Aptargroup Inc (ATR) 2008 Q3 法說會逐字稿

Welcome to the AptarGroup's third 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, Executive Vice President and Treasurer of AptarGroup. Please go ahead, sir.

Thank you, Kevin. Before we begin I would like to point out 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 web site as a service to those investors who were not able to listen today, the information contained in the replay will be dated and should 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, Steve Hagge, Executive Vice President and Chief Operating Officer, and Bob Kuhn, who was recently appointed as Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Mr. Pfeiffer.

Thank you, Ralph. Good morning, everyone. We previously issued a press release announcing that Bob Kuhn has been appointed to succeed Steve Hagge in the roll of Chief Financial Officer. Bob has been with the Company for over 20 years and is an important addition to our senior management team. He is joining us today for his inaugural quarterly conference call. I briefly will summarize our press release and then comment on Beauty & Home segment. Steve will then provide insight on our Closure and Pharma segments, and Bob will follow Steve with a review of our financials. Turning to our operating results. I would like to remind you that 2007 was a record year for us and as a result, we are up against past comparisons throughout 2008. The diversification of our business allowed us to report record third quarter sales and profits despite tough comparisons in a challenging business environment.

We benefited from the weaker dollar and as a result reported increased sales in every segment. Our profit growth of the quarter was mainly driven by our pharmacy. Focusing to the Beauty & Home segment, for the third quarter of 2008, excluding changes in exchange rate, sales in the Beauty & Home segment decreased 1% from prior year. This is due to a broad-based weakening across each of the markets served by this segment. Specifically, sales to personal care markets we are flat. Sales to the private cosmetic markets increased -- decreased 1% and sales to the household markets increased 1%. Increased sales in emerging markets offset somewhat the weakness in the demand in the western world. Profitability of the Beauty & Home segment declined from the prior year due to the combination of weakening demand and at the same time higher cost pressure.

Looking forward, we expect the difficult business conditions we saw in the third quarter to continue into the fourth quarter. Presently it is difficult for us to predict even the short-term with any degree of certainty. We are and commencing cost reduction efforts where possible, but our ability to rapidly reduce costs in response to weaker demand is somewhat limited in the short-term. Over the long-term, we are confident that our strong balance sheet in conjunction with our commitment to innovation and the diversification of our business will help us better give answer in time. I would now like to turn the call over to Steve.

Thanks and also good morning. I will provide my comments and then turn it over to Bob who is going to review the financial results. First, looking at the Closure segment, compared to the prior year's third quarter, reported sales increased 13%, mainly due to changes in exchange rates and resin passthroughs. Changes in exchange rates accounted for 7% of the sales increase, while the resin passthrough accounted for about 5% of the increase. Again, excluding currency impacts, increases by market were as follows -- we had a 3% increase in sales to the personal care market; a 19% increase to the food, beverage market; and a 13% decrease in sales to the household market. We saw increased demand in the US, particularly in the food beverage market. However, sales softened in Europe, particularly in Germany.

The under utilization of capacity from our low sales volumes in Europe and delays in the passthrough of resin increases adversely affected the Closure segment's income, resulting in the income for the quarter that was roughly equal to the prior year. On a positive note, our pinpoint dispensing system is gaining acceptance, as it was recently introduced on products by both LOREAL and Estee Lauder. In addition, Coca Cola will be introducing new packaging for their Smart Water product in the fourth quarter with our dispensing system. Now looking at the Pharma segment, we had an outstanding quarter in Pharma with increases in both sales and profits. Our reported sales grew 17%. Excluding changes in exchange rates, the Pharma segment sales increased 10% in the quarter due to the increased sales of both our metered dose valves and pumps.

In the US market, we continue to see strong demand for our pumps that are used on allergy products that are their generic alternatives to the former GSK Flonase brand. We continue to have a high number of pharmaceutical projects in the pipeline, which makes us optimistic as we go forward. Now I will turn it over to Bob to discuss the financial highlights.

Thank you, Steve, and good morning everyone. I will provide my comments and then we will be happy to answer your questions. First, I would like to summarize our consolidate results for the quarter. As you have all seen, our reported sales increased 10%. Changes in exchange rates accounted for approximately 7% of this increase, resulting in an organic sales growth for the quarter of approximately 3%. From a geographic standpoint, sales to customers by our European operations represented approximately 60% of net sales this year versus 61% of net sales last year, while sales to customers by our US operations accounted for 26% of sales in both years. We continue to face higher input costs, particularly resin during the quarter. Increasing costs effects us in two different ways. First is the lag in passing increases on via higher selling prices.

Secondly, the fact that our inventories in the US are on LIFO further magnifies the impact. The increase in our LIFO reserve costs us approximately $1.2 million pretax in the quarter alone and almost $3 million year-to-date. The LIFO reserve adjustment is included in the corporate and other amount in our segment disclosures. Due to our strong balance sheet, we benefited in the quarter by almost $900,000 pretax from reduced net interest expense. When comparing the effective tax rate for the third quarter of this year to the prior year, you need to consider that a deferred tax adjustment included in the prior year's effective tax rate. During the third quarter of last year, the German government ratified a reduction in the tax rate, which is effective January 1, 2008. The reduction of the net deferred tax liabilities recorded in the third quarter of 2007 relating to the German tax rate change was approximately $2.3 million or a positive impact of about $0.03 per share, which was included in the earnings of $0.56 per share reported for the third quarter of last year.

The prior year tax rate as adjusted to remove the effect of this deferred tax adjustment was in the area of about 32%. The current year tax rate of about 30% has been consistent throughout the year and is favorably impacted by decreases in the German and Italian tax rate at the beginning of the year, as well as higher R&D credits in France. Diluted earnings per share increased 2% to $0.57 per share from $0.56 per share recorded in the prior year or approximately 8% from the $0.53 per share in the prior year excluding the previously mentioned deferred tax adjustment. Our cash flow from operations for the third quarter was $105 million compared to $94 million in the prior year. And capital expenditures were $67 million in the quarter compared to $34 million in the same quarter of last year.

Free cash flow, which we define as cash flow from operations less capital expenditures, were $38 million for the quarter versus $60 million in the prior year. We spent approximately $20.7 million to repurchase approximately 535,000 shares of the Company's common stock during the quarter at an average cost of $38.57 per share. At the end of the quarter our remaining repurchase authorization is 4.5 million shares. The mix of debt at the end of the quarter is roughly 60% fixed versus 40% variable and the average interest rate is around 5.3%. The fixed percentage has increased from the end of the second quarter due to the refinancing of short-term variable rate debt with a $100 million fixed rate private placement during the quarter. On a gross basis debt to capital is about 26%, while on a net basis it is approximately 8%.

Briefly turning to the nine months, reported sales increased approximately 15% and changes in exchange rates accounted for about 9% of the increase resulting in an organic growth rate of 6%. Diluted earnings per share year-to-date increased 16% to $1.72 per share versus $1.48 per share last year. Looking forward, presently we expect depreciation and amortization for the year of 2008 to be in the area of approximately $130 million, while total cash outlays for capital expenditures for 2008 are expected to be in the area of $180 million. Both of these amounts could vary depending upon changes in exchange rates. The effective tax rate for the full year 2008 is expected to remain in the area of 30%. And lastly, going into the fourth quarter, we are seeing the strengthening of the US dollar versus the Euro relative to the exchange rate in the fourth quarter of last year.

The average rate for the US dollar versus the Euro in the fourth quarter of last year was 1.45. We continue to see weakening demand in our Beauty & Home and Closure segments. However, offsetting these weaknesses we expect the strength in our Pharma business to continue. And lastly, we are starting to see some relief in raw material input costs, particularly resin in the fourth quarter. Looking forward, diluted earnings per share for the upcoming quarter are expected to be in the range of $0.42 to $0.47 per share compared to earnings from continuing operations of $0.47 per share in the fourth quarter of the prior year. At this time Peter, Steve and I would be glad to answer any of your questions.

(OPERATOR INSTRUCTIONS). Our first question comes from Ghansham Panjabi with Wachovia.

Hi, guys, good morning.

Good morning, Ghansham.

Just judging by some of the reports out there on the macro side it looked like September was a pretty tough month overall. Can you talk about volume trajectories across some of your end markets that you saw specific to your business both in the US and Europe? That would be really helpful. Thanks.

I guess, Ghansham, I want to come back. I think if you look at it on a broad base, certainly as we got into the quarter some of the personal care part of the business started to weaken as we got towards the end of the quarter and also some of the fragrance cosmetic. What we saw happening, though, largely was pushing out of orders rather than cancellations. So we have got, we saw our customers getting conservative as it relates to the upcoming Christmas season and long-term they haven't canceled yet. They haven't canceled the orders, they have more then pushed them out. Today I think we have seen the biggest drop off coming in the personal care and the fragrance cosmetic sectors. Again, that's being offset by the strength we have seen in Pharma and the food and beverage markets for us.

Do you think this has anything to do with just working capital being sort of adjusted along the supply chain as the credit markets have tightened or is it just end market weakness? I would assume personal care has a little bit more stickiness on the volume side.

I think, Ghansham, this has really to do with some inventory adjustments. We are seeing our customers looking into a more weak holiday season, so they are preparing for that. In our mind it is really still a lot of inventory adjustment going on.

Okay.

I think, Ghansham, just to back to that, what we have seen even publicly is that Wal-Mart has announced that they're cutting back on inventory, so that is effecting our customers. And as you say, in the personal care most of our products are usable on a day-to-day basis, so most of these tend to be temporary fall backs.

Okay. Great. Thanks so much.

Our next question comes from Claudia Hueston with JPMorgan.

Thanks very much. Good morning.

Good morning, Claudia.

I was just hoping you could comment just on resins in terms of where you are coming out of the quarter. Are you pretty much all caught up on the increases you have seen and then how are you thinking about resins for the remainer of this year?

Again, I think we have to break resins between the US and Europe. We saw pretty significant increase in the US in the third quarter, probably an estimate of 20%. That went up through September and is starting to come down. So, we were still catching up as we got into the quarter and expect to be caught up in that pretty much as we go through the fourth quarter. The same has been in Europe. We were seeing it going up through September and now starting to see it go down. So through the quarter we still saw a lag, but those did start to reverse in the fourth. Right now expectations are, from what we are hearing in the market, is that resins both in the US and Europe are expected to decline. In fact, some of those, a large degree of those increases in the third quarter are at least now projected to go down as we get into the fourth.

Okay. Thank you. That's helpful. And then maybe you could just comment more broadly on the cost environment as a whole. I think last quarter you talked a little bit about freight costs. I don't know if that has changed just given the pull back in oil costs. And maybe just how quickly or what specifically sort of you are doing to try to improve the overall cost profile. Thanks.

So, basically, the cost, the cost of transportation hasn't really changed. It is somewhat leading to the oil prices, but not only. What we are also seeing are increases in energy costs for example and we are doing some efforts there. We are trying to save energy by using new technologies. So, for the future we are going to be prepared (inaudible).

The other side on a broad basis we have talked about in the press release, reducing cost. We've really come back, particularly in the Beauty & Home and Closure area, significant focus on taking out discretionary costs, travel, those types of expenses in all of them. We have now brought in product that we were using with some of our subcontractors to help it more effective manage our costs from an internal manufacturing. So we are continue to monitor those, taking a hard look at all of our -- we are reducing, for example, all of the temporary labor, as much of the temporary labor that we have that is possible going in the quarter. So we are trying to maximize the amount of cost reductions we have.

Thanks very much.

Our next question comes from Chris Manuel with KeyBanc Capital.

Good morning, gentlemen.

Morning, Chris.

Bob, you picked a great quarter for an introduction to the investment community.

Thank you.

A couple of questions for you. First of all, when we are tooling sales flat for the quarter.

Yes, tooling sales for the quarter were relatively flat. It had a minimal impact on the quarter for us.

Okay. And then next question is you talked about where you have begun to see some slowness, primarily personal care, Beauty & Home. Have you seen any slowness or deferral of orders in the Pharma unit yet?

No, on the Pharma side we have continued to be strong. In fact, we were actually even stronger in the third quarter than we had anticipated when we went into the quarter. So we are strong, as I said, in the generic medication in the US market, as well as a lot of the branded drugs. So the allergy and the asthma product lines that we sale to continue to do well. So we have not seen any back off yet in those area.

To do you anticipate seeing any?

Right now I think it continues to be strong, so there's nothing -- .. When you look at asthma, it is not a discretionary drug, you are going to be needing that side. The fact that we are well placed within the generics in the US also give us good balance to the allergy market. So anticipation is that we are not going to see major slowdowns as a result of economic issues in either one of those markets.

Okay, that's helpful. And then with respect to the developing regions, sounded like, Peter, in your prepared remarks you said emerging markets remain strong. Did you, have you seen any falloff? My understanding is isn't September some regions such as Russia have really seen a sharp falloff. Have you begun to see any signs of change in those order patterns leaking to the emerging markets as well?

Generally the emerging markets have done really well in the second and third quarter and we are not seeing any change there up to now. I mean the financial crisis is too short to spill over in these regions. Up to now Asia, South America and Russia are doing, at least in our area, reasonably well.

Okay. That's fair. And then the last question is, is as we look at your guidance for the fourth quarter, organic growth to this quarter appears to be in that kind of 2ish%, 3ish% range, depending on how you treat a resin acquisition, things of that nature, but is that essentially what you are embedding into your fourth quarter numbers as well, is a flatish or very low single digit number.

Generally we are not commenting quantitatively on future quarters, but I think what we could say is that the growth in the Pharma market that Stephen has mentioned will not be sufficient to mitigate to the downturn in Beauty & Home and Closures in the fourth quarter.

We should, probably, overall have a net -- we are going to probably be on the negative side of everything with hold as it it today. But I think that, again, Chris, we are seeing so dramatic changes in the market, we also, it is very difficult to predict what would happen at the end of the quarter.

Okay. That's helpful. Thank you, gentlemen, and good luck.

Thank you.

Our next question comes from George Staphos with Banc of America.

Thanks. Everyone, good morning and good afternoon.

Good morning, George.

Bob, welcome aboard. I guess the first question I had was relative to Pharma. If demand remains firm, the orders seem to be holding up, realizing that this is a very, very important product for your customers and their customers, are you seeing any indications from your customers about perhaps getting concessions on pricing, any downward tension in margins from what have been, obviously, very, very good levels for you?

I think if you looked at any of the outward press releases from our customers, costs are a significant concern for them. I think though most of our products with our major customers are covered by long-term contracts. We continue to work on new products. So, while pricing is always a concern, it is certainly not as big of an issue in this market as it would be in the Beauty & Home or Closure market. So there's nothing been overly significant in terms of margin pressure, particularly on their branded drugs.

So, Steve, we should be holding these margin levels into 2009 then?

Well I think what we have said and I think for this, I think, you can hold it. We have said margins, that it has fluctuated on quarter to quarter for us between that 25% and 29%, 30%. We think that will hold into 2009.

Okay. Fair enough. That's what we have been modeling. In terms of fragrance in particular, again realizing it is a difficult market to predict, this has been an industry and end market over the years that has had a notoriously bad reputation for managing working capital. Do you think, Peter, that this retrenchment, if in fact that's what is going on in working cap, is going to be worse than what we have seen say in the early '00s or any other period?

I don't think so. In difficult times like we are in our customers, especially in the present market, are trying to bring up new product and we are seeing this, as Steve has mentioned, we are seeing no translation in new product introduction, maybe rather pull back. So our outlook for the next year is not so bad. It reflects this tendency to bring out new products.

Okay. I guess last question, and I will turn it over, I want to take a different swag on Chris' question. If you look at the guidance for the fourth quarter and the quarter that you just reported, the run rate in earnings growth is, is roughly 2%, which probably is going look good relative to a lot of other sectors and good companies. So, you should be congratulated for that. Do you think that Pharma plus lower input costs have the chance of accelerating that growth rate, which will take us again for now, in 2009 or is it really too hard to call anything at this juncture, Steve?

It is really, George, I would be probably going out too far. I think we do have a couple of things that we see as positive. The reduction in input costs, I think, will benefit us long-term. Secondly, the products that we sell are, whether it is personal care, particularly in some of those markets, the consumer continues to use. If there is reductions of inventory either by our customers or the consumer, those tend to recover pretty quickly. And as Peter said, our new projects that we are seeing are not being canceled. So we are, I guess, we are cautiously optimistic about kind of where we are at in '09, but frankly we are in pretty unchartered water and I would hate to come back and give you projections.

Okay, fair enough, guys. I will turn it over.

Our next question comes from Meggan Friedman with William Blair & Company.

Hi, good morning and good afternoon.

Morning.

Hello, Megan.

Most of my questions have been taken, just a couple of kind of follow-ups here. You talked about the pushing out of orders, specifically in personal care and fragrance and cosmetic, how -- can you provide a little more color as to how you are thinking about both those businesses and I guess particularly the fragrance and cosmetic for Q4? Are you assuming a typical Christmas just delayed or are you in your guidance assuming drastic cuts.

Concerning the fourth quarter, what we are seeing that our customers are pretty cautious and they are not expecting a very brilliant holiday season. But this does not really affect the coming year. The general tendency is that innovation in product packaging is still very welcome. Some of our customers are using this to bring out new products and new more sophisticated products and try to increase their margin on these products. It is billed as one of the major message to get better prices.

I think the other thing that we have seen also, Megan, is I think frankly in the fragrance cosmetic our customers are somewhat early this year in trying to pull back. So I don't think we are going to see the big inventories going into Christmas that maybe we would have seen in other years. With all of the things we are seeing in the credit market and the consumer, if anything they may be overcautious as we get close to the season.

Okay and your guidance incorporates that?

Yes, that's what we have seen in the short-term.

Okay. And then could you comment on the acquisition pipeline?

Again we won't comment on specifically, but I think, as you have seen, one of the strengths that Aptar has had over the years has been the balance sheet. Particularly in today's world where credit is a very key item, we really view our balance sheet as a strong strategic asset. We think there are several transactions, there are several transactions that we ongoing continue to look at and we would anticipate still being active. One of the challenges that all of us will have, not just Aptar, are going to be valuations in today's market with these crazy movements up and down and in multiples, et cetera. That being said, I can, right now I can tell you that we are looking at more potential transactions than we have seen in the last three to four years.

Okay. Good. Then you had said that the pharmaceutical pipeline remains strong. You've had a number of drugs that have had, that have gained approval lately. Pipeline still strong?

Pipeline continues to be strong. We are seeing additional work done with pain medications, et cetera coming in to nasal spray. So we see a lot of different activity and our customers are very active in our field. So that hasn't changed and if anything it has strengthened over the last year, year and a half.

Great. Thank you.

Our next question comes from Ross Gilardi from Merrill Lynch.

Hello, everybody.

Hello, Ross.

I just had a couple of questions. Just wondering if you guys could elaborate on food and beverage, certainly 19% growth in this environment is great. I was curious how much of that is resin passthrough, but if you could also just talk about some of the different areas where you are seeing strength and then I had a follow-up to that too on just the Coke business.

I will take the one on -- food and beverage, as you said, the 19% is stong growth. Of that, resin is probably around -- very consistent with the overall, it is about 5%. We are still seeing different applications coming back in. I think we announced in prior quarters that Heinz is taking their inverted package, which has our dispensing system, across all of their brands and basically going to go inverted on everything. We are seeing new introductions on salad dressing with Kraft going to our low cost closure. As I mentioned in the prepared remarks, the movement into the Smart Water brand with Coke, we are very pleased with and that is one of their high, let's say high focus brands that Coke has. Food and beverage continues to expand. What we are seeing is our customers in those areas continue to look for value add. That's a strong focus to that and we think will continue going forward.

Now, on the Coke business, is this the first time you have done business with Coke and could you just give us a little more color on is this a pilot program or is this a, is it a regional platform, a global platform? Just any other details you could share will be helpful.

On the Coke side we have been doing business with Coke. For example there is a product called Power Aid, which is their sports drink product. We are on that today, have been on that in the past. So we continue to do business. We are not able to talk about volume per se on the Smart Water project. It will be, it will be a significant -- it is a significant for national play, it is a US play, it is not a worldwide. So again it is a good move for us. We are also seeing new water application, by the way Ross. Another one in Poland and I think we are continuing to have another expansion of that also in China. And the other issue that is actually helping us is the food? In the food beverage tooling is about 3% of that 19%. So, again, growth across all of the sectors in there.

Okay, thanks, guys. I was just curious if you could just comment on collections and receivables and so forth. Are you seeing any issues with, do you see any issues with bad debt expense? Are customers having difficulties making payments on time in this environment?

For the time being, no. Fortunately we have not seen any issues in that area, but that is certainly one of the key areas that we are going to be focusing on going forward. Not only our customers, but also our suppliers. We are going to continue to monitor their financial health as well but to answer your question, no, we have not seen, fortunately, any issues on the collection side.

And it is also, it's even broader than our customers and suppliers, our competitors are another area we are watching because Aptar at least has been very fortunate in terms of our, of the balance sheet and right now, in particularly some of our smaller competitors may have some financial issues if the credit market stays as tight as it is.

Got it. Okay, thanks, guys. Good luck.

Our next question comes from Brian Crawford with Perimeter Capital.

Hi, gentlemen. Good morning.

Good morning.

A quick question I had was just around maybe taking a step back and kind of how is your business different today compared to, let's say, 2000 when we went through another difficult period?

Okay. The last crisis we saw was in 2001, September 11th. The basis of the crisis was different. Today we are seeing a worldwide credit crisis which affects our customers and the prime consumers. 2001 it was less deep, the crisis, and it was easier for the people to get out of this, of this difficult situation. So, you are seeing maybe a longer term problem this time than in 2001.

But I think the key issue's also, Brian, that it is similar to 2001 and yet it is kind of to compare Aptar. Really our, the diversification of where we are at is the same as it was there. If you go back to those times our recovery was actually pretty quick into 2002. The diversity of our products, the geographic diversification and the innovation. We have talked about innovation in the past. It is interesting, there was a quote from a senior Procter & Gamble official that I just saw in the paper this week and it is coming back and saying he has got one encouraging sign for Procter & Gamble that they are saying is strong consumer and customer response to premium innovation. Because in good times or bad, the importance of innovation cannot be underestimated. So, if you take a customer like that, those are the guys that frankly make en roads when things get pretty challenging. In those cases there's a lot of similarity.

Did you have, you didn't have the Pharma business back then, correct.

We did. In fact it is about, percentage wise it was probably about the same size, I mean relative to overall Aptar. And again, we saw at that time much less volatility in our Pharma business than we saw in the other business.

Okay. Got it. Are you seeing anything or hearing anything from your end customers in terms of consumers trading down and if so, what impact does that have on you? In other words, trading down from branded goods to more private label? And I will hang up on that. Thanks, gentlemen.

We actually are seeing this tendency to private label and low cost product, but we are seeing that the customers, the prime consumers are not giving up on convenience. So we are also supplying closures or pumps to the lower end of the market. So it -- we are effected, but not the same size as usually. So we are profiting from the downturn as we do from upturn.

Our next question comes from Jason Rodgers with Great Lakes Review .

Hello, it is actually Greg Halter here.

Hi, Greg.

Hi, guys. A couple of questions for you. Wondered if you are making -- I believe you spend about three times the amount on research and development that your nearest competitor, but wondering if you are making any cut backs there on your own spending plans given the environment.

Jason, I think innovation is our key competitive advantage and we will say that in the future. So we are not cutting back our R&D spending in the future.

Okay. And how is the new facility that I believe you've either just opened or about to open over in France?

That is in our Pharma side. We have just completed that. We have started manufacturing as we got into the third quarter. We are actually expanding our facility, pharmaceutical facility in Germany also to respond to the increasing demands we see in the Pharma business. So, the construction, the good news is it came in pretty much on our schedule and pretty much also within the budget. So given the growth in our Pharma business it has been a welcome addition.

So would you expect your CapEx to decline in '09.

Yes, for sure. Again, as we came into this year we thought 2008 was going be an unusual year. We would expect 2009 to be pretty close to depreciation in terms of our cap spend.

Okay. Great. Looking at your Pharma business, I know you have talked about the allergy and asthma a lot, but also some areas that are coming like pain management, insulin, Alzheimer's, so forth. If you would apply a percentage, what amount would you say currently is due to allergy and asthma and what amount is due to everything else?

It is probably maybe 80% asthma and allergy, 20% other. And again that is a broad guess.

Okay. Where would you see that 80 going over time or the 20 going.

Our hope is that in terms of numbers, the 80 will continue to grow. Maybe not as a percent, but as a total, and that there will be, overtime, more uses, if we get into pain, to get into hormone replacement. Vaccines is another area we have talked about over the years. So it is really, we think that worldwide the growth in asthma and allergies will continue. It is new therapies that have a potential jump start to other categories within the whole Pharma sector.

Okay. Great. Lastly, relative to your stock repurchase program, obviously there's a lot of companies that have programs currently, but with the stock market the way it has been recently and share prices bouncing all over, have you changed your stance at all on your position toward buying back stock?

That's a good question, Greg. We're actually going to put a temporary halt on the stock repurchase, given the credit markets the way they are today, until we start to see where things are going to settle in. I think it is better to be conservative in this, in this time frame. Certainly we consider the stock to be a very good value, but it is bouncing all over. Until we get some more stability, we are going to temporary halt in the stock repurchase.

Okay. Great. Thank you.

Our next question comes from Timothy Burns with Cranial Capital .

Hi, gentlemen.

Hello, Timothy.

Question for you. With tooling sales being flat, is that a good thing or a bad thing, because I kind of thought it was one of these things where people adjusted it out of the numbers, yet it was a investment in the future of the Company sales.

Overall, first of all, I think, Tim, we are up about $10 million in tooling sales over last year for the first three quarters. What you are seeing is the flatness in one quarter and that you have quite a bit variation in. Secondly, I think tooling sales, we have said, we think are a positive indicator, but in some cases tooling sales are going to replace other sales that we have of stock products. On whole I think it is positive, but it is difficult to come back and correlate it to the like future increases in sales. The one area, as we have talked about in the past, in tooling that is the most at risk is new Pharma. Pharma placed -- they put a lot of capital back into tooling and there it is difficult for us to predict when it may come to market.

Got you. Sorry, I missed the year-to-date $10 million increase. This kind of ties in with what your guy from P&G said. It is a difficult time for companies to spend on new product development, but wouldn't developing new dispensing systems, let's say, to gain share after we cross the Valley of Death makes sense?

Yes. I think -- that's what we are hearing. Again, our better customers, you hit it. I think the P&G guy was covering what we have seen in the past. Now is not the time to stop the R&D. So we are still, as Peter said, we are still focusing on trying to innovate, come up with new products, and I think the seeds you sew today will really do well in the future.

Right. I get equated to, I guess, hiring good people who have been let go by other Wall Street firms. Last thing is the promotional products, I think it is Inspiration and the like that go in these fancy magazine, wouldn't that also be an area where the fragrance and cosmetic people might accelerate their use?

Yes. Usually in difficult times people are doing more advertising, using the devices like we are producing and we are seeing also an interest, a growing interest for some, for new product which we are going to the market. It is a sampling system for a lotion. We have good response from the market. So it is true, advertising in difficult times is important and we are supporting this.

Great. Ralph and Matt were kind enough to send over a French magazine that contained one of those products so I could see how it worked. Unfortunately, with three teenage sons I haven't been able to find the magazine.

Good luck.

That's it.

There are no further questions at this time.

Thank you. I would like to thank everyone for participating in today's call. Thank you and good-bye.

Ladies and gentlemen, this concludes today's presentation. You may now disconnect.