Aptargroup Inc (ATR) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's second-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. As a reminder, this conference is being recorded.

Introducing today's conference call is Mr. Ralph Poltermann, Executive Vice President and Treasurer of AptarGroup. Please go ahead, sir.

Thank you, Teresa. Before we begin, I would like to point out that the discussion to follow includes some forward-looking comments, and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup's SEC filings.

The information in this conference call is relevant on the date of this live call. Although the Company will post a replay of this conference call on its website, as a service to those investors who were not able to listen today, the information contained in the replay will be dated, and is to be used for background information only. The Company undertakes no obligation to update material changes in forward-looking information contained therein.

Participating on this call today are Peter Pfeiffer, President and Chief Executive Officer of AptarGroup; 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. Before beginning our usual discussion regarding our operational results and outlook, I would like to take a moment to discuss the announcement in the press release regarding the increase of both our cash dividend rate and our share repurchase authorization, as well as my decision to retire at the end of this year. First, turning to the increases -- the Board approved a 22% increase in the annual dividend rate from $0.72 per share to $0.88 per share, and the Board also approved a $4 million increase in our share repurchase authorization. Our cash-generating ability and strong balance sheet allows us to improve shareholder value with these actions; and at the same time, we remain well positioned to take advantage of strategic opportunities in the future.

On a personal note, my decision to retire at the end of the year was announced; as well as, effective upon my retirement, the appointment of Steve Hagge to succeed me as President and CEO. After more than 40 meaningful years of working for the Company, I have decided to retire at the end of this year. I would like to point out that I'm in good health, and retiring now will allow me to spend more time with my family and to pursue other interests. I plan to continue my present role in the day-to-day management of the Company through the end of the year, and assist with a smooth transition. I plan on continuing to be associated with the Company by serving as a Director.

I'm proud of my contribution to the development of our strong management team and the success of the recent realignment of our segments. I'm confident that AptarGroup will continue on the same successful course in the future under Steve's leadership.

Now, I would like to briefly comment on our overall results and outlook, and then discuss our Beauty + Home segment. Steve will follow me with the comments on Pharma and Food + Beverage segments, and then Bob will review our financials.

Focusing on the quarter overall, positive momentum continued into the second quarter; and as a result, we achieved all-time record-high quarterly sales and earnings per share. Looking forward, we continue to be encouraged by the high level of new product activity across the board, largely due to the success from the recent realignment of our segments. We have had a strong first 6-month start to the year, and we expect growth in the second half of this year to return to more normal levels. Bottom line, earnings per share for the third quarter of this year are projected to be in the range of $0.70 to $0.75 per share, compared to a prior all-time quarterly-high earnings of $0.68 per share posted in the third quarter of last year.

Turning now to our Beauty + Home segment -- compared to the prior year, reported sales of the second quarter increased 17%; changes in exchange rate positively affected sales by 9%. Excluding currency changes, sales increased 18%. Excluding changes in exchange rates, sales to the personal care market increased 5%, sales to the fragrance cosmetic market increased 15%, and sales to the household market increased 4%. Overall, segment income in dollars increased, but as a percentage of sales, it was negatively impacted by higher professional expenses and the delay in the pass-through of higher resin costs on the closures.

Turning to the products, we received a Dupont Gold Award for packaging innovation for our all-plastic airless dispenser called Eden. It is the first airless dispenser with certified recyclability, because of it's composed of only 1 family of plastic. Also, it's well adapted for organic cosmetics because of the conformity of the materials and its protection for low-preservative formulas.

Gold Bond has introduced a new line of body lotions under the Sheer Ribbons name that uses compressed air with our bag-on-valve aerosol system to dispense ribbons of moisturizing formulas of body lotion. This represents a new application for bag-on-valve systems.

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

Thanks, Peter. Good morning, everyone. I'll provide my comments on the Pharma and our Food + Beverage segments, and then turn the call over to Bob to review our financial results. First, looking at the Pharma segment, we had another very strong quarter in Pharma. Reported sales increased 18%, while excluding core -- currency core sales increased by 5% in the quarter. Lower custom tooling sales negatively impacted core sales growth by 3%.

On a constant currency basis, sales to the Rx market increased 2%, whereas sales to the consumer healthcare market increased 14%. Now turning briefly to the products, Nycomed received European approval of their breakthrough cancer pain medication, called Instanyl, in a single-dose nasal spray form, versus their previously approved version that had a multi-dose system.

Archimedes Pharma received FDA approval to market Lazanda, which uses 1 of our pumps. It's the first fentanyl nasal spray medication in the US -- again, for the management of breakthrough pain in cancer patients. There's a lot of new project activity for marketers of consumer healthcare products, due to the success of our most recent realignment, which increased our focus on consumer healthcare applications. For example, we're seeing several new projects for cough and cold applications, as well as ophthalmic applications.

Now, looking at our Food + Beverage segment -- compared to the prior year, reported sales in the quarter increased 20%; and excluding currency impacts, sales increased 14%. An increase in custom tooling accounted for 7% of the increase, while the pass-through of the higher resin costs on sales of closures accounted for another 3% of the increase. Sales to the food market, excluding currency changes, increased by 16%; while sales to the beverage market -- again, excluding currency changes, increased by 14%. The delay in the pass-through of higher resin costs and higher personnel costs associated with the establishing a separate organization for the Food + Beverage segment, resulted in segment income being slightly less than the prior year.

Now, looking at new products, Britvic, a UK company, is launching a drink targeted at teenagers called Turbo Tango, in an aerosol package that uses one of our systems to deliver a rush of orange-flavored foam into the mouth. MH Foods, who is a market leader for Pam spray in the UK, launched a product named FryLight that uses 1 of our pumps to deliver a one-calorie per spray dose. We expect the Food + Beverage segment to continue to be our fastest-growing segment; and during the quarter, we closed on the purchase of a new facility in North Carolina that will be dedicated to this segment.

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

Thanks, Steve, and good morning, everyone. I'll 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 18%; and excluding currency changes, sales increased 8%. From a geographic standpoint, sales to customers by our European operations represented approximately 58% of sales this year, versus 56% of sales in the prior year; while sales to customers by our US operations accounted for 27% of sales, versus 30% last year.

Reported diluted earnings per share increased 10% to an all-time quarterly high of $0.74 per share, compared to the $0.67 per share in the prior year. Free cash flow, which we define as cash flow from operations less capital expenditures, was approximately $13 million for the quarter, versus roughly $60 million in the prior year. Our cash flow from operations for the quarter was approximately $68 million, compared to $90 million in the prior year. And capital expenditures were approximately $55 million in the quarter, compared to $30 million in the same quarter of last year.

During the quarter, we spent $31.2 million to buy back 600,000 shares of our stock. And our repurchase authorization presently stands at approximately 4.9 million shares, including the 4-million share increase in the repurchase authorization that was announced in the press release. The mix of debt at the end of the quarter is roughly 70% fixed, versus 30% variable, and the average interest rate is around 4%. On a gross basis, debt to capital is about 20%; while on a net basis, it is roughly 2%.

Taking a look at the first 6 months, reported sales increased approximately 16%; and changes in exchange rates accounted for 6% of the increase, resulting in an organic sales increase of 10%. Reported diluted earnings per share year to date increased 12%, to $1.37 per share, versus $1.22 per share last year.

Looking forward, presently we expect that depreciation and amortization for 2011 to be in the area of $135 million, with capital expenditures to be in the area of $170 million to $180 million. I'd like to point out that these amounts could vary, depending upon changes in the exchange rates.

The effective tax rate for the full-year 2011 is expected to be between 33% and 34%. And lastly, we currently estimate that diluted earnings per share for the third quarter of 2011 to be in the range of $0.70 to $0.75 per share, compared to the $0.68 per share reported in the prior year.

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

(Operator Instructions) Chip Dillon, Vertical Research Partners.

First question is, you mentioned that the resin cost pass-throughs were pretty significant in Food + Beverage. But in the other two segments, did you have pass-through components that were meaningful, in terms of the sales increase?

Yes, we have the pass-through primarily on the closure product range, which for us covers both -- it's sold both in the Beauty + Home segment and the Food + Beverage segment. In terms of the resin in the Pharma, it's not a significant portion of the overall raw material cost; but the pass-through would've been also affecting both Beauty + Home and Food + Beverage.

And in the Beauty + Home side, it was probably -- maybe about 1% of the sales increase overall would have been due to the resin pass-through.

Got you. That's helpful. And then, secondly, when I think Steve was going through the -- excuse me, the Food + Beverage growth there, which looks pretty terrific, it seems like most of the new products that we've heard about tend to be on the beverage side, and not as much on food. Maybe that's just my perception. But could you talk a little bit about how the -- what the rough split is between food on one hand and beverage on the other? And maybe some of the new products that might be coming down the pike on the food side, as well?

I think overall today, our balance between Food + Beverage is around 75% of our sales are to food, around 25% to beverage. In terms of new projects, Chip, it's becoming pretty well split, though, in terms of products, both on the Food + Beverage side. So, we're seeing -- we're really very happy that we're seeing growth in terms of new projects in both of those two subsegments.

Got you. Okay. Well, congratulations, Peter and Steve, and best of luck to you, Peter. Although we know we'll be speaking to you next quarter.

Yes. Thank you very much.

Ghansham Panjabi, Robert [W]. Baird.

Peter, congrats once again, and Steve, good luck on your new role.

Thank you.

Thank you very much, Ghansham.

Just speaking of some of the trends that we've seen, some of your peers have commented on sluggish volumes on the CPG customer side, as selling prices are increased at the retailer level, perhaps underlying a reduction in inventory along the supply chain. You touch many different product categories and end markets on the consumer side, just in your own businesses. Have you seen anything along those lines?

I didn't really get the beginning of the question, Ghansham. Could you repeat it?

Yes, sure. Some of your peers have commented on sluggish volumes on the CPG customer side, as selling price increases are -- as increased selling prices at the retail level. And they've commented on a reduction in inventory along the supply chain. Have you seen anything comparable?

For the time being, we are not seeing this. We are still having increases in this area. So, it's true that the pipeline is filling, so the inventory is going up; but the sell-through is still, in many of our customers, pretty good.

Okay. So, just to confirm, no variation in intra-quarter trends during the second quarter, and nothing so far in 3Q either?

Not as far as we are--.

Well, I think that what we did highlight, Ghansham, was that our fragrance cosmetic sector has been growing, really well into the double digits, even at 20%, probably, over the last year.

Yes.

And what we are seeing is that, that's not -- we're not going to continue at that rate. That's coming down to a more normal rate, that Peter talked about in his earlier discussions.

Okay, and--.

If you go through some of the numbers--.

Yes, it's affected -- in the last four quarters, fragrance cosmetic drove [volumes pretty big]. If I could remind you in the quarter -- in the third quarter of 2010, it was 25%. Fourth quarter was 20%. First quarter this year was 17%. And second quarter was 15%. These growth rates are certainly not sustainable for the future. We will come back to the normal rate of growth in this area.

Got it. And on the guidance for the third quarter, it seems like you were behind on the pricing side of the second quarter, which I think it will recover during the third quarter, formulaicly. And I think, seasonally, 3Q is really no different than Q2 historically. Why, then, the conservatism on the range?

Well, I think -- first of all, the third quarter for us, if you go back over time, because of the vacation period, is a bit slower than the second. So, there is a slowdown, primarily even in our European sales, because of some of the -- our customers' plant shutdown period. So, that together with what Peter talked about in the fragrance cosmetic coming to more normalized, is really kind of where we base the projections on.

Okay. Thank you so much.

George Staphos, Merrill Lynch.

Steve and Peter, congratulations again. Peter, I guess I had a question for you maybe to start -- and again, we appreciate the color and the details in terms of your thought process in terms of retiring. You've been in the job for about three or four years. Obviously, you've been associated with the Company for a number of years -- 40, as I recall. Is the current year when you really originally anticipated retiring? Or have your personal interests or desires to do something different increased in recent years? Could you give us a bit more color on that?

No. George, in effect, I have never planned to work till my 65th year, so it was, in my mind at least, always to stop. I think the Company is now very well prepared for the future. And I thought, this is now the right time to retire, give the young lions a way and run the Company. I have been with AptarGroup since the beginning, so it's -- in the top management since -- now 18 years. I think it's enough. It's simply enough.

Okay. Listen, appreciate the additional color there. The other question I had, before I turn it over -- if we think about capital allocation priorities for Aptar on a going-forward basis, and if you had to stack rank them at the current time, would M&A still come ahead of value returned to shareholders? Where would investment on new capacity or new technology fit in? Help us consider how you're prioritizing capital deployment over the next 6 to 12 months. Thanks.

I think it's still -- the acquisition of new companies is one of the major targets for us -- we're still looking for new markets for increased market share, and we are still looking for new areas to be in. So, this is the primary target for our capital to spend. Certainly is also capacity increases and new products, especially where we are spending most of the money.

Thank you. I'll turn it over.

Mark Wilde, Deutsche Bank.

Is it possible to just get a little bit of an update on what you're seeing in terms of the acquisition pipeline right now?

It's always very difficult. We have a long list of potential acquisitions. We will not talk about the details, certainly. Traditionally, AptarGroup is very patient in going after these kind of companies. We never know when it really materializes. So, it's difficult to predict, because I always say, it needs two to tango -- it needs somebody who is selling his business, it needs somebody who is buying the business.

Okay. And as -- just as kind of a follow-on to that, Peter, it's a quarter where you have announced a lot of return of cash, incremental cash to shareholders with the repurchase activity, the increase in the authorization, and then the big jump in the dividend. Should we read anything into all of those decisions this quarter, relative to what you think will be acquisition activity over the next six months?

I think in spite of the activities we have announced in our report, we are still investment grade. We have enough cash in our -- to do acquisitions. So, it's not changing, the general ideas.

Okay.

To reinforce that, Mark, I think it really does -- it sets up the strength of the balance sheet that we're able to return cash back to the shareholders and continue to be in an excellent position to be able to do significant M&A transactions.

Okay. Very good. Good luck in the third quarter.

Thank you.

Chris Manuel, KeyBanc Capital Markets.

Congratulations, Peter. Best wishes in retirement. Hopefully you have something fun to do. Maybe you can be a test guy for some of these Turbo Tango products, and fun things like that.

Thank you very much. This is not my primary reason to go in retirement, to be a test -- a guinea pig.

Well, hey, have to do something, I guess. And congratulations to you too, as well, Steve.

Thank you.

A couple questions for you -- first of all, could you help -- I'm looking for -- maybe Bob, you can help me with this, quantify a couple components? One, what you think the resin impact was in 2Q that you were behind, so that we can maybe kind of calibrate back half of the year, how that might be different?

It -- we have to think also beyond resin. I mean, also there's been some other increases in some of the other input costs, like aluminum, as well.

Yes.

But I would say on an overall basis, on a consolidated basis, there's roughly $2 million in impact on the Q2.

Okay.

So, obviously, as you know, resin has abated a little bit in May. We should start seeing that come down in the third quarter. But you really have to look back to Q2 of last year also to understand that looking at resin, resin was decreasing in the second quarter last year while it was increasing pretty significantly this year. So, it was a pretty good impact in this quarter.

Okay. And then, the second was, you guys cited some start-up costs and realignment costs, and I think you have a new plant that you're starting to outfit. Do you have any sense as to -- could you quantify for us what the negative impact there was in 2Q, and how that may phase over the balance of the year?

Sure. If we look at it in -- it's hard to break out the two. But if I look at the increased structure cost along with the new facility, it was about $1 million, $1.1 million in the second quarter. We would expect that to tick up just a little bit in Q3, maybe $1.2 million, and then maybe $1.2 million to $1.3 million in the fourth quarter. So, pretty consistent second quarter, third and fourth.

And then, is it primarily done by the time you roll out of 4Q?

Well, we should -- we should be, on the anniversary of when we started, to add the new structure costs in the segment. We'll also be operational in shipping product out of the facility in Q1 of 2012.

Okay. And next question I had was -- when I go back through some of the numbers you gave us, pulling out tooling, it really looks like the Pharma business had about 2% growth, ex tooling, and Food + Bev was really only 4%. So, when you talk about in your prepared remarks, in the press release, that -- organic levels going back to more normalized, I'm assuming you're kind of implying that those are going to accelerate a bit as the year progresses. Am I thinking about that the right way?

I think, again, in the tooling side on the Pharma, we were, ex tooling, I think we were up about 5%, 6% with the tooling decrease included. So, that side is pretty normalized, or we've always said between 5% and 10%. We would expect Food + Beverage to continue to increase with the new projects we have got.

Yes, I think, Chris, generally, if you looked at what I said for the first six months -- organically, we're up about 10%.

Okay. So, I might have misunderstood that. The tooling in Pharma was a drag, or was it higher this quarter?

It was a drag this quarter.

Correct.

Okay, I apologize. Okay. That's all -- I'll jump back in the queue. Thank you, gentlemen.

Brian Rafn, Morgan Dempsey Capital.

Peter, congratulations for all the hard work. You can now go find [Karl Siebels] and get in trouble and chase around cars and stuff like that. So, all the best to you.

Thank you very much.

Question -- what are you guys seeing -- maybe a question for Peter, unit volume in the fragrance and cosmetic area? Are you seeing new product launches more regional, more global? Are you seeing product launches in the fragrant cosmetics in the new products in the hundreds of thousands of units, or are you back to kind of the million plus, as the market recovers?

It's -- I think I answered this question already last time. It's -- we are seeing new launches in all the areas, first of all, so it's not only linked into one region or one segment. The perfume and cosmetic area, we are seeing more global launches. That also means that this will be a higher number. But once again, it's very dependent on the customer, and also on the region.

Okay. Karl -- Peter, when do you start seeing your order backlogs start to shape up for the Christmas 2012 season, for fragrance and cosmetics? When do you get some visibility on how the holiday season is going to look?

Usually, it's end of July, and it goes over through September. August is holiday season, especially in the regions we traffic, especially in France. So, normally, we are having a better picture in -- it's end of September.

Okay. So, it's a little too early right now.

Yes.

Okay. Question maybe for Steve -- any progress in the dispenser area for dairy and milk and that -- the -- kind of the quick single-serve type things out of the cooler?

We continue to expand in that category. International Delights has expanded their capacity with us on their non-dairy creamer, and we're continuing to look at different projects. In that, we have several interesting projects in that -- kind of the juice, milk, that whole area. But nothing -- we can't really comment on those until they finally get to the market, Brian.

Yes. Okay, okay. Some of your organic growth, talk a little bit about Food + Beverage. Is that an area that organically has been growing in the world, and you guys are going after that? Or is that something that because of the particular technologies that you've launched, you have been positioned to take advantage of going after?

It's really a conversion side. It's not -- I don't think people are necessarily consuming more food or beverage. But what we're doing is converting non-convenient or inconvenient dispensing to more convenient. And we see that in category by category, and that's what we're really excited about, going forward. And that's what a lot of our new projects are based on, with our customers.

Okay. If you look -- maybe, Steve, this is kind of a follow-on, if you look back at some of the new technologies you guys have launched -- bag-on-valve and blister packs and aluminum bonding and some of that, what specific area looks like one of the strongest?

Again, I think you're starting to see lots of different activities with the bag-on-valve. We don't do blister packing today. But the other one is on the bonded aluminum to plastic, we see significant potential for; so, that's an area that we're seeing a lot of growth and we see a lot of things coming back. So, I think, again, we're seeing lots of new technology and lots of interest going forward.

Okay. And then, one follow-up -- where are you investing the cash reserves in this market of a dearth of yield?

I mean, they're in -- for us, they're primarily in very safe deposits, with strong European banks, which is where most of our cash is. So, very low-risk investments.

Okay. And then--.

Thanks, Brian.

Thank you.

Greg Halter, Great Lakes Review.

Good morning, and let me add my congratulations to both Peter and Steve.

Thank you, Greg.

Thanks.

Looking at your balance sheet -- and I know currency has an impact here, and maybe this is part of the answer, and wondered if you could maybe parse this out a little. But both receivables up 28% year over year, I believe, and inventory up 37%, just wanted to get your thoughts in regards to both of those.

Yes, you're right, Greg. Part of it is currency-related. Part of it is really due -- on the receivables side, is that the timing of when the monthly sales came in. So, depending on where we were last year versus this year, and the region of where the sales occur. So, as we've said, the strength of the fragrance cosmetic business, which for us is primarily out of Europe, typically has a little bit longer payment terms. So, we do see sometimes, when the strength is coming from the European base, that receivable tends to creep up a little bit. And on the inventory side, it's really just for us has been to capture and to be prepared for the growth that we were seeing in the first half of the year.

Okay. And is there any way to maybe strip out the FX impact, and then provide a year-over-year percentage number?

You'll see that when we publish the Q, when the completion of the cash flow statement is done -- essentially, that's stripping out currency on that. So, you'll be able to see those figures when they're completed.

Okay. And I -- on the Food + Beverage area, Steve, I think I missed what you said about the percentage. Was it 25% food and 75% beverage?

In terms of our total mix of business today, it's about 75% food, 25% beverage, in terms of the full split.

All right, I had it backwards. 75%, 25%. Okay. And that is all I have. Thank you.

Michael Hamilton, RBC.

Could you comment a little bit on what you're seeing by geography?

Yes. It's basically -- the growth in the different geographies in the last two or three quarters hasn't changed. We are seeing still some big growth in the Asian area. We are seeing some mixed growth in Europe, some countries which are facing problems are running very well. We are seeing a flattish growth in the North American markets. And we are seeing good growth in the Latin America. So, this is basically the same picture as we have had in the last two, three quarters.

Thanks. And if we could shift over to the manufacturing side, is there anywhere where you're running capacity constrained? And are you feeling like you are fairly optimized, in terms of plant manufacturing, at this stage?

We are seeing still, in some of our products, some delays. Capacity [has tightened, especially in the high fragrance area and in some of our pharmaceutical products. Other than that, we are very well [good filled] all over of the world.

Thank you and congratulations.

Thank you.

Thanks, Mike.

Gregory McCusker, Lord Abbett.

Yes, thank you, and congratulations to both.

Thank you.

Could you talk just a little bit about the -- any outsourcing you may be doing? I know that you've talked significantly about the design, and obviously, complete packaging. Is there opportunity, or have you been looking at possibly outsourcing, say, caps, pumps, valves, or different components?

From our side, Gregory, we will outsource some of our molding, to make sure that our molding facilities are as fully utilized as possible. Typically, we do not outsource any of our assembly. We do about 100% inside. And as far as the design work, we're doing most of that, almost all of that, inside. And occasionally, may bring in consultants from time to time to help on a project. But we're doing all the design work inside.

And Gregory, I guess the other issues to that too is, we also do quite a bit of work with our other co-suppliers. So, there's quite a bit of coordination between the bottle guys and other parts of the supply chain, we're just not actually responsible for those.

I see. Okay. Thank you very much.

(Operator Instructions) George Staphos, Merrill Lynch.

A couple of follow-ons. When we look at Food + Beverage or when you look at Food + Beverage, and we adjust for tooling and resin, the adjusted rate of growth was 4%. Now, clearly we know that tooling is really a window on your future growth. So, the fact that tooling is up 7% is a good barometer for the future. But were you actually pleased with the Food + Beverage performance this quarter? One could suggest that the revenues maybe decelerated more than you would've expected.

Yes, I think that's a good statement, George. We were -- it was lower than what we had anticipated coming in. Frankly, tooling was a bit higher than what we thought. So, as you said, it's a good barometer on the future, together with the tooling we saw in the first quarter. But volumes, we saw some inventory contraction with a couple of our customers, and also some seasonality that we see into the business. But the 4% was a bit lower than what we would have anticipated at the beginning of the quarter.

So, back to the question that was asked earlier, where you said you really weren't seeing much adjustment in your customers' planning and behavior, was there maybe some adjustment in inventory levels at the customer level? And if that's true, how long you do you think that continues?

Again, I think in the Food + Beverage side, there may have been a little bit -- it's hard for us to gauge that. And we certainly don't see that as a long-term trend -- or a numerous or several-quarter trend.

Yes. And I think the other thing is, George, if you look back to the recast and realigned figures, the second quarter of 2010 was really a record in the Food + Beverage area. So, while it was a little bit down -- it was pretty difficult comps coming into Q2.

No, you had hellacious comps versus Q2 2010, that's for sure, really across all of your businesses. The second question, just very quickly -- if we ultimately consider fragrance and cosmetic decelerating from its significant double-digit growth rate over the last several quarters, do you think that will have any effect at all on your forward margins, in terms of operating leverage? Help us think about how we should perhaps project or consider the operating leverage there. Thank you, guys. Good luck in the quarter.

George, it shouldn't have a significant impact. As we talked about, we do buffer that, some of the peaks with some temporary labor and whatnot. But also, offsetting any of that, we should hopefully see the abatement on the resin side hopefully offsetting any of that (inaudible). But I wouldn't expect that to be a significant negative drag at all in the [third].

Okay. Thank you.

Brian Rafn, Morgan Dempsey Capital.

Yes, guys, just a couple of follow-ups. Everybody's talking about jobs, jobs, jobs. Are you guys doing anything from the standcount of retiring headcount? Or -- and kind of tell us, what are you running on a labor shift, globally?

I think we're -- overall, certainly, as we've added the North Carolina facility, we've indicated we will be adding new jobs at that facility as we go through the third and fourth quarter into the next year. The rest of the facilities we've added people to deal with -- direct labor people that we've had to fill our needs in terms of each of the segments. So, if anything, we've had a net hiring over the first two quarters, as we compare to a year ago, but not significantly up from where we were.

Okay. Anything on overtime you're paying, Steve?

Yes. I think the other side is, as Peter said, we're stretched in capacity in a couple areas -- high-end fragrance cosmetics, some of our pharmaceutical. Because of that, we'll actually staff that with overtime, because we're not sure -- instead of making the hires, we'd rather deal with that on an overtime basis. So, that has a certain pressure on some of the margins as we go into that. As we see that coming back down to a more normalized level, that should be -- that should help us, going forward.

Yes, okay. You guys mentioned, Steve, this Turbo Tango, this orange foam spray. Is that a new type of a product, or have you -- versus a -- just a standard kind of a liquid beverage, or is that something that you've done before?

It's a whole new category. It's -- Britvic's come back, it's an aerosolized product, it actually shoots a foam of stuff in your mouth on a pressurized basis. So, it's an interesting category that they're trying to market. Together, we're seeing that -- we talked about in previous calls MiO, which is the Kraft product, which is a whole new category for us on flavored water. Both new categories, we'll see how successful they are in the future. But it opens up good potential for us.

Okay. Best of luck, guys. Thanks.

Timothy Burns, Cranial Capital.

Peter, Steve, kudos, congratulations to both of you.

Thank you. Thank you very much, Timothy.

Yesterday there was a big article in the New York Times on how Germany in particular is actually starting to outgrow Europe -- in other words, Spain, France, and some of its traditional trading partners being replaced by China. China in particular. And I was wondering -- we haven't talked about China much on the call. You guys are very present. How do you use China? Is it a local market? Is it a re-export market? Is it a business where you'll export components and assemblies to your other local factories in-country? Could you put some light on that?

All of our facilities in emerging markets, developing markets, are there to serve the local markets. This is the primary idea. China, especially, it is a help for us for the Asian markets. So, we are certainly exporting to some of the other Asian countries, but not to the Western world. So, it's all staying in the region. In the Pharma business, we are supplying pumps and valves to India, for example, but the rest is all staying in the region.

Got you. And there's thousands of molders over there, from what I can ascertain now, and I guess they're certainly not of Aptar quality today. But are they a threat to the globe, I guess, in terms of ultimate capability and capacity? Does it -- is it something that you guys worry about?

Not really. We have seen some of those guys exporting their products to Europe and the United States, but this was five years ago. It has stopped, because it's difficult to serve the markets in the Western world from 3,000 miles away or even more; so service is a key for our customers. It was not really a threat, and it will, I think, possibly not be a threat in the future. It also, in view of the environmental issues, transportation costs, and all of these kind of things, local manufacturing will be the future trend globally.

Got you.

And I would say, Tim, on the molding side as well, it's not very labor intensive. So, if you were to tour one of our facilities, you wouldn't see thousands of people on the molding room floor. It's much more capital based, and with the process improvements and the technologies you have got bigger presses, bigger molds -- really, innovation on the process side. So, labor is not a significant component of it.

Got you. Thanks very much, guys. Have a good quarter.

Thank you. I'm showing no further questions in queue at this time. I would now like to turn the conference over to Mr. Pfeiffer for any closing remarks.

Thank you very much. I would like to thank everybody for participation on today's call, and I'm looking forward for the next conference call. Have a good day. Goodbye.

Ladies and gentlemen, thank you for your participation. That concludes the conference. You may disconnect, and have a wonderful day.