taken away. So you've got some incorrect loss of market, but not competitive loss. The other thing we've seen in the U.S. is certainly a move towards larger sizes, kind of the Sam's, Costco type. So it goes back to kind of your opposite about the smaller package. You know, you're buying 18 ounces worth of a product. But on a direct basis, we don't see any substantive loss per share.

Two last quick ones. I'll turn it over. One, should we expect tooling to pick up in the second quarter? I would expect it would. And secondly, realizing there's always a net of transaction versus translation, how much was currency in the quarter?

Let me deal with the second one. In terms of currency at the top line, we have an 18% top-line sales growth. Currency was about 10% of that. So if you kind of take that down and assume that that 10% goes to our pre-tax line, we would be -- transactions were pretty significant for us. So you will be under the 10% impact on pre-tax basis. Currency, translation net of transaction. So that would be the biggest one on the currency basis.

Okay. And tooling would pick up?

Tooling was, sorry I forgot about the question. Tolling was around $16 million, rough numbers in the quarter. We've been averaging in the area of $60 million for the year, so I don't see a potentially marked upturn in the tooling in the second quarter. Subject to maybe currency issues.

Okay. Thanks very much, guys.

Mr. Pfeiffer, I'm showing no additional questions or comments in the queue at this time. Sir, I'll turn the conference back over to you.

Thank you very much. I would like to thank everyone for their participation in today's call. Thank you and good-bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.