Aptargroup Inc (ATR) 2011 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's first quarter 2011 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, Jonathan. Before we begin, I would like to point out that the discussion to follow includes some forward-looking comments, and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup's SEC filings.

The information in this conference call is relevant on the date of this live call. Although the Company will post a replay of this conference call on its website, as a service to those investors who were not able to listen today, 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.

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 Pharma and Food and Beverage segments, and then Bob will review our financials.

With this first quarter release we are beginning to report based upon our newly realigned segments. Last week, we filed an 8-K with the SEC which disclosed historical financial information for the new segments. Hopefully everyone had a chance to review it in advance to this call.

Focusing specifically on the cost overall, the positive momentum we experienced last year continued into the first quarter and, as a result, we achieved record first-quarter sales and earnings per share. Looking forward, we expect input cost pressure to continue at least in the near term, but we are committed to passing on intrusives where the market allows. We continue to be encouraged by the high level of new productivity across the board, largely due to the success from the recent realignment of our segments.

Looking to the second quarter, we expect sales to increase over the prior year. Bottom line, earnings per share are projected to reach a record quarterly high in the range of $0.72 to $0.77 per share, compared to a $0.67 per share in the second quarter of last year.

Turning now to our Beauty and Home segment; compared to the prior year, reported sales increased 11%, changes in exchange rates positively affected sales by 1%. Excluding these changes, sales increased 10%. Excluding changes in exchange rate, sales to the personal care market increased 2%, sales to the fragrance/cosmetic market increased 17%, and sales to the household market increased 12%. Sales to the personal care market was negatively affected by self-demand for closure. Continuous issues with our closed manufacturing operations and higher professional expenses restrained further growth in this segment's profitability over the prior year's level.

Turning to products, the convenience of locking actuators has led to an increased use of them by our customers. For example, they are used on a portable aerosol-spray hand sanitizer introduced by CVS and Neutrogena's Aveeno sun block spray. La Mer, one of the most luxurious skin care brands, has introduced a high-end product, called Radiant Serum, using one of our pumps. I would now like to turn the call over to Steve.

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

First, looking at the Pharma segment, we really had an excellent quarter in Pharma. Reported sales increased 16%, while excluding currency, core sales increased by 15% in the quarter. On a constant currency basis, sales to the Rx market increased 11%, whereas sales to the consumer healthcare market increased 24%. We have a Pharma laboratory in France with -- which specialized material testing to analyze interactions of drug components with packaging materials; and that lab recently received FDA certification, which will continue to be an asset to our customers in the future.

Now, looking at the Food and Beverage segment; compared to the prior year, reported sales in the quarter increased 30% and, excluding currency impacts, sales increased 29%. An increase in custom tooling sales accounted for 17% of the increase, while the pass-through of higher resin costs accounted for another 3% of the increase. Adjusting for this higher custom tooling sales and the resin pass-through, core sales were up 9% of the segment. Excluding currency changes, sales to the food market increased 17%.

Most of our increase in custom tooling sales was to the beverage market and, excluding the currency changes, sales to the beverage market increased 62%, but excluding custom tooling sales, the increase was 5%. Continued issues in our closure manufacturing operations, the delay of the pass-through of higher resin costs, and higher personnel costs associated with establishing a separate organization for the Food and Beverage segment resulted in segment income being slightly less than the prior year.

Now, looking at new products; you may have recently seen some of the advertisements by Kraft promoting their revolutionary liquid water enhancer with the name MiO, which uses one of our custom, simply squeeze closure systems. This is Kraft's first new food and beverage category rollout in more than 15 years.

We expect our Food and Beverage segment to continue to be our fastest growing segment, and we continue to have a lot of new projects in process in the segment. As we mentioned in our press release, we are planning to set up a facility in the US dedicated to this new segment, and plan to make a final decision fairly soon as to where we will be putting the facility, and our goal is to be producing in the new facility in the first quarter of 2012. Now I will turn 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, let me comment on the results for the quarter. As you have seen, our overall reported sales increased 14% and, excluding currency changes, sales increased 13%. From a geographic standpoint, sales to customers by our European operations represented approximately 58% of net sales in both years, while sales to customers by our US operations accounted for 28% of sales versus 29% last year.

Reported diluted earnings per share increased 14% to $0.64 per share from $0.56 per share in the prior year. Free cash flow, which we define as cash flow from operations less capital expenditures, was a use of approximately $29 million for the quarter versus roughly zero in the prior year. Our cash flow from operations for the quarter was a use of approximately $4 million, compared to a source of about $30 million in the prior year. Capital expenditures were approximately $25 million in the quarter, compared to $30 million in the same quarter of last year.

During the quarter we spent approximately $9.6 million to buy back 200,000 shares of our -- and our repurchase authorization at the end of the quarter was approximately 1.5 million shares. The mix of debt at the end of the quarter is roughly 80% fixed versus 20% variable. Any average interest rate is around 4.5%. On a gross basis, debt-to-capital is about 22%, while on a net basis it is minus 1%.

Looking forward, presently, we expect depreciation and amortization for all of 2011 to be in the area of approximately $135 million with capital expenditures expected to be in the area of $180 million. The increase in capital expenditures is mainly due to the new food and beverage facility just mentioned by Steve. I would like to point out that these amounts could vary depending upon changes in exchange rates. The effective tax rate for the full-year 2011 is expected to be between 32.5% and 33.5%.

Lastly, we currently estimate that diluted earnings-per-share for the second quarter of 2011 will be in the range of $0.72 to $0.77 per share, compared to the $0.67 per share reported in the prior year. At this time, Peter, Steve, and I will be glad to answer any of your questions.

(Operator Instructions)

George Staphos, Bank of America.

Hi, everyone. Good day. The first question I had, Peter, did you mention what the revenue guidance was for second quarter and could you discuss what you think some of the drivers might be there? I thought I heard you say perhaps revenues might be down, but I just want to clarify that.

The guidance from our side was, if I was right, Bob, was 62 to 67.5.

I think it was 72 to 77.

For the second quarter, sorry for that, yes, 72.

Yes, second quarter; and, George, typically we don't comment on the sales projection going out. We will get some currency tailwinds, compared to last year in the second quarter, because, as you know, the rates with the euro is around 142 to 144 right now, and last year in the second quarter it averaged about 127. So, on a reported basis, we would be expecting some tailwinds.

Okay, that is fine, Bob. I thought I had heard something, but I must have misheard you there on the call. The second question I have, as I look at, at least what our model was and what you are now projecting for CapEx, it would imply that the new facility will be roughly, in cost, $30 million or so. Is that a fair assessment and can you comment perhaps a bit more on what the capabilities of this facility will be, obviously it is aimed at food and beverage? Thanks.

Yes, the food and beverage, you are right. You are in the ballpark, somewhere between 25 and 30 when the full outset is all done, and I think, as Steve mentioned, it will be a dedicated food and beverage facility and certainly we'll be tailoring that to that market and those market needs.

The other side, George, into that is, that includes it pretty well being outfitted, including presses that we would be putting into the facility. So, it is more than just a facility itself.

If I could just ask just 1 follow-on to that and I will drop it from there, what do you think the revenue capacity of that facility would be when it's all said and done?

Right now we've got it ramping up. It is around a 300,000 square foot facility so we have not come up with any specific estimates on that. It's going to be based on the mix of products we have coming through, George. Right now I don't have a number I can even give you.

Okay. Thank you. I will turn it over.

Thank you.

(Operator Instructions)

Mike Hamilton, RBC.

Good morning, everyone. Congratulations. I was wondering, first of all, if you could give a break-out of the year-over-year on tooling by the segments?

Sure, Mike. If you look at the reported on the new segment, Pharma had toolings, and overall we had about $18.5 million in tooling sales in the quarter, that compared to about 9.8 last year in the first quarter. Pharma made up about $1.6 million, which is about $2 million less than it was last year. B&H -- Beauty and Home rather -- was about $7.1 million. That was up about $1.8 million over last year first quarter and, as Steve mentioned, the biggest was in the Food and Beverage at about $9.8 million, or about $9 million higher than the first quarter last year.

Thanks. Traditionally, the tooling coming out of Food and Beverage has tended to have fairly rapid move into actual product release; is that likely to be the case here?

It's certainly faster than, for example, our Pharma segment, Mike, and what we would anticipate is those projects that we are working on will come out through the remainder of this year and, even with our customers introduction, probably even early into 2012. So, basically, within a 12-month time frame, we expect all the projects we are working to be in the market with our customers, subject to them having a market introduction issue.

Thanks. Finally, could you walk through the quarter areas where you have either got cost pressures because of inefficiencies, manufacturing tightness, et cetera, and any cost impacts you see off of that?

Let me take a little bit of that; what we saw certainly was higher input costs coming into the quarter, both in plastic resin, as well as some of our other base metals, aluminum and some of our steel products. That accounted for, on an overall basis, probably around 1% or a little over 1% in terms of pass-throughs that we have been able to get, but it has cost us in terms of the resin lag -- or in terms of the lag in passing that through.

We also had some efficiency issues in our legacy closures operation. We mentioned in our -- the call we had regarding the year end results, that we felt that was costing us in the fourth quarter around $3 million to $4 million. We estimate that, that cost us in the first quarter about $1.5 million. So, that continues to improve. We also had some higher personnel costs, related primarily to the food and beverage new facility that we have got on, and some higher professional fees related to some legal and some other consulting activities that we have. Those are the general cost drivers.

Thanks, Steve.

(Operator Instructions)

Chip Dillon, Credit Suisse.

Good morning. When you look at the foreign exchange, you mentioned how much the dollar and the euro had moved. As you look at the second half of the year, and I know, or I believe you did not provide a specific forecast, would you say the impact, if it stayed where it was, the 142 to 144 range, could be as much as an incremental $0.05 or $0.06 a share in the second half? I know there are a lot of puts and takes, but looking at the currency and isolating it, is that a good ballpark?

Chip, I think you are not far off if you look at the second quarter and, again, typically we are not projecting out the remainder of the year, but you are in the ballpark if you take the current 142 rate and compare it to the 127, you are in that ballpark. It should be somewhere between 7% to 8% on the top line and then something less than that on the bottom line.

Got you. And then as you look at the -- 2 ways to ask, the capital spending questions for 2012. But, I would expect, if there is not an investment in new facilities, that it would come down. So, you might talk a little bit about that; but that being said, are there more opportunities like the one you are doing in the US, these $25 million or $30 million plants that we could see in '12 and '13, or do we first have to see how this one goes?

In our original CapEx number of about $155 million that we set last quarter, that already had some additional facility expansions included in there. Again, at this point it is too early to tell, but I would not anticipate any new facility 2012 and, certainly, as you mentioned, it should come down. We do see other opportunities taking advantage of some growth in the geographic markets and certainly in some of the food and beverage areas, but most of that has already been baked into our 2011 number.

Got you. Thank you.

Thank you. Mark Wilde, Deutsche Bank.

Good morning. I just wanted to talk a little bit about that pass-through of these rising costs. Peter, I think the way you worded it in the release and in your comments, was you had offset it where possible. I wondered if you could give a general sense of where the areas of greatest challenge are for you in passing those costs along?

That is only in the closing markets where we have these pass-through agreements already. And in other areas where we have long-term contracts with our customers, it will be difficult to pass through any kind of increase in raw materials. Usually, we are trying in times like this where the inflation is high to try to increase our prices according to the interest input costs.

When you hit a market like this in the past where you have resin moving up like this and it looks like it might continue to move up for awhile, what do you usually figure a normal lag is?

Normally the lag is between 1 and 3 months, depending on the contracts we have with the customers. It is a reasonably overseeable time frame.

Okay, all right. Just as a follow on; is the growth that you reported in the consumer side of your Pharma business, around 24%, can you talk about what is behind that and how sustainable that kind of growth rate is?

We've expected that growth rate coming back. First of all, I think we have to put it a little bit in comparison. That is the smallest part of our Pharma segment, so you get a bit of a [law] of small numbers, but what we are seeing is movement in terms of dispensing systems, and this is one of the things Peter talked about and the realignment we have done, with more focus in areas we have not been into. So, whether it's cost and cold applications.

We are seeing a much broader sales increase in areas outside of what has been traditional for Aptar. I would also tell you, I wouldn't come back and count on a 24% increase quarter-to-quarter, but we do see that as the fastest growing, percentage-wise, segment within Pharma over the next couple of years.

Would you want to peg, Steve, an estimate on that; is that a low-teens trend or something north of that?

I think if you look at overall Pharma, we've said that the long-term rate to that we feel is 6% to 10%. This will be the fastest growing. I think it will be 10 -- a little over 10% in terms of overall growth rates for the consumer healthcare.

Very good. I will pass it on. Thanks.

Thank you. Chris Manuel, KeyBanc.

Good morning, gentlemen. A couple of questions for you. First, let's start with -- I understand you are building a new facility. Can you walk us through the process that you go through? There are quite a few facilities available for sale, things of that nature. The acquire versus the build thought process. Is there something about the new facility putting it into place, obviously doing it yourself, you can set it up exactly as you want it. Is there something unique about the manufacturing setup that you are looking for, or how do you walk through that process?

First of all, Chris, let me go back. We're actually not looking to build a new facility, we will purchasing an existing facility and then configuring that to our needs. So, as you pointed out, there are quite a few facilities that are out there today and that are actually, we think, relatively good value propositions. What we need to do, because it would be a specialized manufacturing though, is reconfigure those facilities to be able to meet the need. We are not looking to build a green field operation.

Okay, that is helpful. The secondary is, with the Pharma being up so much -- congratulations, first of all, on a strong quarter -- but, can you maybe give us an update, I know we ask about this all the time, but how Landmark is coming, for example? I think that is a product that you had tabbed as potential for commercialization in the second half of 2011 or so.

I think we are still on track with that, primarily on that being introduced. For those on the call, that is a counting device that would go on either a pump or a valve product; but that, I think, we are still looking at the customers we are working with introductions, potentially late in 2011, but that would be primarily European or non-US-based.

There was none of that in this quarter.

There was none of that this quarter

Thank you. I will jump back in the queue.

Thank you. Ghansham Panjabi, Robert W. Baird.

Hi, guys, good morning. Back on the Pharma question, if you look back over time it looks like the sales in Pharma have basically doubled since '04, margins have expanded nicely over that time period. How would you qualify the new product activity you are seeing and really the revenue opportunity at the customer level now versus maybe back then?

I think we are still seeing excellent project activity with the customers and the one big, I guess the one not big, but the one difference we see is with setting up the consumer healthcare side of the business and that is opening up new opportunities for us. Those in the traditional Pharma sense, we will probably be able to address a bit sooner than we would on the PR or Rx market.

But, even on the Rx side we are seeing good growth is, our customers are taking products, not only in the Western markets, but now expanding these back to developing markets, whether that is Eastern Europe or to Asia and South America. Again, we are seeing good growth across all of the parts of Pharma today.

Just a follow-up on what you just said, can you give us some more trends across what you are seeing in the emerging markets, I think you call that Latin America in your press release, but what about China, Russia, and any impact either on 1Q or 2Q from Japan?

Go ahead, Peter. I will let you deal with Japan.

First of all, you are right, there is a bit of an increase in sales in those emerging markets like Asia and Latin America, this is a very important part of our goal, also for the future. For the time being, we do not see an impact on our sales or business caused by the Japanese problems and for the time being, it's only an issue which could affect some of our customers. It may be the travelling of these Japanese people (inaudible) will effect the sales of our customers. Maybe also, some of the sales in Japan itself, could drop, but for the time being, it is very difficult to predict what the real outcome will be.

Got you. Okay, thank you.

Ghansham, going back to your case, just on the emerging market growth, we are seeing it really in 2 parts; one is our direct sales to those markets through our operations in Asia and Latin America, but we are also hearing from our customers that their sales, into particularly the Eastern European markets, whether that is Russia, all throughout Eastern Europe, have increased and that is also benefiting us. So, we are both being affected directly and indirectly by the developing markets at this point.

Thanks, so much.

Thank you. Meggan Friedman, William Blair and Company.

Thanks, and good morning. Just a couple of questions; the first is -- and you talked about this with Pharma that the projected growth rate would still be in the 6% to 10% on a constant currency basis. Can you talk about the other segments and how we should be thinking about what realistic growth and margin ranges would be for the new segments?

I think over the long-term we continue to be in the upper single digits. The basis of our business has not really changed from what it was in the past and what we see in the coming year.

Meggan, I stand a new segment reporting D&H, we are still in that 4% to 7% growth rate target. Again, Pharma as you said 6% to 10% and we would expect food and beverage to be in the mid-teens area from a revenue side.

Great. Thank you. And then a follow-up question on some of the operational issues you had talked about. It sounds like things did get meaningfully better there. Are we close to a resolution on those issues, are those still ongoing in Q2?

I think in terms of the activity, we have seen an improvement from the fourth quarter to the first quarter, particularly on the closures operational side. We would expect that to continue to improve as we get into the second. I want to be a little cautionary because as we start to add a new facility, there is always unknowns as you get into that side. Some of those costs, Meggan, that we talked about will be continuing as we add personnel to staff up to the size of where that business is going to be. Overall, I guess when you look at the operational issue that we pointed out in the press release, being primarily closures-related, we think that will continue to improve as we get into the second.

Okay, great, thanks. And then, just a quick modeling question. How should we be thinking about stock comp over the next 3 quarters?

Meggan, the stock comp for us for the year is going to be up about roughly $2 million. We would expect stock comp to be approximately $2 million in Q2 and Q3, and slightly less in Q4.

Okay, great. Thanks a lot.

Thank you. Gregory Halter, Great Lakes Review.

Good morning, guys. Good results on the sales side and congratulations on that. Just wanted to follow up on some of the costs that you talked about, the professional fees, and legal, and personnel costs and so forth. I'm just wondering if you could elaborate on how you see those playing out through the rest of the year. Will they continue or should they be coming down? And I guess the same question relates to the operational issues that you have had that you have indicated have improved, but just wondered what we can expect going forward in those areas.

Let me handle the professional fees and the legal that Steve was talking about. We would expect that in the short term, certainly for Q2, to continue and then on the operational side, we would continue to see improvement as we go forward; but certainly we wouldn't see a complete elimination of that going out .But short-term, the professional and the legal will continue into Q2 and potentially into Q3.

Is there anything specific on the legal side that we should be aware of, maybe patent suits or anything like that on a competitive basis?

That is exactly what is, it's a defense of a patent litigation that was mentioned in our 10-K.

Okay, thank you very much.

Thank you. Tom Mullarkey, Morningstar.

Good morning, guys. I have a question concerning some more insight into the revenue growth of the fragrance subsegment. Was it inventory restocking or are you gaining share in that space?

It is very difficult to predict. The overall market seems to grow and if you look at the recent call from our customers, they are seeing quite nice growth in the upper end of the perfume markets still going on. It also could be that partially we are gaining some market share in this area.

Okay, thank you. If I look on the new segment reporting information on a quarterly basis, the operating margin for food and beverage is really quite lumpy. That is obviously probably due to the amount of tooling and lag of the cost pass-throughs that you might be going on. But, on a longer-term basis, 2, 3, 4 years out, what range of annual segment margin are you looking for, for that business line?

I would say you are right on the lumpy side of it. Most of the food and beverage lumpiness, as you called it, especially coming into Q2, Q2 for the food and the beverage market is a high selling season, both for the condiments and for some of the beverage products. We do see an increase in the revenue side, and, obviously, we get a better margin expansion on that. Some of the lumpiness we had in Q4 was due to the operational issues that negatively impacted that.

The other wild card is you do see, as we did in the old closure segment, of resin impact on this in terms of the smaller base. You do have that impacting the profitability percentage; but, typically, I would expect on a longer-term basis the food and beverage margins to be higher than what we have seen on the traditional closures business in the past.

Great. Thank you, guys.

Thank you. George Staphos, Bank of America.

Thanks. 2 more questions. On the fragrance side, Peter, what types of -- how would you characterize the new product and, if you will, holiday selling season expectations for your customers? Now, I realize it is early, but you have to start seeing, I would imagine, some of the signs of this right now. And then I have a follow-on question.

I think the activities on the side of our customers and new products is pretty big. We are seeing new product introductions there with major customers. For the Mother's Day season, it is very difficult to predict what (Inaudible). I think it is also partially because we are seeing some good potential in -- of those markets to introduce new product lines.

Peter, I am sorry, I had trouble hearing you on your response. Are you saying you are also seeing particularly good new product development in the upper end of fragrance, did I hear that correctly?

Yes.

Okay. I appreciate that. And the second question I had; back, if you will to the balance sheet and capital allocation, the Company remains pristinely leveraged if you want to put it that way, and you are at a negative 2%, I think as you said, net debt-to-capital, one could also argue that, that somewhat inefficiently leveraged at this juncture. Over the next year, if you had a perfect world to work within, how would you hope that, that leverage ratio moved to more efficient level? Would it be through redirecting to shareholders or do you hope to have some additional investments that you can make over time to utilize that balance sheet? Thanks, guys. Good luck in the quarter.

I guess, George, if you had the ideal scenario, we would end up being looking at bringing on new strategic assets in the form of acquisitions. We continue to be active in that process . As you have seen, we don't need to have to have the acquisitions to just grow, but we do see opportunities in the market going out that can add value strategically for Aptar.

That would be the ideal side; subject to timing of those, we will consider also additional alternatives and how we would end up repositioning the balance sheet. We are not adverse to taking on more debt, it's an area we are continuing to look at and, again, just to reemphasize, we continue to be very active in looking at potential acquisitions that may fit strategically with the

Are the opportunities more abundant and, if you will, more fairly valued than in the past, or how would you characterize them, maybe the reverse is true?

I think what you're getting today is valuation is based on where projections are going to go. The nice thing about today, there's at least been a little bit better history to give some credence to where those numbers will be going. So, I would say that we are seeing good opportunities in terms of numbers, but it's all about timing.

As Peter said in the past, we continue to look at a lot of opportunities, but if we don't have a willing seller it is difficult to come back and get a transaction completed. I would say valuations are reasonable and the only negative we see out there from the acquisition front is, because of some of the financing today, you are starting to see a lot more sponsors and all of a sudden you're starting to see some potential uptick over the next year in terms of where evaluations may go. We may be getting back to where we were 3 or 4 years ago.

Okay. Thanks, guys. I appreciate all the time Have a good quarter.

Thank you.

Brian Rafn, Morgan.

I missed the opening comments, can you talk a little more about some of the project pipeline, maybe in pharmaceutical, some of the cosmetic perfume area, Peter mentioned a little about high end fragrance? You've talked certainly enough about the beverage, anything maybe in the personal hygiene area? Soaps, that type of thing?

The most new projects we are working on are certainly in the food and beverage area. This is the fastest growing part of AptarGroup. We are also seeing some nice new projects in the CHT Pharma business and also in the perfume fragrance and personal care area. There especially, also in the skin treatment area, we are still very active as for the (Inaudible) one of the faster growing areas in this business. So, the project pipeline for AptarGroup is pretty well filled, I would say, for the time being.

Peter, can you talk specifically kind of the cosmetic perfume area? Are you seeing more regional launches, hundreds of thousands of units versus millions or are you starting to see the markets go back to where they were where you are launching international or national with $1 million, $2 million, and $3 million units?

I would say that the tendency is more to the bigger introductions versus the (Inaudible) introductions. It all depends also on the customer. (Inaudible) more in the area of food and beverage area than in the high-end perfume and cosmetic area.

Okay. I will ask one more. Everyone is looking certainly at cost inflation and commodity inflation. Have you seen any more pressure from packaging reformulations, whether it be shampoo or soaps, where the unit product to the customer stays the same in the retail store, but instead of 16 ounces of shampoo, now you get 12 ounces?

That is a good pipeline for restaging products. This is one of the possibilities of our customers to pass through some increased costs for them. So, that is one of the possibilities and we are working with the customers to differentiate their products so that they are able to get some price increases in the market. I could not see a clear trend to a bigger or to a smaller package.

Okay, Peter. And then maybe, Steve, any progress in penetrating the dairy industry on the packaging side?

We continue to look, Brian. Until we get a product that is out there we are continuing to work actively across -- as you can see in the beverage side, we have a lot of activity going on. So, we are already in the coffee creamer area and we see other opportunities in those different lines.

Thank you. Mark Wilde, Deutsche Bank.

Thanks. I just want to follow up on George's questions around the balance sheet and potential acquisitions. I am just curious, it seems like the types of acquisitions that you do, tend to be more small to midsize companies that have new technologies that you could really take up and commercialize on a broader scale. So, I wondered in general, what is it reasonable to think about in terms of both size of acquisitions and total acquisitions that you might look at over a 3-year period?

I would say our list of potential targets, there are bigger ones, there are smaller ones. They are companies which provide us with technology of new markets. There is not one clear trend of possibilities. So, I think we will have to look at acquisitions as they come up independently (Inaudible).

Okay. Would you guys want, just a question of sort of what type of leverage you'd like to be at sort of optimally, would you like to put a number out there?

We have said historically on a debt-to-capital basis we would like to be in the 30% to 40% category. So, if you look at it, we have we been there if you go back in time on some of our -- where we are at on the balance sheet. So, if you look at that from a cost of capital we have looked at between 30% and 40%, net debt-to-capital would be where we think would be more of a better balance for what Aptar would be in the future.

Finally, do you find yourself, Steve, looking at more things that might be headquartered or based in emerging markets rather than North America and Europe these days or has there been an a real change there?

I think actually what we are seeing is, we are seeing more -- we're probably seeing more opportunities in the developing market, but realistically, Mark, those are smaller companies, just given the size of that market place. We're seeing, in terms of numbers, more there. In terms of size, it tends to be more Western operations that may have businesses in the Eastern part -- Eastern, or in the developing markets.

Okay very good. Thanks, Steve.

Thank you.

(Operator Instructions)

Gregory Halter, Great Lakes Review.

Yes. I am just wondering if the Bapco relationship you have with the foil side on the tapped closures is having any of the impact on the beverage side of things with the new projects?

Yes, it does and in fact it has -- we see a lot of potential for there, both on beverage and food for us, and frankly even when we get into some of our beauty and home operations -- applications. Right now that is progressing, we would say, extremely well and we have got quite a few opportunities going through on a project basis today.

Is that due to the security I guess, if you will, feature of that product?

The security, I think it is also safety. You are taking away -- it is easier to take off. There is no cutting based on some of the metal side. It's preserving some of the flavor side, it's a good seal ability to it and the ease of taking off the seal. Finally, there is some reduction when you can take away and reduce the size of the skirt length of the caps as you put back on. Again, it has multiple benefits we see in the marketplace.

Don't forget the convenience, Steve, because it is very easy to rip off the seal.

Correct.

And, back on the balance sheet again, would you be averse to doing any sort of special one-time cash dividend, $5 a share, $10 a share or something like that, to take up or get your debt-to-cap to that 30% to 40% that you have talked about?

Greg, we are not adverse to that, it is something we continuously discuss at the board level and certainly it is not out of the question; but we actively discuss the overall returns of the shareholders, the reinvestment in the business, the share buyback, and the dividend rate and potential special dividends.

I know you have a very good long-term track record of increasing the dividend on an annual basis, just wondered if this would be something that you would look at as well to get you to that 30% to 40% given the M&A front that, as others have indicated, have historically been small -- smaller companies that you have acquired.

I think, as Peter mentioned, what we are looking at are all different shapes and sizes. It is a balance between what we see on the M&A horizon and, as you mentioned, a consistent dividend growth and really balancing really the best overall use for the shareholders.

Okay, sounds good. We love the Company's culture, so, we hope that continues on with whatever you do going forward on the M&A front.

Thanks, Greg.

Thank you. There are no further questions in the queue at this time. I like to turn the program back to Mr. Pfeiffer for any further remarks.

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