Aptargroup Inc (ATR) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's first quarter 2010 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.

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 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 Peter.

Thank you, Ralph. Good morning, everyone. I will comment on our overall results and outlook and then discuss our Beauty and Home segment. Steve will follow me with his comments on our Closures and Pharma segments, and then Bob will review our financials.

We announced in the press release that we acquired some product technology to expand our Closures product offering. Steve will comment on this further as part of his Closures segment comments.

Focusing specifically on the quarter overall, the demand trends that we saw in the fourth quarter of 2009 continued into the first quarter of this year. This positively affected the Beauty & Home and Closures segments the most, while demand in Pharma market continues to be relatively stable.

We have always been long-term focused and, even during difficult economic conditions like we experienced last week and last year, our strategy does not change. We manage our cost structure without sacrificing capacity or investing in innovation. Our customers rely on us to be able to respond quickly when their business recover like we have seen it in the first quarter of this year. And the better utilization of our facilities from the increased volumes led to record first-quarter earnings.

Looking forward, incoming order volumes are increasing and the horizon of visibility is increasing slightly.

Turning now to our Beauty & Home segment, we saw improvement in both sales and income for the Beauty & Home segment in the quarter. Compared to the prior year, reported sales increased 24%. Changes in exchange rates positively affected sales by 7%. Excluding currency changes sales decreased 17%. Demand from all three of the primary markets served by the Beauty & Home segment increased during the quarter.

Excluding changes in exchange rates, sales to the fragrance/cosmetic markets increased 14%, sales to the personal care market increased 24% and sales to the household market increased 25%. Strong incoming order flow is generally leading to longer lead times.

Turning to products, interest by marketers in revitalizing their product by differentiating the packaging is increasing. For example, our locking actuators, which eliminates the need for overcaps are used on air freshener products in the Glade Relaxing Moments aromatherapy line from SC Johnson. Also, interest in promoting fragrance products via samples is increasing. For example, Thierry Mugler has distributed in several magazines samples of their fragrance called Alien using our flat spray system called Imagine.

Lastly, we mentioned on the last call that during 2010 we are realigning our business to become completely market focused in order to better serve our customers by making it easier for them to do business with us and, at the same time, deepen our understanding of their business so that we can offer even more innovative products to meet their needs. This change is proceeding as planned, and we still expect to begin reporting the new segment information starting in 2011.

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

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

First, looking at the Closures segment, compared to the prior year reported sales in the quarter increased 15%. Changes in exchange rates positively impacted sales by about 6%, so excluding currency changes, core sales increased 9%.

Adjusting this core sales increase for the higher resin pass-through and a decrease in custom tooling sales left core sales at approximately 13%. Excluding currency changes, sales to the personal care market increased 10%. The decrease in customer tooling sales was mainly in the personal care market, and core sales to the personal care market were up around 16% excluding the tooling decline.

Excluding currency changes, sales to the food/beverage market was up approximately 7%. Segment income from an absolute dollar and as a percentage of sales standpoint increased from the prior year.

As Peter mentioned in his comments, at the end of the quarter we entered into a license agreement which broadens our product range to include closure systems which have foil seals that are fused to plastic pull rings. This temper-evidence system makes it easier for consumers to remove the seals on packages by simply pulling on a plastic ring versus fighting to peel off the foil top of containers. This system has a broad variety of potential up occasions, especially in the food and beverage market. We paid approximately $3 million for prepaid royalties and certain supporting equipment, all of which had been capitalized.

Now turning briefly to new products, our Closures are used on a new men's hair care line recently produced by Unilever's Dove Brand. And in addition, Smucker's introduced our no-drip caps with a smiley face on their Hungry Jack microwavable service line, and they are highlighting the no-drip cap on the label.

Now looking at our Pharma segment, reported sales increased 4%, mainly due to a positive impact from exchange rates of 5%. So excluding the exchange rate Impact, sales decreased by 1% in the quarter, primarily due to softness in sales of our metered dose valves. We expect core sales to turn positive as the year progresses, partially due to the expected bad allergy season here in the United States resulting from the fast shift to warm weather from wet weather, and also increasing sales of our metered valves to developing markets.

Turning briefly to products, Alcan's Patanase allergy medication, which uses one of our nasal spray pumps, received FDA approval for use on the six-year-old children and older during the quarter.

I'll now turn it over to Bob to discuss our 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, commenting on the results for the quarter, as you have seen, our overall reported sales increased 17%. Changes in currency rates positively impacted sales by approximately 6%. Excluding currency changes sales increased 11% in the quarter.

From a geographic standpoint sales to customers by our European operations represented approximately 58% of our net sales compared to 60% last year, while sales to customers by our US operations accounted for 29% of sales versus 27% last year. Reported diluted earnings per share increased 47% to $0.56 per share from $0.38 per share in the prior year. Free cash flow, which we define as cash flow from operations less capital expenditures, was roughly 0 for the quarter versus $17 million in the prior year. The increase in earnings was offset by higher levels of receivables due to the increase in sales in the quarter.

Our cash flow from operations for the quarter was approximately $30 million compared to about $49 million in the prior year, and capital expenditures were approximately $30 million in the quarter compared to $32 million in the same quarter of last year. During the quarter we spent approximately $8 million to buy back approximately 200,000 of our shares, and our repurchase authorization at the end of the quarter was approximately 3.5 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 4%. On a gross basis, debt to capital is about 23%, while on a net basis is only 2%.

Looking forward, presently we expect D&A for all of 2010 to be in the area of approximately $140 million with capital expenditures expected to be in the area of $125 million. I would like to point out that these amounts could vary depending upon a couple of things. First, changes in exchange rates could impact the capital expenditures. Secondly, we have a couple of interesting food and beverage projects in process and, should we be successful in closing these projects, we may need to revise upward our estimate for capital expenditures for this year.

The effective tax rate for the full year 2010 is expected to be between 32% and 33%.

Lastly, we currently estimate that diluted earnings per share for the second quarter of 2010 will be in the range of $0.60 to $0.65 per share compared to the $0.41 reported in the prior year or $0.44 per share in the prior year excluding organization charges.

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

(Operator instructions) George Staphos, Banc of America.

First of all, some of the volume trends that you put up in Beauty & Home, while it's nice to finally see them, they're also probably larger than I would expect, given what the likely rate of consumption is. So how much of that do you think is pipeline filling, and how would you have us think about their sustainability over the next several quarters?

We think that the biggest effect on the increase of sales in the first quarter in the Beauty & Home area is because of the missing de-stocking. In the past few quarters, we had the problem of the de-stocking. This is now ended, basically. There might be a little bit of restocking, replenishing of the customers. But frankly, we don't really know that. We don't get this information. But my guess is mostly just the missing de-stocking, which drives the growth of the first quarter.

Okay, two related questions to Beauty & Home, if possible. Can you parse where you saw the majority of your growth? Was it evenly balanced across your geographies? Was Europe stronger? Was the US stronger? Help us think about it from that standpoint.

And then looking at it from price point, to the extent that you can relay or have visibility, was growth stronger in low or high end, if you will, fragrance and cosmetics?

First of all, George, we saw increases all over the world, so all areas are increasing -- Europe, Latin America and emerging markets has seemed quite nice to us. So it's not related to one specific area. And we also saw the increase in both sides, in the lower end of the business, of the fragrance business, and on the higher end of the fragrance business. So also they are -- it's a broad-based growth.

And on the price points, yes. I mean, we are seeing some price pressures there, but it's offset by the growth of the business.

Okay, the last question, to the extent that you can give us a bit more color on how the realignment program is going, why are you gaining more visibility, if you will, through this program, through the program? And similarly, what are you offering customers here?

Concerning the realignment, the project is on track. We are where we wanted to be, so there is basically a positive reaction from our customers. They are appreciating our newer way of going in touch with them, especially having the possibility to talk to marketing people, and we are already seeing some effect on that. So we are getting a very positive feedback, which trigger some new ideas for new products and problem solutions for our customers.

Internally, it also has a very positive effect. We are trying to avoid any kind of duplications between these different segments.

Ghansham Panjabi, Robert Baird.

Was there a noticeable increase in volumes between maybe your branded products and private label products across your various businesses?

Basically, we are not seeing a big difference for the time being. They are both growing part, because of the increase or the missing of the de-stocking. Both areas are stopping this, so there is no difference for the time being.

If you just look at the volume trajectory during the quarter, was there any month in particular that was stronger, maybe March versus January and February? Or was it pretty uniform?

Actually, March was the strongest month, as it typically is, but January and February were both very strong compared to the prior year. But March finished stronger than the other two months.

On resin, polypropylene is up quite a bit for the first quarter. Is that part of -- are you anticipating some of those cost pressures flowing through more fully in the second quarter? Is that fair to assume?

Well, Ghansham, we actually saw some of the negative because of the delay in passing through the resin in the first quarter and I think it's important to note that, despite those pressures -- and you have to remember that in the Closure business, which is the most prominent, we actually had a positive impact back in 2009 because resin was going down. So we've had a negative. We would expect that to continue into the second quarter as resin still is going up. And hopefully, from what we're hearing in the market, it ought to be flattening. And there is some prospect that resin may even be going down in the second half of the year. But we've included that in the estimates that we've given to the market.

Christopher Manuel, KeyBanc Capital.

This is actually Jason Brown filling in for Chris. My question is on the Pharma segment. It's been remarkably steady here for the last five quarters. It sounds like you are expecting some pickup through the rest of the year, from a user standpoint. Can you talk about both that and what you are seeing in the new drug pipeline?

Again, on the new -- let me deal with the kind of reverse order on your questions. On the new drug pipeline we continue to have a lot of activity with our customers, and certainly at levels at or even higher than what we've had in the past. And when you look at the Pharma side, one of the things we talked about last year was some of the concerns we had in seeing some of the slowdown with our customers for the Eastern European market. Those markets are still relatively soft. But, what we are seeing is some pickup in the other developing markets around the world, particularly for our metered valves, which go into asthma products. We think that will be accelerating the growth going forward.

Lastly, as I said in my comments, when you start listening to a lot of the reaction here in the United States for the allergy market, we are expecting allergy medication decongestants to have a bigger sell-through, which would also have a positive impact as we go through 2010.

Can you remind us of the geographic distribution in that business?

It's difficult. The majority of our sales, it's probably 75% Europe/25% US. But I think it's important that, for those allergy medications and those asthma medications that I talked about, a lot of those are still exported from Europe into other areas of the world. So it tends to be much more of a world business rather than where we are shipping our product.

On the technology that you've licensed, is that $3 million payment -- is that a one-time payment, or is there anything recurring?

The only thing recurring will be some royalties on those licenses, but otherwise it's a one-time payment. Again, to give you a visual, I don't know if you've seen, but the product is actually out on the market today. Tropicana Orange Juice in their half-gallon size -- if you've bought that, there is a dispensing closure with this pull laminate system that's on there. So it is out there and we see significant growth potential for us going forward, again across all markets, but particularly in food and beverage.

Can you just comment on how this is going to be used with your current product portfolio and customer base, and if there's any kind of cross-selling potential there?

There's certainly cross-selling side. Tropicana is with Pepsi today, and that's also a major customer for other parts of our business. So what we'll be doing is integrating some of their laminate and foil technology into our closure technology and be able to expand this going forward. So we think it's a great synergy from what we have today with our current product line to be able to use this technology going forward.

Chip Dillon, Credit Suisse.

With this resin issue, can you just give us a general feel? In terms of what -- I think it actually averaged lower, if I'm not mistaken, in the first quarter of 2010, the resin cost versus a year ago. But correct me on that. And how much was that pass-through adjustment in terms of the revenue in the first quarter, either by segment or just for the whole company?

Well, you know, it's difficult because now we have to break those into regions for you because you're going to have different pricing sides between, for example, the US and Europe. But let me deal with the US first. I think we actually had a net resin positive in the US, which would come back and say we were passing on some of those resin in the quarter. So you hit that inflection point during the quarter where we crossed from compared to last year.

But there's, certainly, at the end of the quarter, prices are higher going into the second quarter on a comparative basis.

In Europe, I think you are correct in that, in Europe, prices were actually, on average, somewhat lower in the first quarter. But again, they are also increasing in the second quarter. And our pass-through is just to remind everyone, is anywhere from around 30 days to around 90 days, depending on the customer.

On the new closure you mentioned -- and actually, I think I have seen that before with the orange juice -- you basically paid $3 million for the licensing, etc., and you are capitalizing that. How does that get amortized? Is that something that goes over years? And is this something that could add -- it would seem like you could get a pretty quick payback on that in a matter of quarters. Is that fair?

Again, we're optimistic, particularly since the product is in the market. We will amortize that. It will get amortized over two parts. First is the license agreement over the -- or, excuse me -- the license agreement, how we've got going basically over the patents. And then secondly will be the equipment, which will be the life of the equipment, anywhere from five to 10 years, depending on the type of equipment.

So, again, we're optimistic that we'll be able to get some revenue. As with a lot of things, there's a lot of projects in the works on this. So how quickly we can ramp up on this is still a question mark. But again, we're optimistic about the product line, bringing it into Aptar.

I noticed from December to March, both your shareholders equity was down about $20 million and property, plant and equipment was down about $30 million. Is that mostly just the euro ending lower at the end of the quarter, or is there something else going on there?

Yes, Chip, that's primarily driven by changes in the FX rate from the end of December to the end of March.

Claudia Hueston, JPMorgan.

Just a follow-up on the licensing agreement. Is that a patented product, or are there other customers, players out there in that space?

No; that is a patented product, and we have license arrangements, both exclusive and non-exclusive, in different -- really, basically around the world. So primarily in the US and Europe, which are primary markets.

Okay, perfect. And then, just on the Pharma segment you had talked about some softness in the metered dose valves in the quarter. Can you just comment a little bit on that weakness, and then why the optimism that that business gets better going forward? And then just any comments on the overall competitive dynamics in the Pharma segment?

Again, I think from the metered dose valves, again, you can get a lot of volatility -- not a lot, but some volatility based on inventory issues in the Pharma market. What we've seen is certain backlogs picking up, which gives us the optimism going forward, and also discussions with our customers. As I said, the developing markets on the metered valves was slow in 2009 for a lot of our customers, and that seems to be picking up. So we are pretty optimistic in going forward. Again, the allergies have been strong for us, and we continue to see that being strong.

In terms of the competitive situation, on the Rx part of the business, which is where we are the largest, there's really very little change in the competitive side. We have significant market shares in that business and are still the market leader. On the consumer health side, which is one of the faster growing segments for us, there is more competitors, but frankly at this point a lot of new opportunities going. So we'll continue to be very optimistic about this segment.

Okay, that's very helpful.. And then, just finally, you've talked about the improvement in visibility. Does it feel normal yet, or are you still below normal in terms of visibility?

I think it's getting more to the normal. No, it's not yet where we were before the crisis, but the customers are willing to give us longer-term contracts and longer-term visibility on their business. But as I said, it's not yet at the normal level.

Meggan Friedman, William Blair.

Good morning, good afternoon and congratulations. A couple of questions on the Pharma segment. As we are looking out over the course of the year and looking at organic growth drivers, can you talk about potential patent expirations in 2010? And then longer-term, can you provide any thoughts on health care reform and the impact that that might have on this segment with the previously uninsured population coming online?

First of all, looking out in 2010, there's none of the products of substance that we are on today from our customers' standpoint that will be coming off patent. There are a couple of allergy products that are expected to come off patent for some of our bigger customers over the next two to three years. And what we are seeing is, already, certain development activities going on with generic companies looking to be ready to enter those markets. But that is more a 2012-2013 issue.

In terms of the US regulatory, I think it's too early to give a definite on how we look at it. At best, we -- on the whole, I think it's probably going to end up being a positive for Aptar with taking in 30 million more people uninsured there will be potential medication going to those. Certainly, pricing has become a factor in the Pharma market with our customers. What we are seeing in terms of generic growth and potential new customers, we think that will more than offset any price pressures that we'll feel in the sector.

On the consumer health side, it sounds like it's a growth opportunity as we are looking out over the course of the next few years. How do the economics different there from a prescription versus consumer health standpoint?

The margins on that side are slightly lower than what you're going to see on the prescription side, but it is very dependent on the customer and the product that we are selling. So I would say, on whole, it's going to be slightly less than what you've got there. But what you have is certainly much quicker introductions in the market and product changes.

So to some degree it has like an Rx type feel as well as a personal-care type feel. Packaging is a key differentiator in that market. So that's one of the areas we put additional focus on that going into 2010 and 2011 and 2012.

Great, and then just a question on the license agreement. How should we be thinking about that from a margin standpoint for food and beverage as that adversely or positively impacts the margin there?

Then, was buying the company or the technology outright a consideration? And what was the decision set there?

I think, first of all, from a margin standpoint it will not have a major impact up or down on the margins. So it's comparable margins to what we have today, which continue to be on the strong side on our closure business.

In terms of buying it, this has been a negotiation that's gone on for a long period of time. It's important to note that this Company and technology is still very new into market, so buying the company as a whole for us didn't seem to make sense by buying some past issues that may have been around liabilities, etc. So effectively, we bought what the company would have been by doing the license and buying the equipment.

Brian Rafn, Morgan Dempsey.

Give me a sense of -- there's been some discussion that across the board advertising it with some of the big Proctor & Gamble's, some of the staples of the hygiene/personal-care area, it's going to be up anywhere from 8% to 13%. Are you seeing those advertising budget increases leading to new product launches? Are you getting any sense of -- or is it just more advertising to defend current brands?

What we're seeing is an increase in advertising, especially also using our devices for that. It's more in the perfume/cosmetic area than in other areas. And certainly, it will trigger and will be used also for new products. So maybe Steve can answer a little bit on this consumer health care area.

I caught your comments, Peter. You talked about that in the cosmetic fragrance area, that you're seeing good balance between the higher premium areas as well as the lower end commodity side. What are you seeing relative to volumes and new product launches? Is it in the hundreds of thousands, is in the several million, is it 4 million or 5 million? What are you seeing as we reinflate here in the world?

We are seeing since several years now that new product launches are getting smaller. So initially, they were in the hundred thousands and more, sometimes even in the millions. This has been cut back in the past to several hundred thousand for new product launches. It's a question also of financing these kind of things. Launching new products worldwide is a very expensive issue for our customers. That's basically the trend, and this has not changed in the last month.

There's been in the pump area, especially in the soaps and gels, if you go into commercial hospitals, if you go into restaurants, if you go into public bathrooms, you are seeing much more of these pumps that have a motion sensor and that you can just put your hand underneath and it spritzes out the soap or whatever. Does that affect you guys from the standpoint of bottles with hand pumps? Or, can you guys begin to look at pump applications for that motion sensor business?

First of all, we are also working on these kind of products already. Secondly, we are supplier to some of these devices already today, the wall-mounted dispensers for hand soaps and lotions. And thirdly, it really does not affect our business. We have seen in the last month, during the H1N1 time, that these products are [asked] very much, and the lead times for these products are pretty high, still. So it seems that there is a spillover of these periods to [today].

The other area is in the food and beverage area, you guys have not historically been in the very large pump area. Is that an area that you might be, for pump dispensers of condiments and ketchups and that type of thing -- is it an area of interest, or is it just too low a commodity area?

No, it's actually an area of interest and we're -- today, we're just finishing now a development of a 4 cc pump, which is a large output pump which has the potential not only for the food and beverage but also in the personal-care market in some of the higher output.

So it's an area, Brian, that we are continuing to look at and it is a niche market. But I think for us, it's an interesting side and, frankly, we're seeing good potential starting even from our Asian activities moving back into Europe and then into the states.

Certainly, the last three, four years there's been such an explosion with these -- on the personal care side with the body washes and the shower gels. Are you seeing the same robust development in that area, or are you seeing a little more of a plateauing and a cresting as far as new product launches, brands, that kind of thing?

I think we're still seeing some new products coming out there. And once again, convenience is very important for these kinds of products. So we are -- most of the new products that are coming out, we are supplying the dispensing systems. The trend is continuing, I would say.

I think the other side to that is, again, the US is really, in terms of consumer use it's still a hand soap market. So any kind of movement, there's significant potential upside when you went down to the liquid soaps or those areas. So there's still significant growth potential in the US.

On the personal-care side, what are you guys seeing the package size reformulations? There's been a lot of this what we call a quantity/quality paradox of inflation where you have the shampoo in the 16-ounce for $2.69. Now it's the same shampoo, but at the same price, but it's 12 ounces. Are you seeing that same type of product size shrinkage in same style, same ergonomics, same colors and that, but yet in a smaller package?

This trend is continuing. But there is another trend which goes directly in the other direction is the club size packages -- big packages equipped with dispensing systems. So we are seeing both trends continuing.

Anything relative to new applications, bag-on-valve or the blister packs, where you actually had a small pump in there that you could lay in a magazine? How has been that adoption?

This is a little bit of a success story this year because quite a bit of demand for this Imagine, this is the flat spray sampling system from (inaudible) which is now introduced, as I mentioned in my introductory remark, by Thierry Mugler for fragrance, but also other companies are using this, putting it -- especially for magazines. It's a good success, and we have good orders for this for the remainder of the year.

What are you guys from a standpoint of headcount? As you start to see a ramp-up and re-inflation, things begin to normalize and you are getting product launches. Are you guys -- I think, at one time, you guys pretty much flexed down in most of your contract hiring. Are you doing any hiring anywhere in the world? What kind of shifts are you running? Are you doing any overtime anywhere?

Brian, we were very cautious in cutting personnel during the crisis because we wanted to be ready to serve our customers when the crisis is gone. So for the time being we are not seeing a big ramp up to cover the demand which is coming from the markets. So I would say we are pretty well prepared for the coming increase.

Yes; we are having a close look to our costs, as we had done in the past. But there's no reason to hire a lot of people now.

And I missed you opening comments, Peter. In the caps Closures area, you guys have certainly done a lot with SimpliSqueeze in the sports drinks and water. Is the mother of all those markets the milk? Have you gotten any positive traction in the milk area?

No. I think the key thing we've still got going, Brian, is we're today, on International Delights product on the dairy creamer market. In terms of milk we don't have any substantive areas that we are on today, but certainly it's a big market that I think will be looking for additional convenience features in the future.

On the inverted gravity feed, the SimpliSqueeze, you guys have had certainly a nice run and actually broadening the adoptions in all kinds of other areas. Anything new on the SimpliSqueeze?

Well, again, we were doing it -- as I mentioned in my comments, we've introduced it on the Dove brand that's out there for men's line. We are doing additional work in terms of Smucker's, in terms of pancake sauce and those types of things. So those are the key issues we had in the quarter.

Jason Rodgers, Great Lakes Review.

It's actually Greg Halter. How are you guys? I wondered if you could provide some information on the custom tooling in the quarter this year versus last year in terms of dollars and so forth, and where that went.

In the first quarter this year we had roughly about $10 million in customer tooling sales, and that compared to about $12 million last year. So down roughly $2 million on a reported basis. Actually, Beauty & Home and Pharma were up slightly, and Closures was down about $3 million.

And, can you comment on where your capacity is sitting in the various segments currently, if you have any needs there to do any ramping up in terms of new facilities?

I don't think we've got any facility expansions that we are going to be needing. Certainly, as Bob mentioned in his comments, even on the capital we've got some interesting food and beverage areas where we may have to add some capital if those would come through.

What we are seeing in the Beauty & Home and in our Closures market is, as volumes are going up, we are stretching out some lead times. But I don't think we've got major capacity issues. Again, as you know, our products are very much specialized, so it's difficult to come up with overall averages.

I know in the past year or so you've been talking about customer launches, that the new products are out there but the launches are being delayed. Have you seen any release in some of those particular projects?

Yes, we are seeing some more launches in the past few weeks. People are trying to get their product out there, but it's not on the same level as we have seen before the crisis, frankly.

I think the other thing we are seeing that has been helping us is, those are new products, but we're seeing a lot of new reformulation coming back out, new and improved, taking some new packaging. So that's also benefiting. It's not a brand-new product but it's a new and improved whatever.

Can you comment on the status of your SAP initiative?

Yes. It's pretty much going according to what we planned. We've introduced it now in about four operations of ours, and we just have a continued rollout plan throughout the remainder of 2010. So we don't expect any substantive issues out of that.

And none so far encountered?

No significant -- with any introduction there's always issues, but no substantive issues that we've had to go through.

And I think you've been talking about the new dosage indicator. I just wondered if you could provide some status on where that stands currently?

It's really, as you said, a dosage calendar/dosage indicator. We're still working with a couple of customers on that. It's going to be dependent on when they get into the market. So that program continues. We are still optimistic about it, but it's very dependent on the FDA and the regulatory guys.

Relative to these food and beverage projects, is there any more detail that you can provide relative to those?

Unfortunately, all of these are covered by confidential agreements, until we get a release to that.

But we would know if there's something that comes out on a product at some point (multiple speakers) --?

Oh, sure. Again, we try to update you certainly each quarter, but it's an area that we would continue to talk about.

George Staphos.

I was looking back through the models over the years and looking back both at the early '90s and then again earlier in the 2000's and we've never seen the kind of incremental margin you are putting up now in those prior recovery periods. Now, clearly we've never had a drop off like we've had in '08 and '09.

I guess from a standpoint as you've analyzed it, what do you think accounts for the biggest reasons why you've seen such a big pickup in margin? And should we more or less assume this kind of incremental margin over the course of the year, assuming, obviously, the volumes hold up?

I think the biggest factor really is, as you see in most deep recessions, everybody takes cost out of the system. And that's certainly what we did and concentrated on in 2009. And I think, with the significant increase in volume that we saw in the first quarter, we were able to keep those costs in check. And I think that's really the primary driver to the significant margin improvement.

Looking forward, as Peter said, our lead times are extending a little bit on some of the product lines. We're going to have to continue to evaluate, do we bring back some of those temporary workers, do we need to go to over time/weekend shifts? Those are things that we'll continue to evaluate. But due to the effort that we made we're really focusing very hard to do the best we can to keep those costs in check and to not re-add them immediately.

Ironically, Bob, and I'll be quick about it, you're the first report we've had this earnings season out of packaging and paper. We'll see how the other guys do. You are already back to where you were from an earnings standpoint in 2008, where I'm not sure every company that I track during earnings season is going to report that.

Do you think, through this downturn, that -- I guess the answer would be us, but how would you quantify it -- that you gain share so that you're coming out of this with a lot more strength than perhaps the rest of your peer group might within dispensing systems, anyway, and that accounts for why you are back at pre-'08 levels or '08 levels, where other guys might not be?

George, we are pretty sure that we might not have lost any market share during the crisis because of our strength, especially in the financial areas. We were seen as one of the primary suppliers to our customers. Our estimation is that we have rather gained market share during this crisis than lost. So you might be right, that we have a little bit of an advantage there.

Two questions, then I'll turn it over. One, SG&A picked up a fair amount year-on-year. Perhaps you discussed it before but I missed it. Can you give us some color in terms of what was the driver there, how much of it was currency, if any? Perhaps not. And then, also, just as you move to the new segment reporting, as we get into 2011, will you still provide us product volume trends and color?

George, on the SG&A side, the largest was definitely -- the largest impact was on the FX side. By memory, I think it was about $3.5 million to $4 million on the FX side. Other than that, we had -- if you're comparing it to last year, first quarter, if you remember, because the results were so poor in the first quarter we adjusted our bonus down in the first quarter of last year. So comparative wise, we would be accruing to where the current business level is.

And, also in SG&A, you also have about 900,000 of stock options higher in the first quarter this year compared to last year.

And on the color that you will be providing us when you move to the new segment reporting, will you have product detail available like you do now?

Yes. We will certainly continue to track the product information internally and we'll do the best we can to report that with the new structure.

Brian Rafn, Morgan Dempsey.

Give me a sense on the SG&A as you guys look at business ramping up. Any pressure payroll wages? You certainly talked about accruing bonuses. But give me your sense on salary, wages, payroll, health care costs. And if, as you begin to ramp up, if you are going to look at strains on the labor side from the weekend shifts and overtime versus taking on contract workers.

It's real tough to give you an exact number on that. Certainly, on the wage side you have different pressures by different regions. Certainly, in certain areas like the emerging markets you have different inflationary type pressures that drive up wages a little bit. But we've been very, I think, consistent and prudent in how we handle wages around the world. So I don't think that's going to necessarily be a big issue.

In terms of the overtime and things like that, it's always a balance. It's something we always look at as whether we want to bring on additional direct labor and things and/or move to the overtime. But it's something that we look at on a quarterly basis.

Relative to all the discussion ad nauseum on green and the environment and that, what specific -- are you guys seeing any encroachment or cannibalization? In the softener area, for instance, there was a large plastic bottle that comes out with a cap and you are seeing these refill packages that are just really -- they look like old style milk bottles, just kind of a paper/cardboard. Are you seeing any encroachment from the standpoint of companies getting away from plastic resin packaging going to something that's perhaps a little more biodegradable?

Obviously, the environmental issue is a big issue for the future. And we are really closely working with our customers on coming up with environmental-friendly devices. This is pretty high on our R&D expenses. And we think that plastic is not necessarily a negative in the environment. So we are working with this. It's an issue, but we see this as a potential advantage for us coming up with innovative new product in this respect.

I think, the other side, too, just to come back, this has been a significant focus for us. And what we are seeing is the consumer is unwilling to give up the convenience, but we are taking product out -- our Kraft salad dressing caps, for example, took about 20% of the plastic out of the closure and still was able to keep the dispensing. So it's a key area. I think the driver, though, is the consumer still wants the convenience.

Are you seeing any more focus on the green in Europe versus the US, or is it primarily a global thing?

I think this whole thing started in Europe many years already. And the issue now is really worldwide. You find these requirements in Asia as you find them in North America and Europe.

In the fragrant and cosmetic area, maybe a little too early to talk about Christmas. But would you guys say that for Christmas 2010 that in that fragrance/cosmetic area that you're going to see more product launches, more activity in that area versus the last couple holidays?

We don't really have a crystal ball. This is an issue for the third quarter, maybe. So to predict this is very difficult. We will have to wait how the consumer reaction for the next two quarters will be. Then our customers will, accordingly, react on Christmas. That's really much too early to talk about this.

Chip Dillon, Credit Suisse.

Just for clarification, earlier in the call when you were talking about Beauty & Home, I believe you gave a number -- and correct me -- that had a 2 in front of it. It was I think the non-tooling sales number. Is that correct?

Are you talking about the overall sales growth?

Yes, like you had a 17% sales increase, but you mentioned something that was -- I think you mentioned the non-tooling number before that. But just correct me, please.

Yes. Tooling in Beauty & Home was really only about 900,000, so it really wasn't a factor. The two that you were thinking about maybe was when Peter mentioned that personal care was up 24%.

And fragrance/cosmetic was up about 14%. Both of those are ex-currency.

Okay, got you, okay. And I know you don't talk specifically about pricing, but it seems like with US resin pass-throughs more up in Europe, maybe more down, that perhaps there wasn't -- maybe there was a slight price decline or maybe very little change. Is that, just in a very broad sense, a fair statement?

Yes, that's a fair statement. Really, that had virtually no impact on the quarter. Primarily, the sales growth was driven from volume.

The last question is just on the whole closure area. I think we are noticing more on the low end, certainly not in your market -- and you mentioned this in the last question -- but a reduction in the sizes of the closures. You certainly see it on, for example, water bottles, where they are actually advertising on the label -- I think, Deer Park, where there is, if you will, a smaller cap, doesn't twist as much.

Are you seeing in some of your higher-value closures a real trend there where they really do, where you could see a substantial reduction in the amount of resin you use? And could that possibly be a positive or a negative, depending on how, obviously, you price it?

I think you are seeing a trend to try to take cost out by taking plastic out. One of the issues in terms of the license that we bought -- that's one of the advantages, frankly, with that system; it takes out, for the size of that closure that goes on, it makes the neck of the bottle much lower, which takes out a fair amount of plastic.

So we think that, on whole, because we're the most innovative on the closure side that we are going to get customers coming to us looking for those solutions on how to do that in the dispensing area, rather than our competition. So I think the whole innovation side of Aptar actually makes us more critical to our customers' success than even in the past.

You said you didn't feel you lost any share in Beauty & Home. It almost looks like it went the other way, that you could have certainly gained some share in Beauty & Home, given the magnitude of the increase. It may be hard to give that data, but is that something you sense may be going on, given some of your recent innovations?

This certainly confirms our feeling, but it's really just a feeling, our feeling that we have gained market share during this crisis.

At this time I would like to turn the call over, back to Mr. Pfeiffer for any closing remarks.

I would like to thank everybody for participating to today's call. Thank you very much and goodbye, gentlemen.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may all disconnect. Everyone have a great day.