Aptargroup Inc (ATR) 2009 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to AptarGroup's first 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 conference call is Mr. Ralph Poltermann, Executive Vice President and Treasurer of AptarGroup. Please go ahead, sir.

Thank you, Howard. Before we begin I would like to point out the discussion 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 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 are 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, Executive Vice President 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 comment on our overall results and outlook and then provide some comments on the Beauty & Home segment. Steve will then provide insight in our Closures and Pharma segment and Bob, the review of our financials.

Focusing on the quarter overall. Presently, we are in an unusual extended period of enriched consumer on a fairly broad basis are severely tightening their purse strings and inventories throughout the channels are being drawn down sharply. Our sales adversely affected by several items including the stronger dollar and decrease in overall demand in both the Beauty & Home and Closure segments.

We are facing some increased price pressure in the Beauty & Home and Closures segments due to both weak economic situations and in raw material declines. However, offsetting this is market of demand for innovative systems to differentiate their products. Although we have had success in the cost reduction efforts, we could not completely offset the negative impact of weak demand on our quarterly results, primarily in the Beauty & Home segment.

Looking at income on a segment basis, Beauty & Home segment decreased from both an absolute dollar and percentage of sales standpoint. We are encouraged by the increase in Closures income both on an absolute dollar and percentage standpoint and Pharma segment income decreased from an absolute dollar standpoint entirely due to the strong dollar but increased as a percentage of segment sales.

We continue to focus on reducing costs. We announced in the press release that we will be consolidating two dispensing Closures manufacturing operations in France as well as several sales offices in North America and Europe. We have approached these cost reductions strategically in the sense that these actions are being undertaken to streamline our structure without sacrificing our ability to develop innovative products or properly serve our customers and respond quickly to market demand.

Looking forward, our visibility continues to be very limited. Presently, we expect that the conditions that we are experiencing in the first quarter will continue into the second quarter and that demand, particularly in the Beauty & Home and Closures segments, will increase in the second half of this year.

Turning now to our Beauty & Home segment. Reported first quarter sales for the segment decreased 25%. Changes in exchange rates adversely affected sales by 9%. Acquisitions accounted for an increase of about 1%. Excluding currency changes and acquisitions, sales declined by 17% in the quarter mainly due to the softness in the fragrance/cosmetic market.

Our customers continue to be very cautious and we are experiencing weak demand in each market served by the Beauty & Home segment, excluding changes in exchange rate, sales to the fragrance/cosmetic market decreased 20%, sales to the personal care market decreased 9%, and sales to the household market decreased 19%. Underutilized capacity due to the drop in demand led to the decline in the Beauty & Home segments income.

Briefly turning to some examples of new applications of our products, our turning and locking actuator allows marketers to eliminate the use of [overcast] on aerosol products. This patented system was recently introduced on the Pledge market sort of cleaning product marketed by SE Johnson as well as waxing and cleaning spray from [Sara Lee] in their Endust line. Also our [Bag-on-Valve] system is being used on a new ULTA brand of sun care products.

I would like now to turn the call over to Steve.

Thanks, Peter and good morning, everyone. I'll provide my comments on both the Closures and the Pharma segment and then turn the call over to Bob to review our financial results.

First of all, looking at our Closures segment, compared to the prior year, first quarter reported sales decreased 13%. Changes in exchange rates negatively impacted sales by approximately 10%, an acquisition we made in the fourth quarter of last year accounted for 3% of sales. Excluding currency and acquisitions, sales declined by 6% in the quarter of which 3% of this 6% was due to pass-through of the lower resin costs we saw worldwide.

Changes by market, excluding currency impacts were as follows - - we had a 5% decrease in sales to the personal care market, a 7% increase in sales to the food/beverage market, and a 27% decrease in sales to the household market. There was a shift in custom tooling sales to the personal care from the food/beverage market compared to a year ago. Adjusting for this shift in tooling sales, sales to the personal care market would have decreased 12% versus the 5% previously mentioned and sales to the food/beverage market would have been up 22% versus the 7% increase previously mentioned. Segment income increased mainly due to cost savings efforts and the benefits of the normal delay in the pass-through of resin decreases.

Focusing on new products, our dispensing Closures in the past have been mainly used for dispensing liquids. But we are now seeing interest for our non-liquid applications. For example, our Easy Open Jar Lid was recently introduced on an Aveeno Daily Cleansing Pad product.

Now, looking at new liquid based products, our Push to Open Closure was recently introduced for the first time on a tanning product. Also our beverage closure was recently introduced on three different brands of water in Eastern Europe and two brands of water in the United States.

Now looking at the Pharma segment. When comparing this year's Pharma segment results to the prior year, please keep in mind the first quarter last year for the Pharma segment was really strong with organic growth in the Pharma sales in that quarter being in the mid-teens. Reported sales declined 10% due primarily to the negative impact of changes in exchange rates on the translation of sales. Segment income for the quarter was lower than the prior year entirely due to the negative impact of exchange rates, but income as a percent of sales improved on a year-to year-basis.

Turning to new inhalation products, our metered dose valve is used on AstraZeneca's Symbicort product, which in the past has been used to treat asthma. During the first quarter, Symbicort was approved the USFDA in addition to asthma for twice daily maintenance treatment of air flow obstruction in patients with Chronic Obstructive Pulmonary Disease or COPD. Also one of our metered dose valves is used on the Glaxo Ventolin ReliOn asthma treatment that is sold exclusively through Wal-Mart.

Now, moving on to allergy medications, Glaxo's Veramyst which also uses one of our nasal sprays has now been approved and launched in the UK. Also one of our pumps is used on the Astropro and a misting nasal spray that is being heavily advertised in the US at the present time.

Now, I'll turn it over to Bob to discuss the financials.

Thank you, Steve, and good morning, everyone. I will provide my comments and then Peter, Steve, and I will be happy to answer your questions.

First I'd like to comment on the results for the quarter. Beginning with the first quarter of this year, we modified slightly the way we are reporting and assessing the performance of our segments. As footnoted in the press release, we have revised previously reported segment income to be consistent with this year's presentation. The revised segment income numbers on a quarterly basis for both 2000 and 2008 were included in the same 8-K for the press release we filed with the SEC yesterday.

As you've all seen, our overall reported sales decreased 19%. Changes in exchange rate were a drag of 10% and sales from acquisitions accounted for 1%, resulting in a decline on organic sales of 10% for the quarter. From a geographic standpoint, sales to customers by European operations represented approximately 60% of our net sales compared to 64% last year. While sales of customers by our US operations accounted for 27% of sales this year versus 25% in the prior year.

Higher net interest expense was offset by the lower tax rate. Diluted earnings per share from continuing operations decreased to $0.38 per share from $0.52 per share in the prior year.

Despite the decline in our net income in the first quarter this year compared to last year, free cash flow did increase significantly. Our cash flow from operations for the first quarter was $49 million compared to about $39 million in the prior year. Capital expenditures were $35 million in the quarter compared to $42 million in the same quarter of last year. Free cash flow, which we define as cash flow from operations less capital expenditures, was $14 million for the quarter versus a negative $3 million in the prior year.

During the quarter, we spent about $4.8 million to buy approximately 177,000 shares during the quarter. Our repurchase authorization at the end of the quarter was approximately 4.4 million shares. The mix of debt at the end of the quarter is roughly 80% fixed versus 20% variable and the average interest rate is around 5.2%. On a gross basis, debt-to-capital is about 22% while on a net basis it is approximately 8%.

Looking forward, as Peter previously mentioned, we expect the conditions we saw in the first quarter to continue into the second quarter. We announced we will be taking some actions to reorganize some of our operations in the segments. We expect that the total cost to be incurred related to this to be in the area of $6 million. These charges will be recorded in the quarter in which they are recognizable for accounting purposes and we presently expect that the majority of these costs will be recorded in 2009. Once completed, annual savings from these actions are projected to be in the area of $3 million pre-tax with most of the savings expected to be realized the beginning of next year.

Presently, we expect D&A for all of 2009 to be in the area of $130 million with capital expenditures expected to be at least $130 million or slightly less. I would like to point out that these 2009 amounts could vary depending upon changes in exchange rates. The effective tax rate for the full-year 2009 is expected to be in the area of 28% to 30%. And lastly, I would like to emphasize that the range of EPS guidance that we mentioned in our press release does not include the previously mentioned reorganization charges.

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

Ladies and Gentlemen. (Operator Instructions). Our first question or comment comes from the line of Ms. Claudia Hueston from JP Morgan. Your line is open.

Thanks very much. Good morning.

Good morning, Claudia.

Just a couple questions on first just what you're seeing in Beauty & Home and I guess is it getting worse? How did it progress over the course of the quarter? Are there big differences between Europe and the US and then just what gives you confidence that a second half pick-up is likely in that business?

Claudia, this is Peter. We have seen these tendencies both basically in both areas in Europe and in the United States. There have been a lot of discussions in the past months with our customers. The reason of this decline basically is coming from emptying of the supply chain. So inventories are going down in the whole supply chain and this is basically the reason also between the difference. We see the consumer decline is between 2% and 6%. Our business is going down by 17% and there is a big mismatch which can be explained by supply chain reductions. So, as I said, it's in the United States, it's in Europe. It's less in the Asian market which is still growing. The Chinese market is still positive and we are not seeing the same declines in Latin America.

Okay, and then in terms of these supply chain reductions, do you feel like we're hitting a bottom in those or is there still inventory being worked down?

For the time being, it's very difficult to predict. What we are seeing is this decline (inaudible) in almost one and a half quarters so there had to come to an end. We have gotten some answers from our customers. Some of them are saying that they will start reordering in the end of the second quarter to the third quarter. Keep in mind, some of our big customers have their annual, their financial year ending in the end of June and they are trying to keep their inventories small or low till this point which is they might restart ordering in the third quarter maybe.

Okay, that's really helpful, thank you. And then you just had mentioned underutilized capacity in Beauty & Home and in the past you've talked about that as an issue in Closures. Has the situation gotten better in Closures in terms of the utilization of your capacity?

Well a couple things Claudia. It has gotten somewhat better. The other thing we've got in, frankly, the consolidation of business units that we're putting together through Closures, our efficiencies have continued to improve. So as a result of that, we've been able to reduce one of our factories and consolidate that with another one here in France. So the overall business - - and the other thing I think in the Closures side that's important is the mix of business. While we have seen some softness in the personal care area which again we're attributing to both consumer demand as well as inventory reductions, we're seeing strong demand for our dispensing systems in the food/beverage market. So on a comparable basis that market, for example, was up over 20% in the first quarter.

All right, thank you.

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

Thanks, everyone, good morning and good afternoon. I guess the first question I had, piggybacking on the recovery question. It would appear that in prior periods, because of your customers perhaps filling inventory to a greater degree within the supply chain, the Company might have been not through its own efforts but nonetheless following the customers overearning. And so if we do see a recovery in orders in the second half, would it be likely that customers really order at much more limited levels than perhaps they were doing in 2008 and 2007. And do you think then given the current run rate in earnings that you'd be able to post a comparison in earnings in the second half or would that really be more of a 2010 phenomenon given what you can see right now?

First of all, I think it's very difficult to predict how much they will reorder. It's, for example, it's very interesting, the big drop we are seeing is in the recurring business, that means in products which are already on the market. We will see some pick-up in this area because the pipeline is empty. But we are also having a lot of new product launches being prepared with our customers for maybe the end of this year or the beginning of the next year. So it's very difficult how much is coming this year and how much will go over to the year 2010. For us it's very difficult to predict because we do not know when our customers are starting to reorder.

But I guess, Peter, the question I'm also asking is I'm not asking to say when they are going to start reordering or the amount, but if they do begin to reorder do you think they would be ordering at smaller amounts than perhaps they have been in the last couple of years?

I think that this basically depends on how the psychology on the market is going. If they are feeling that the consumption of the consumer is going up, they will stay at the same amount because they happen to refill the supply chain and I suspect that we will see the same amount as in the past.

Okay. A question for Bob or Steve. Can you add a little bit more detail, perhaps it was in the footnotes, but if you could add a little bit more detail on the shift in custom tooling and how it affected the two segments that you had mentioned?

Sure. Again, total custom tooling sales was roughly $12 million in this first quarter and it was about $15.7 million last year. Pharma was basically flat, and B&H was down about $2 million and Closures was down about $1 million.

Okay. But there was some adjustment that I think Steve referenced in his comments. If you could share a bit more detail on that?

Yes. In the Closures which was about $8 million, there was a shift of the custom tooling where last year it was in the food/beverage market, this year the custom tooling, about $2 million of that shifted into the personal care side. So when we strip that out the base organic growth of product sales, George, that's what I gave you in terms of numbers.

I got it, Steve. I appreciate that. Thanks. I guess last question I had and then I'll turn it over. Of the new products that you are working on currently and that you hope will hit in the back half of the year, which are you most optimistic on?

Well I think really, there's a certain - - I mean our customers are optimistic for a lot but I think the ones we probably have the most confidence on going forward with would be in the personal care areas and some of those products that we see. I mean that's the one that when they get them launched up. It's a bigger issue on some of the fragrance because there's a much longer lead time. So a lot of our personal care products right now I think we're probably more optimistic will get launched earlier than maybe some of the fragrance new launches.

All right, thanks. I'll turn it over.

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

Gentlemen.

Hi, Chris.

Hi, Chris.

A couple questions for you. First, in the press release one thing you cited was increased pricing pressure. And I know there's always price pressure from different folks, but I want to get a little more color there if I could. Was there incremental than what you're normally seeing? What's different now than what you're normally seeing with price pressure?

Chris, this increased price pressure is somehow twofold. One part of the decreased price pressure is coming from the decline in the raw material and the customers are asking that we are passing these declines through to them. And our response to this normally is that since the volumes of their orders are going down, we are less able to pass these kind of things through.

By the way, in the Closures business, there we have these pass-through contracts and the normal lag we will have to pass the decrease through. In the fragrance and cosmetic business it's less usual to do this and that is always a very big discussion.

The other part of the price pressure is coming from certainly also from our competitors, because there is a certain over-competitiveness in the market and everybody is trying to get volume to fill their facilities and this is reflected also in some decline in prices triggered by our competitors.

Okay, so just if I make sure I understand you right, where on some of your Closures business you may traditionally have let's say a 60 to 90 day escalator, deescalators and what you're seeing is they are coming back asking for some contraction earlier?

No, I think, Chris, this is Steve. On the Closures side, we're still on the 60 to 90 day. What we've been more referenced is we've also had general price increases both for the Beauty & Home and the Closure area. Those customers are coming back and asking us to take a look at. So it is not, we haven't accelerated our pass down of the raw materials side of the Closures sector.

Okay, that's helpful, and then on the overcapacity piece, I'm assuming that would principally be given comments to questions earlier, that would principally be in the US and Europe where you have seen the sharp declines in volumes and also principally in the Beauty & Home segment. Would that be fair or are there other areas you're seeing it as well?

That's correct. We are seeing this mainly in the US and Europe, and our response to this usually is we are offering to our customers innovative products. We are trying to help them to get more value out of our sales to them. So, it's also there that it's not necessarily that we are following these price pressures that we pricing our products. We are trying to offer different solutions to our customers.

Okay, that's helpful. Second question I had was in the Pharma business we haven't really seen any signs of slowness yet. It appears to me as though flattening out a bit this year on an organic basis is probably more indicative of the year-over-year comparison. Have you seen any signs that the Pharma business with consumer's pocket books being so crimped, have you seen any signs of a discretionary component to Pharma or any pullback or potential for pullback in Pharma?

Right now, Chris, we've been, as you've pointed out, our sales were flat with last year and we think that it's primarily coming based on a very strong year in 2008. So in the Pharma sector which really is less economically sensitive we've seen less of the impact.

Now, within that sector, for example, we're seeing increases in our sales of generic products in the United States. So we are seeing that maybe the consumer is buying prescription more on the generic side than the branded side. So there is some movement within that. However, since those are as equally profitable for us it hasn't had a major impact at all on our profitability.

Okay, thank you.

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

Hi, good morning and good afternoon.

Good morning, Megan.

Could you talk a little bit about the new product development. Looking back historically and for the first half of the year, are you seeing delays in the first quarter in the first half and are you lapping product introductions last year that may make for a tougher comp?

I think that it's a difficult question. What we're seeing more, Meggan, I think this year is rather new product introductions is new products of our customers have been delayed. So, for example, in the fragrance area what we've seen is some new launches which we had hoped would be coming out in March or April have not been cancelled but had been pushed back. So it's more our customers have been more cautious in the first half than what we were originally hoping for.

Now, that being said, we're still seeing, as Peter mentioned earlier, our customers are starting to have the concern they are even going to be able to get the supply because frankly if demand even stays flat, inventories are going lower and lower. So we may be seeing, that's why I think we're starting to see optimism towards the second half.

Okay, that's helpful, and my apologies if I missed this but could you talk a little bit about corporate expense. It was lower than prior periods and I think lower than -- certainly lower than I had modeled. Can you maybe talk a little bit about why?

Sure, Meggan. This is Bob. The two main reasons on the corporate expense. One is obviously some cost reduction efforts on the discretionary spend and secondly, part of it is related to the currency effects, because some of our corporate expenses are denominated in Euros.

Okay, that's helpful. And then talking a little bit more about the Pharma segment, can you talk about the new product pipeline there, maybe in historical context? In the past you've said I think each time we've talked about it, it's been particularly strong. Is that still the case?

Yes, in fact I would say that it's been strong and it continues to be. We've talked in prior calls about our counting device on the asthma sprays. Those are continuing to increase in terms of work we're doing with our customers, new products as we seen today. Our customers are also introducing more recent drugs such as the Ventolin product which Glaxo now coming to the UK. So, our pipeline continues to be very strong and hasn't changed, if nothing else, probably increased over the prior years.

Great. Thanks very much.

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

Good morning.

Hi, Mike, how you doing?

Great. Could you comment on your assessment of what you think you've got in terms of share of the bottled water market?

Of the total market, we are probably under probably 2% or something like that so we're relatively small. We really are a niche closure on that particularly here in the United States where we have a relatively limited side so we're probably 2% to 3% of the total bottled water market. And that right now has been one of our big growth criteria in that as we grow we'll be able to take certain of these new brands as they come back using our dispensing closure for that.

Thanks. Wondering if you could comment at all, there's already been some questions along the line of tooling. A lot of the reduction in tooling year-over-year is in areas where you tend to get the quickest lift in terms of product-to-market. What are you thinking about - - what are you seeing in the pipeline for a coming quarter? How should we think about the issue there?

Well first of all I don't think, again, we would view tooling as pretty comparable quarter to quarter. It's about a $3 million difference and some of that, frankly, relates to currency. So when you look at it, we will get fluctuations between for example, personal care and food beverage which are the two biggest markets. So we have not seen big changes to that and wouldn't anticipate right now that being a lead indicator of a problem or, frankly, a positive.

Thanks. In areas like fragrance, what are you seeing in terms of impact on product mix at the customer level and is it carrying any impact on you?

Yes, certainly. What we are seeing is the most hits from this economic problem we are facing are the high end of the fragrance market. There is the biggest drop and they are feeling most of this which is, by the way, different from the past economic problems we are seeing. The high end was less effective at that time. This time, this is really where we are suffering the most. So this is a big change, and certainly this also affected our business, because we are pretty strong in this specific area.

Thank you very much.

Thanks, Mike.

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

Good day, guys.

How you doing, Greg?

Pretty good. Pretty good. Can you comment if there was any kind of impact from the LIFO reserve adjustment in the quarter?

Sure, Greg. This is Bob. If you remember, we had about a $5 million positive impact in the fourth quarter. We had very little impact, slight negative in the first quarter but insignificant. So if you're comparing fourth to first, there was a reduction, if you will, of the positive impact from the LIFO.

But really no impact to overall results for the quarter?

No. It did not significantly impact the first quarter. It was more of a comparison fourth to first.

Okay and I believe you have stated in the past that most of your cash is held in Europe. Is that still true and what is that invested in and what kind of rates are you earning on that?

Sure. Yes, that's correct. It is still primarily invested in certificates of deposits and notes issued at strong European banks and currently we're earning about 2% on those investments.

And I believe you're in the process of putting in an SAP system. Just wondered if you could comment on how that is going?

Overall, the implementation, we've gone through what we would consider to be the blueprint phase of that and also getting the programs outlined. And we're just now starting the process of rolling that out to our business units. So basically, we're on time and in budget with that and the process of rolling it out will take the next couple years.

And you did indicate that you bought some stock in the quarter, so obviously, you've resumed the repurchase. Just wondered if you could comment on your thoughts there going forward?

Well, I think we'll continue to be in the market, albeit maybe on a less basis similar to what we did in the first quarter. Again, we still have about 4.5 million shares remaining on the authorization, so we will continue to repurchase in the second quarter.

Okay. And I don't know if you specifically commented on the pinpoint product in the prepared remarks but if you did or didn't, if you could repeat that?

Well again, the pinpoint for us, again for people that don't know, that is a closure device that has got a silicone tip on it. Today, it's being used by companies such Estee Lauder. We got some other large brands, Johnson & Johnson I think is now out with one. So we continue to expand this. We didn't have any major new introductions. We are working on several big introductions coming up over the next hopefully three to six months. So, it's doing well. The consumer acceptance has been very good for that both for cosmetic and other skin type treatments.

Okay. And relative to the new product pipeline, I know you've mentioned some of the products that you have there, but have you had any cancellations of any new products that you've been working on or any delays?

For the time being, most of the new products are still aligned. The [customers] are still working on it. They have had no cancellations. There were some postponements of product introductions, but for the time being, nobody has drawn back the development work on that.

Okay. One last one for you. I know your customer basis is pretty diversified. Do you have anyone that's over 2% of sales?

Yes. Our largest customer runs about 7 percent of sales.

And have you mentioned who that is?

No, we have not. But if you look at it, it's one of the major consumer product companies that are out there.

Okay, great. Thanks.

Our next question or comment comes from the line of Mr. Tim Burns from Cranial Capital.

A global good morning.

How you doing, Tim?

A couple of questions. In terms of corporate expense, did the homeowner's association fee go down at Crystal Lake? I was just kind of curious about that.

No, we had some unusual repair expenses that hit in the quarter but no, the fees did not go down.

Okay, and is it true or not that your drug delivery devices, I guess our favorite in the hospital, nursing home care because of its cost and efficiency savings or is it just a wash with traditional delivery systems?

No, I think again, I'm not sure. The hospital setting, I mean a lot of what we would be selling through would be more prescription drugs which have broader use, not just the hospital. But I think certainly it's easier to use either on a nasal or a lung application or oral application. So I don't know that I would associate it to the hospital or nursing home, but more from a patient convenience we feel our systems are certainly more patient-friendly than for example, a syringe.

So the cost savings really is getting the patient out of the hospital?

Correct. Again what we would be doing is not only if they are taking our medication in the hospital, for example, asthma, and they would continue to take that when they're home. So it's not just a hospital-specific medication or a nursing home specific medication.

Got it. Well you know how it is these days. You have a heart transplant and it's an outpatient procedure. In terms of the aggressive price that's talked about out there. It's around all of the industry as you know and many industries. But are these opportunities for a strong Company like Aptar to gain share and, God forbid, online to weaken competitors?

It's certainly an opportunity for our competitors. You know what - - it's interesting talking to our customers, they are appreciating to have a partner and supplier which has the financial strength like AptarGroup. And this also helps us (inaudible) about pricing, about new innovations. If you look at the press releases, we have seen from some of our big clients, like Estee Lauder, or like Colgate, Procter and Gamble, they are concentrating their activities on new products and to strengthen their supply chain. So in this respect we are really today the supplier of choice for many of these kind of [customers].

Got it, and with your large cash position, excellent debt ratios, maybe some sicker competitors. I mean, you've always been focused on technology, customers and geography, but wouldn't the opportunities be much more available now like the vulcher sitting over the carcass?

I don't like to be the vulcher but I don't know whether it would make sense to buy additional capacity, as you said. If there is not something strategic implied in such an acquisition, I would rather say that we would back off. We are looking for technology still. We are looking for regional presence. We are looking for new products, but not to increase just to the capacities or to get rid of a competitor. That would not be something that we would do.

But I would say, Tim, to support the other side. Certainly the acquisition opportunities today are probably getting bigger than they were over the last couple years, given the strength of the balance sheet we have.

Got it. In terms of broadening the product line, I know you guys are very, very particular with regard to what you'll do. But in drug delivery, I know there are five or six categories from nasal to bronchial to various other things, but syringes and pens, are these areas that are sensible for you or are they just too far out of your scope?

Well I think, again, we would like to stay with the dispensing systems, but I think you're right. There are broad opportunities, or much broader opportunities in the dispensing system area. So, we're not looking to get into canned business or the bottled business but in the other dispensing areas whether it is - - And again, it would have to be technology driven. So we're looking at syringes would be more not just buying a syringe company, but if there's new technology it's certainly something that we will end up looking at.

Usually we are looking for products which are patented so we get some - - or at least have a certain kind of IPR which is linked to protect our market. So, you mentioned the products you mentioned would not be out of our scope, but they have to fulfill some requirements.

Got it. But I mean, just to fulfill or fill out a portfolio that's used for drug delivery on its own is not the strategy. It's high value, patented components within.

True.

Okay. Well, hang in, guys, and we'll talk to you next quarter.

Thank you, Tim.

Sure.

Our next question or comment is a follow-up from Mr. George Staphos from Banc of America. Your line is open.

Thanks, hi guys.

Hi, George.

Just I guess some last questions maybe piggybacking on some of the themes that Tim was hitting on. For all of the new product development efforts and leadership that you had in dispensing systems, if I look back at our models over the last 10 plus years, Aptar which traditionally versus all the packaging group in which have higher margins, higher returns on capital, has seen a steady erosion to now more of an average both return an EBITDA margin. And it hasn't just occurred in the last couple years where I could say it's something about the cycle. So as we think about that, what do you think the biggest drivers have been? Is it just the fact that your competition even though they are trailing you, they've been able to close the gap technologically with you. Or there are some other factors that work in terms of why your returns and margins haven't actually kept up with the rest of the industry?

I don't know. A big part of the decline of the margins I think is coming from our investments into the emerging markets. We have had the strategy in the past to be a global player with our customers and I think we have invested quite a bit in the Asian market and Latin America market and we also are somehow affected by the currency. If you look at the development of the dollar in the last year, this also has had an effect on our margin.

I think the other side going back a couple years back in like 2006, we added about another 100 basis points in terms of option expense that was added that wasn't there before. And the currency, frankly, what we would hope to see is the dollar now starts to strengthen. When the dollar was weaker we actually saw a negative hit because of the translation transaction percentage, so that together also with the tooling increase which we've seen go up probably around 4-5 million up to 50 million so there has been areas certainly we saw in 2007 and 2008 so increasing returns that have been negatively impacted with this new economic issue.

Okay. As I said, it's not just based on the last couple years, it's a much longer term history that we have from our models, etc. When we look from out into the next whatever, two or three years realizing we're in uncertain times, let's adjust for the moment. What do you think the biggest source of improvement on return on capital will be for Aptar on a going forward basis? Will it be the fact that you finally get more lift in return in the investments you've made in emerging markets? Will it come from a specific product category? How should we think about that?

I think if you look at it a couple ways, number one I think you are correct. We are starting to see developing markets continue to increase and, in fact, they are the ones least affected by this economic crisis that we're seeing in other parts of the world. Secondly, our Pharma growth continues to out pace without any acquisitions now, outpace our Beauty & Home and Closure business. And third, even within the Closure business, we're starting to see the food/beverage market open up which also is giving us more volume throughput. So I think coupling to those together with the general innovation we have with the products, we still think we'll be able to generate increasing returns, again outside of the unusual economic activity we have today.

Appreciate the color. Last question we have, Steve, if we think about price competition and whether it's a little bit more intense than in prior years or not, are you seeing it more from new entrants? In other words, companies that have decided they want to be specially packaging too in the last several years. Is it coming from smaller players that have always been around to maybe have less balance sheet strength and therefore have become a bit more desperate in recent years? How would you categorize, if it's possible to, where the increased competitions come from? Thank you and good luck in the quarter.

Yes, appreciate that. Let's go back and break that down a little bit. First of all, the competition we have to take a Pharma segment out of that because it's a very different segment. So when we're talking price competition, it's Beauty & Home and Closures. Primarily what we're seeing the competition, there are some new entrants coming in. They tend to have been smaller, but it tends to be a lot more of the existing guys that have been in the business. And keep in mind some of those have made some acquisitions in the past that now they've got to make sure they are pay for. So you're getting- - - so giving a little bit of a balance in Beauty & Home. There are some new entrants but I think the majority of what we're seeing are frankly the existing players.

Got it.

I think it is less the Asian market. In the past we have seen more price competition coming from the Asian markets which has gone down a little bit in the past months I would say.

Okay. Thank you, guys.

Thanks, George.

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

Thanks.

Hi, Mike.

Following up on George's line there, it's always murky in what we're seeing. But can you comment at all on where you feel best on market share gains and as you look forward over the next couple years where you anticipate you're going to get the best tail wind in that area?

I think we are pretty well positioned in almost all of our markets we are serving. We are number one or number two in most of the markets we are serving, so it's pretty broad based. Soon after this financial crisis, you will see some turn back in the beauty and the home area. This will increase again and people will start to use more of these kind of products. We are looking forward for quite some nice increases in the Pharma area because there we have a very strong position and we are looking for new opportunities there. So as already mentioned, I think the overall, the worldwide development in the emerging markets in Latin America, in Asia, will help us to strengthen our positions in the market.

The other thing I think that helps us too, Mike, is we are today one of our smaller markets but one of our fastest growing is the food/beverage market. And in that market, we continue to see innovation being drivers and we continue to open up new categories in terms of products. So that also in addition to what Peter said is something we're looking forward to.

Yes, thanks.

(Operator Instructions) I'm showing no more questions at this time. I'll turn the conference back over to Mr. Pfeiffer.

Thank you. I would like to thank everyone for participating in today's call. Thank you very much and see you next time. Bye-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.