Aptargroup Inc (ATR) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2013 first quarter 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. Matt DellaMaria, Vice President Investor Relations. Please go ahead, sir.

Thank you, Jonathan, and welcome, everyone. Participating on the call today are Stephen Hagge, President and Chief Executive Officer; and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Steve will begin our call with an overview of our quarterly performance. Bob will then discuss our financial results in greater detail, after which we'll open it up for questions.

Information that will be discussed on today's call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to AptarGroup's SEC filings to review factors that could cause our actual results to differ materially from those projected or contained in the forward-looking statements. We will post a replay of this conference call on our website. AptarGroup under takes no obligation to update the forward-looking information contained therein. I would now like to turn the conference over to Steve.

Thanks, Matt, and good morning, everyone. Yesterday we reported record quarterly revenue of $618 million with earnings per share before restructuring charges of $0.64 per share that was equal to the prior year. From a global view, the US was our weakest region, and Asia and Latin America were our strongest in terms of growth compared to the prior year. There were positives and negatives to report across each of our different businesses, and I'll cover some of those in details by segment. The most important impact on the quarter came from the decline in sales of our Beauty and Home segment compared to the prior year. Despite another strong quarter in growth in Latin America and Asia and modest growth in Europe, substantial declines in sales to the US beauty and personal care markets more than offset the gains in the other regions.

The decrease in our US business was the result of several factors. First off, we were affected by the storm that hit the East Coast in February, causing some temporary facility shutdowns. Also, we walked away from some unprofitable business that we were supplying last year. We continue to see some caution on the part of certain US customers going into the quarter. Taken together, these items created certain operational inefficiencies that had significant downward pressure on the Beauty and Home segment's income compared to the prior year.

However, we continue to have good level of project dialogue with our customers on a global basis. We participated in several new launches by customers this quarter, including in the personal care market, a new line of the Axe hair sprays was launched using our aerosol valve and locking actuator, and a new breath freshener from [Hello] brands was introduced using one of our mini pumps with a custom overcap. In the Home Care market, Arm & Hammer launched a new air freshener with our aerosol valve and locking actuator. In the beauty market, Procter & Gamble launched Eau de Lacoste, a woman's fragrance with a prestige fragrance pump. [Clarens] and L'Oreal each introduced new facial skin products using our innovative dispensing systems, and Dior is using our unique custom lotion sampling package to promote one of their skin products.

Now, turning to our Pharma segment, as we mentioned at the end of last quarter, we saw softness in the US generic allergy market during the first quarter. In addition to this challenge, demand from our European consumer health care market was soft, and this contributed to Pharma segment's legacy business reporting a decline in core sales compared to the prior year. Both of these segments are improving as we look forward to the next quarter. In spite of the softness I just mentioned, profitability for our legacy Pharma business remains strong.

Also, Aptar Stelmi had a good quarter. We're very pleased with the integration of the Stelmi operation and the growth the team has achieved over the past nine months since the acquisition. We look forward to continued growth in this business and the eventual expansion of our production capacity. In the quarter, there were several interesting consumer health care launches, including five new eye care products utilizing our opthalmic squeeze dispenser and two topical spray antiseptics using our classic spray pump. On the prescription side, our advanced preservative-free nasal spray pump was chosen by a pharmaceutical company in Latin America to deliver their new treatment for allergies.

Now turning to our Food and Beverage segment, we're very pleased with the performance of our Food and Beverage segment, which reported sales growth of 13% and segment growth of 26% in the quarter. We continue to build on our momentum in the beverage market, and we're pleased with our growth in the food market, which had been under pressure in recent quarters. With the increase in sales, this segment was able to leverage their structure and drive profitability upward in the quarter compared to a year ago. Several new product launches took place in the quarter. In the food market, some of our innovative light weight closures were selected by customers for their products including Del Monte, who chose our Ecolite pour spout for their US chili sauce, and in Europe, a customer launched a new honey package which uses our tamper-evident closure with SimpliSqueeze silicone valve.

Also, several condiment packages were launched in Europe and Latin America using our pour spout and snap top closures. Now, as we look at the beverage market, in the US, we entered the powdered vitamin category on a new water-enhancing product called Vitamin Squeeze. This package utilizes the closure with our SimpliSqueeze silicone valve system. Our products were also selected in China and Latin America on new sports drinks that were introduced in the quarter, and we were selected to supply our sports closure on a new bottled water product in Latin America.

Now, just a brief update on our European operations optimization plan. Our plan is progressing well. One of the two facilities that had been planned to close after the transfer of production is now vacant, and we're negotiating the sale of that building. We're completing the transfer and start-up of equipment across our various facilities. We expect the second facility will be closed before the end of the year. Once completed, this plan will have streamlined certain product technologies, reduced complexity for our people and our customers, optimize our production footprint. As you know, we did not conclude any impact at this point on our first quarter earnings per share guidance, and Bob will go over the details about the charges in his comments.

As we look ahead to the second quarter, we expect our Beauty and Home segment, particularly in North America, to continue to face challenges. However, we expect to improve from the disappointing first quarter we saw. We continue our cost-containment efforts and will seek profitable growth opportunities as we enter new market categories. We're optimistic that our legacy Pharma business will see more normalized order levels in the US generic allergy market and that our European consumer health care business will show growth in the second quarter. In addition, we anticipate the facility of Aptar Stelmi will continue to perform well.

And finally, our Food and Beverage segment is also expected to continue to grow over the prior year. I remain optimistic about the growth potential in market categories we serve today. And that we will continue to discover opportunities for innovative dispensing solutions and new categories as we go forward. Our balance sheet is in great shape, and our talented people are focused on profitable growth. Now, I'll turn it over to Bob, who will review our financial results in more detail.

Thank you, Steve. And good morning, everyone. As announced in our press release, our reported sales grew 4% to a record quarterly level. On a constant currency basis and excluding the Aptar Stelmi acquisition, our core sales decreased 1% in the first quarter. Our first quarter guidance did not include any impact from our European operations optimization plan, which was $0.05 in the quarter. So on a comparable basis to our guidance when you adjust for the $0.05 from the optimization plan, we earned $0.64 in the quarter, and this compares to the $0.64 we earned in the prior year.

As Steve had mentioned, Aptar Stelmi had a strong quarter, and results of this business contributed $0.06 to our earnings per share. Increased resin prices had a negative impact on our earnings. We estimate that the impact was between $0.015 to $0.02 in the quarter. Free cash flow, which we define as cash flow from operations less capital expenditures, improved by approximately $20 million in the quarter. On a gross basis, debt to capital is about 24%, while on a net basis, it is roughly 14%. We paid a little over $16 million in dividends in the quarter, representing $0.25 per share. Regarding our share repurchase program, in the quarter, we spent approximately $10.8 million to repurchase 201,000 shares in the quarter. We had approximately 1.8 million shares authorized for repurchase at the end of the quarter.

Now, turning to market details by business segment, our Beauty and Home segment's core sales declined 3% compared to the prior year. Looking at our markets on a constant currency basis, sales to the beauty market decreased 2% from the prior year. Sales to the personal care market decreased 3%, and sales to the home care market decreased 5%. Our Pharma segment's reported sales increased 21%, but if we back out the impact of the Aptar Stelmi acquisition, which accounted for 25% of the quarterly growth, our core sales declined 4% in the quarter. Looking at our markets on a constant currency basis, sales to the prescription market excluding the Aptar Stelmi acquisition decreased 2%, but nearly all of that was due to lower custom tooling sales compared to the prior year. Sales to the consumer health care market decreased 9%, mainly due to continued softness in Europe.

Our Food and Beverage segment's core sales increased 13%. While tooling sales on a segment basis only negatively impacted sales by 2%, there were swings within the individual markets served by this segment. On a constant currency basis, sales to the beverage market increased 13%. However, if we exclude the impact of a decline in tooling sales, product sales to the beverage market actually increased 35%. Sales to the food market increased 14%. But if we exclude the impact from an increase in tooling sales, product sales to the food market increased 3%.

Just a few comments on our European operations optimization plan. As Steve had mentioned, the plan is progressing as planned. Charges recorded in the quarter included approximately $4.5 million of expense, about $500,000 of which is noncash and is included in our depreciation and amortization line. The remaining $4 million is primarily related to severance payments and is included in the line called Restructuring Initiatives. We anticipate we will recognize approximately $9 million in additional expense related to the plan, the majority of which will be recognized in 2013. Of that remaining total, about $4 million will be noncash. These amounts could change depending on changes in exchange rates.

Annual savings are expected to be approximately $12 million, and we expect to start seeing some impact from the savings in the second half of the year. Looking forward, presently we expect depreciation and amortization for 2013 to be in the area of $150 million with capital expenditures to be in the area of $160 million. I would like to point out these amounts could also vary depending upon changes in exchange rates. We anticipate currently that our full-year tax rate for the year will be between 33% and 34%.

As Steve had mentioned, we are very pleased with the integration and performance of the Aptar Stelmi acquisition. At this time, we are increasing our estimated accretion range for this acquisition to $0.16 to $0.20 per share for the full year of 2013, and this is up from the previously-disclosed range of $0.12 to $0.16 per share. We currently estimate diluted earns per share for the second quarter of 2013 will be in the range of $0.73 to $0.78 per share compared to $0.61 per share reported in the prior year second quarter. Prior year second quarter earnings per share included a $0.05 negative impact from the costs associated with the Stelmi acquisition. Our current year second quarter earnings per share guidance does not include any potential impact from the European operations optimization plan. At this time, Steve and I would be glad to answer any of your questions.

Certainly.

(Operator Instructions)

In the interest of time and fairness to all participants, please limit yourself to two questions and one follow-up question, then come back into the queue if you have more questions as time allows. Ghansham Panjabi, Robert W. Baird.

Can you give us some more color on the Beauty and Home business you walked away from? Do you think that will be a continued head wind throughout the year as you comp through that, or do you have some new business that you gained that could be an offset?

First of all, in terms of the second part of your question, Jonathan, we think it will improve as we go through the year as we fill that with new business. The biggest part of that business was one of our customers moved their manufacturing from a US facility down to Mexico, and we're looking for us to actually move and increase our Mexican operations, and given the profitability, we decided that wasn't a good, profitable move for us. So we also had another customer that we lost in terms of a bid situation. So those were the two primary customers that had an impact on the quarter. Again, we're seeing several new projects that we're coming back into that we see benefiting particularly the second half of the year, so the second quarter will still be a bit soft, but we see that improving as we get to the second half.

Okay, and just to clarify on the Beauty and Home business, again, is this a customer mix issue? Because it seems unusual. I mean, I know your big customers across the board in the consumer segments have been reporting some weakness as well, but it does seem a disproportionate impact on you. Is this a customer mix issue?

I think it's a bit of a customer mix issue. Also, one of the areas we play quite a bit in is the sun care area, and frankly here in the United States, if you remember a year ago, we actually had a pretty early spring. Our customers were ramping up for a strong sun care season. This year, I'm not sure spring has arrived any place in the US yet. So we're seeing inventories -- they're being very cautious about carrying over to that, so we think it's a bit of an aberration. I guess, Ghansham, but right now, those are the two issues we had coming back into the quarter.

And just lastly on Stelmi, given the top-line performance you're seeing there, what's your capacity situation as it stands right now? And how do you think that will evolve as you progress through the next 18 months? Because the growth rate seemed quite a bit faster than maybe what you had anticipated initially.

Again, let's go to the growth rates because the growth rates in terms of top-line growth, if you compare just to a year ago, realizing they weren't in our financials, was core growth rate of about 6% top-line. We've been significantly able to increase profitability at Stelmi by taking a look at cost, reallocating products, et cetera. What we've done is we've expanded capacity now at Stelmi to include weekend shifts, so we're able to facilitate some of that growth. But that is the biggest challenge. We're capacity constrained in Stelmi right now, and we're looking at different ways on where we're going to be able to increase that and will be coming up probably with a plan before we get through the end of the year that we can share with you.

Okay, great. Thanks so much.

Phil Gresh, JPMorgan.

A couple questions. First, on the accretion number, the $0.16 to $0.20, is that the incremental accretion or is that the total accretion? Because you had $0.03 in the fourth quarter of last year.

Yes, that's the total annual accretion, so not the incremental over what we had last year, but that's what we would expect Stelmi would add for the full year.

Is there seasonality here? I mean, because you had $0.06 in the first quarter. Is there a reason we can't multiply by four?

Yes, there is a little bit of seasonality. And again, we're still learning a lot about this business. But our feeling is that there is a little bit of seasonality in the third and also a little bit in the fourth. So we'll see where that comes out. The other thing that is important to mention, while Steve mentioned, we're running on all cylinders, we will continue to, with the capacity increases that we're attempting, to increase some of the structure costs there and continue in pushing out improvements via the integration process. So, I mean, we're going to see some additional costs there. That's why we're not seeing $0.06 times four quarters, if you will.

Yes, okay, that's helpful. And then on the legacy Pharma -- I guess my question there is, your margins you said in the release, 29.3% last year. It was 28.1%, but your core sales were down 4%. What drove that margin improvement despite the sales decline?

A couple of things, I think, going in. Last year we had some tooling sales in our sales number. We didn't have that this year. We were actually down in tooling in the Pharma segment. Our product sales are definitely more profitable than our tooling sales, so that was one of the contributors. Secondly, I think the mix of products did well for us in the quarter. And thirdly -- I wouldn't underestimate this -- really, we saw this being somewhat soft going into the quarter, and we put a lot of focus on controlling cost, and I think that part of our business did an excellent job in that area. So that was the dynamics going into the higher margin.

Got it, okay. Last question is just, can you talk about trends on the Pharma side as we head into the second quarter that gives you the confidence we are going to see more normalized order rates and sales trends? And are you actually expecting sales growth at this point in the second quarter for Pharma? Anything you can give to just give us confidence in what you're seeing already as we progress through this quarter. Thank you.

Couple of things in that area, Phil. First, we are seeing order backlogs improving, particularly in the consumer health side, so we expect to see both sequential improvement from the first quarter to the second quarter in that part of our business. And then also between the second quarter last year, an increase coming back into the second quarter of '13. On the US generic market, we think that the inventories are now becoming much more normalized, and we're seeing much more normal order patterns as we come back into the season and, frankly, we're move into the allergy season, which is also a plus for us. We're seeing that momentum and we're, at this point, confident we're going to see an increase in that business as we go into the second quarter and then through the second half of the year.

Okay, thanks a lot. I'll turn it over.

Thank you. George Staphos, Merrill Lynch.

I want to come back to the Beauty and Home discussion in the quarter. You enumerated a couple of things during the quarter that impacted you. You had the storm on the East Coast. You walked away from the unprofitable business -- you were going through that with Ghansham on his question. You mentioned a couple of other things. Can you, if possible, enumerate or parse what each of those was within the quarter? If you had, I missed it. Then I had a couple of follow-ons.

It's tough to go back and give you specific-to-specific because one leads to another. We did have, as a result of some of the sales shortfall, some under utilization of our capacity that we're not able to adjust quickly to that, so we're maintaining some of those fixed costs. That had a negative impact.

We introduced some new equipment in the quarter, particularly in one of our Midwestern facilities. That was a relatively complex piece of assembly equipment. That took -- the debug time took longer than what we were anticipating when that equipment came in. That's now basically done, and we expect that to be behind us. There was also -- in terms of some of these other things, they tend to be interlinked, George, so unfortunately I can't give you a specific breakdown.

Yes, I know it's difficult. I guess what I'm trying to get at ultimately is how much built-in, sequential benefit should you get in the second quarter as some of the one-off issues are now behind you. Can you give us at least an estimate of that?

Yes, I think we're going to -- we certainly, in our projections, are anticipating some significant improvement. It's not going to be at last year's level. I also don't want to come back and give you the impression we're going to be -- this is now North America for Beauty and Home because the rest of our business in Beauty and Home is performing reasonably well. But I think we're going to continue to ramp up in that, and I think we will be much better positioned as we get to the second half, but we expect considerable increases as we go into the second quarter. And again, I don't have specific numbers that I'm going to be able to disclose on that.

Okay. I'm probably asking for too much, and if I am, I respectfully appreciate your answer. At this juncture, do you think Beauty and Home in aggregate can be up year-on-year in the quarter?

That's going to be difficult to say. At this point, I would -- I think it would be a challenge, given the North American side. We'll certainly be improved from the first quarter going to the second quarter, but I'm not sure we're going to be up compared to last year.

I appreciate your patience there. Last one, I'll turn it over. Any implications from the tooling decline within Pharma that we should be, at least, mindful of over the next several quarters? Thanks, guys.

No. Tooling for us is very lumpy in terms of where you come back on the year. We're confident of the projects we're getting, so the tooling is really just a matter of the timing and when we're recognizing it. From our perspective, there's nothing in there that I think gives any future trend issues to be concerned about at this point.

Chip Dillon, Vertical Research.

I apologize. I jumped on late, so I might have missed this, but I know you talked about the resin cost issue in the quarter, and my guess is, as we look at the varied segments, I would guess that in the food area, that's where you might have seen the biggest impact. If you could verify that. Also, when you look at the 13% volume growth in that quarter -- I know you mentioned there was some tooling, I think you said the underlying, the growth was -- the tooling only grew 3%, so the underlying growth was bigger. Could you just verify that, please?

Sure. You're right, Chip. The biggest part of the resin impact of that kind of $0.015 to $0.02 in the quarter did come in our Food and Beverage segment. And then tooling on an overall segment basis negatively, if you will, affected the Food and Beverage sales by about 2%.

Okay. Got you. And you did mention you passed through some of the resin, not all of it. If I were to guess at it and say -- okay, well, the overall segment was up 13%, and let's say without tooling it was up 15%, would you say volumes were certainly double digits and so the pricing was, say, less than 5% of that?

Yes. You're getting most of the growth on the core side being volume basis. Even if we didn't pass through all of it, there was an immaterial positive impact if you will on the top line, something less than 1%. Almost all of what we disclosed in terms of the core sales is going to be coming from volume.

Got you. And the last question is, when we look at Pharma, and the core sales rate, I know there's been a lot of moving -- unusual moving parts, I guess you'd say, with the generic business, et cetera. What would you view as a normalized growth rate for that segment? And maybe you could tell us with Stelmi and without Stelmi. So the legacy growth rate and then what Stelmi would add when all the smoke clears.

You know, I think overall we have continued to give guidance of the area of around 6% to 10% in terms of Pharma growth. That has been our legacy growth. Given what we see with Stelmi today when that becomes fully integrated on a year-to-year basis, we're basically going to continue that same long-term growth rate. What you're right is over the last year or so, we have seen some lumpy growth in terms of the Pharma side. We think we'll be lapping that, and now we're going to be getting some of these inventory issues corrected, and we would anticipate the growth to be at those long-term rates as we go forward.

And with that, it's fair to say that Stelmi is probably well into double digits and the legacy business might be at the lower end of that range?

Not as much so. Stelmi, for example, in the quarter, if they would have been consolidated last year -- again, we hadn't acquired at that point -- but sales growth-wise for them was 6%.

Okay.

On a comparable basis. I think they will be fitting in that 6% to 10%. Where we'll see bigger growth for Stelmi is frankly when we come back and have to look at additional capacity expansions outside of what we have today.

Oh, okay. And the last thing, if you could just point to two or three of the real juggernauts that are leading the core sales growth in Food and Beverage. Is it tied to beverage dispensers? I mean, tops or could you give us a little bit of help with that.

I think again, as we've talked about in prior calls, what's been benefiting the Food and Beverage is we're converting markets that in the past were non dispensing. We talked about last quarter, we went into the baby formula market for the first time with Perrigo. That business is expanding for us. We are on Tropicana, who is going out with more dispensing in terms of the orange juice market in their various lines. Kraft's business in terms of their water-flavoring market is doing well. We're getting into new categories like honey that I mentioned in my comments. So the good news I think at this point, Chip, is it's pretty well diversified, and I think right now we're still in the third inning of a conversion game that we think will have good future potential going forward.

Great. That's very helpful. Thanks.

Thank you. Adam Josephson, KeyBanc.

A couple of questions. If I take the midpoint of your second quarter guidance, you're guiding up about 10% year-on-year on an adjusted basis. Should I assume Stelmi is about $0.05 of that and then core growth is the remainder, or some resin benefit embedded in that guidance because of falling polypropylene prices?

On the polypropylene side, let me deal with that first. Last year we also saw declines going in polypropylene in the second quarter last year. So while we have seen some declines in April, it's not a material amount when I go quarter to quarter. Second quarter last year to second quarter this year. In terms of Stelmi, what we've got in there, as Bob said, we've readjusted the range, so we're not going to give specific to that, but it is going to fall within that range that we gave you for Stelmi for the second quarter.

Terrific. Thanks. Now that you've lapped your more difficult year-ago core sales growth comparisons, do you expect to return to your historical core sales growth rate in the second quarter and thereafter, or perhaps more of a slower ramp-up to that 5% to 7% historical rate?

I think it will be a bit slower as we go into the second quarter. I think you guys have heard our customers like Procter & Gamble and some of the consumer products companies -- I don't know if any are pessimistic, but what we're hearing from our customers, they're not overly bullish at this point in terms of growth, so they're pretty conservative. We think that will be the case as we go into the second. New projects will help us as we get to the back half of the year. So we see good growth, but I wouldn't come back and say we're going to jump from kind of flattish growth back up to historical growth rates of being upper single digits.

Thanks for that, Stephen. Just one last one on the same issue. On the last call, you talked about your customers being concerned about the fiscal cliff and other issues. Has the tone changed much over the past three months or so, or would you say it's pretty much you're hearing a similar kind of tone from your large customers?

I would tell you, again, it's going to be very dependent on different parts, particularly our Food and Beverage and some of these other markets. But overall, I think the tone is similar. While you had this sequester, you've had other issues that people have looked at here in the United States. Again, I want to underpin, it's not a negative comment. They're just more cautious. I think it's pretty consistent with what we saw in the first quarter.

Thanks a lot, Steve.

Alex Ovshey, Goldman Sachs.

In your Beauty and Home business, would you be able to give us the organic volume growth rates for the key regions? In the first quarter?

Not -- I can't give it to you by the segment. I can give you overall geographic, and that will kind of talk a little bit to the diversity of the business model. But, I mean, for example, in the first quarter, sales across all of our segments in the US were down 11% compared to last year in the first quarter. Europe was basically flat. And then both Latin America and Asia were up single -- double digits, rather.

That's helpful, Bob. On the European optimization program, you have a target out there, but how do you think about the potential upside downside risk to the current target in place for the European optimization program?

Overall, I think we've done an excellent job, and the team that's been in place is doing an excellent job of managing this really complex project. In terms of the expected cost, if I take out currency, which can move that number, we're very comfortable we will be within the numbers we've given. And also, we're trending very much at the potential savings that we had anticipated. So right now, there's a great deal of confidence we will be able to achieve both the cost targets that we had and the savings targets.

That's helpful. Thanks, Steve.

Chris Manuel, Wells Fargo Securities.

Just a couple of questions. First, if I could follow onto the restructuring element. I think previously you talked about that $12 million or so beginning to benefit you in '14, but sounds now like some of that may come into '13. Do you have a sense of will $1 million or $2 million or so of that flow into 4Q or how that might come through, Bob?

We're going to start to get some ramp-up of that, as Steve mentioned. One of the two facilities that were earmarked to be closed is now closed, so we'll start to see some of those savings coming into the second quarter and then ramping up in the third and fourth. But again, it's not at this point going to be not a real significant amount. We'll definitely get some of those savings in the back half of the year.

Okay, and then as you wind that program up over the balance of the year, have you looked at other areas around the globe or other operations. i.e. potentially North America to do any types of restructuring? Particularly, maybe to come at it a little differently if you have some customers that are moving, filling capacity and such around between North America or between US and Mexico. Have you looked at any optimization or thoughts here?

A couple of things I think that's important to point out is we continue on a regional basis to do this. We've actually consolidated last year business both in Brazil and Mexico. We brought businesses together to optimize our production platforms in those areas. We're doing smaller levels to this on a continual basis. The reason Europe for us was a much bigger deal is given the size of that. In answer to your question, we'll always continue to look at how we better utilize our operations and will end up tweaking those as we go forward. At this point, we don't have any major plans in place for the other regions that would have the significant amount of cost or savings impact that Europe -- the European operations plan has today.

Okay, that's helpful. And then, the last question I had was when we think about the Food and Beverage business, and you had some pretty significant tooling last year in the beverage side, and that's all done very nicely for growth over the past year in that business. Now it seems like you've got some sort of outsized tooling in the food side. Could we suggest something similar over the next 12 months or so we could see pretty significant -- more of the growth coming from the food as opposed to the beverage side?

I think that's the beauty of what we've looked at in this business, is that we're seeing different projects coming back, and as we mentioned even going into this, food has been a bit slower on the growth, but I think the tooling, as you point out, will help facilitate that growth going forward. So again, we're very excited about the Food and Beverage segment continuing its growth, and we think the tooling we've got in place in the food is going to continue to help that.

Okay, and the profitability is relatively similar between those two, right?

Across either segment is pretty consistent in terms of the profitability platform.

Okay, thank you.

And the other thing on that, too, Chris, is one of the things that is helping us is leveraging the Lincolnton facility that we have in place here in North America. As we have more product going through, we're actually leveraging that overhead on a better basis also.

Al Kabili, Macquarie.

Just on that point on leveraging the Lincolnton in Food and Beverage, any sense as the sales growth in Food and Beverage continues and hopefully continues double digits, how should we be thinking about the operating profit growth? Do we think that grows 1.5 times what sales can grow, given the leverage there? How should we be thinking about that?

Well, again, overall for the Food and Beverage, we're looking at a 12% to 15% operating margin business over time that we're continuing to move towards that. So that's kind of -- as we add, we would certainly feel as we add top-line growth, we're going to get faster bottom-line growth as we fill those facilities out. So at least in the short-term, you're right, we're going to improve the margins and the margin dollars faster at the bottom line than at the top line with double digit growth.

That's helpful. We talked a lot about -- earlier, you talked a lot about Beauty and Home in the US, and I was wondering what you were seeing in Europe along those lines. I think macro conditions are still pretty soft.

Actually, we've been, frankly, a bit pleasantly surprised, given our European base. Now, we're actually up, we're flat to up a little bit in Europe, given some of those challenging economic conditions over there, which again points to the diversification of our business in Europe. We see our beauty business, which a lot of that is international, as well as our prescription business on the Pharma side being international, so those, while it's not robust growth, it's not as dire as what you may be hearing on some of the other news broadcasts. So overall, we think that we're seeing good growth in those markets and across all of the segments we see that improving as we go through the year.

Okay, good. That's encouraging. And final question is on Pharma, and you talked about the improved ordering trends as we got past some of the headwinds in the first quarter. How about the risk that after a period of destocking, is there risk that what you're seeing thus far in 2Q is in a way overstated on the restocking -- from a restocking perspective, or how do you get kind of comfortable assessing that part of the equation? Thanks.

It's a good question. It's difficult for us to kind of -- what we're trying to do is on the overall market, we can, we get reasonable numbers on where overall market growth is going for allergies, asthma, et cetera, and try to compare how we're doing within those segments. As a result, we don't think -- we will always get certain little blips coming back in to that, but we don't think the second quarter is going to be just unusual with an inventory restocking issue. We don't consider that to be a major issue.

Okay, thank you very much.

Thank you. Jon Andersen, William Blair.

I guess I'll start with Stelmi and the increase in the accretion guidance for the year. Could you talk a little bit more about what you're seeing in that business and what has prompted you to move that guidance higher? Is it stronger top line? Are you further along in some of the integration activities in the cost-saving side of that effort as well?

I think it's a little of both in those, Jon. When we looked at Stelmi, we were frankly higher in the sales level than we had anticipated at this point in the process. But as importantly, the integration and, again, our teams that are going through this have really done an excellent job between the old legacy Stelmi organization and our organizations, identifying savings, becoming more efficient in the production, taking a look at pricing and cost issues within the plants. So we're, as you can see, while we're getting a 6% top-line growth, we're getting almost a significant -- about a 50% increase in the profitability. I think it's across the board on that. It's not just one item leading to the increase.

Makes sense. Some of the CPG companies that we cover -- branded companies -- have talked this quarter about some moderation in end-market growth rates, both developed and emerging. I'm just wondering if -- when you think about it in the context of what you said earlier about Beauty and Home and caution from customers, should we be thinking about that caution as maybe being the primary driver of the softer performance in Beauty and Home in Q1 and some lingering effect in Q2, or is it the storm and the walkaway from some of the lower, no-margin business that is the primary driver?

I think it's a combination. I would tell you I think the caution is a big issue, and depending on where you are at, we can see with the branded guys whether that's Procter, Unilever, et cetera, has been a bit softer than what we would have anticipated going into the quarter. And frankly looking at our order patterns, we had a very strong January coming out of year-end, and then February was probably as weak as I've seen in a long time and then starting to rebound in February. I still think there's a lot of our consumer products companies who are still pretty cautious as they go into the second quarter.

Fair enough. If I can ask a more detailed question on a certain product line, you talked about moving into infant formula recently and that being a new area for you. I think you're doing with it your bonded aluminum plastic technology. Is that meeting expectations? Is demand meeting expectations at this point, and are there broader applications in infant formula either internationally or with branded players? Thank you.

Well, you're correct. We are using on the Perrigo project that we're on with today, is using our bonded process that is a patented process. Yes, we are very optimistic, I think, going forward in terms of working with some of the other international players both here in the United States and also we see significant opportunities going outside the US. What is really helping is the more we get into these markets, the more we can understand the needs of the marked and bring creative innovative dispensing solutions to that marketplace. So I think right now, we're very positive with where we're at and also very optimistic as we look forward into that particular market segment.

Thanks for the color. Good luck going forward.

Debbie Jones, Deutsche Bank.

I was curious in your European [certain trends] optimization, your expected return is actually quite good, and people are asking, could you do more in other regions? I'm actually curious if you see more runway in Europe, if there's anything you're seeing there that maybe you could tackle in 2014 that would provide some more upside to that number.

Well, I think at this point right now, we're focusing on making sure we complete what we've got, which is taking a tremendous amount of effort from our people throughout Europe. So as I mentioned earlier in the call, we're going to continue to look at other opportunities, but there's nothing right now on tap for 2014 that we have got in place.

And I was curious with Stelmi, was any of the above-trend sales increase that you saw a result of leveraging some of your existing relationships that you already have? And then I'm curious how this acquisition may have shaped or changed or kept the same year-to-year M&A priorities going forward.

I'll deal with the second one. I think as we talked about with Stelmi, Stelmi was on our M&A priority list for five years, so I will tell you, I think what it's done -- it hasn't change what had we're looking for. We have fairly targeted issues with companies we think will fit well. We're continuing to pursue those. In terms of Stelmi's growth side --

I think it's still a little early. We're leveraging the customers we have in both directions, but it is due to the longer-term nature of that business. We're not seeing a significant portion of that sales growth coming from our, let's say, our leveraging of the customers at this point.

Which I think gives us strong potential going forward because we do think that's an area we can continue to leverage for the longer term.

Okay. And just last quick question, can you just remind me, Lat Am and Asia, how much that is as a percent of your revenue and what categories were really driving the growth in those regions?

Sure. In total, you're looking at about 16% of our total turnover is coming from Latin America and Asia, 16%, 17%. Latin America, the biggest portion of that is going to be in the Beauty and Home sector, both on the beauty side and the personal care side. Smaller presence on the Food and Beverage and Pharma. But good growth off a small base in both of those. And then in Asia, you're really looking at there -- we've seen strong sales in our Food and Beverage market coming out, but also good growth on the Pharma side and Beauty and Home as well. A little bit more balanced in terms of the overall segment representation.

Thank you very much.

Todd Wenning, Morningstar.

Following up on Debbie's question, given some of your success in Latin America and Asia this quarter, are you seeing any expansion potential in those regions in addition to what is already in the works?

Again, we're going to continue to look at that. And again, what we've seen in those areas, generally when we've done acquisitions in both Latin America and Asia, they have been in the smaller nature, and then we've added onto that, given some of the size of the companies in that area. And we've also done a combination with green field expansion to there. We're continuing to pursue those. We're aggressively looking at Latin America in terms of expanding our presence there today because we see some significant growth. To answer your question, yes, we are continuing to aggressively pursue growth opportunities in both of those areas.

Great. My other question was on Pharma, are you seeing any more traction with drug companies migrating from traditional delivery systems to aerosol or valve?

Again, on different products. One of the areas that I talked about in my comments were actually moving to topical. When you come back, it goes on top of the skin gets entered back into. We're seeing growth into that. The other one is the opthalmic area where right now, we have never really participated in that, and now we just saw five new companies coming up with new opthalmic dispensing. Those are opening up outside of our traditional allergy and asthma markets, good growth potential in other areas for us.

Great. And then on the fragrance side, are you seeing customers asking for lower margin dispensing equipment or is it sort of just generally weak demand?

I think it's a little bit -- first of all, I think we have to -- on the fragrance side, we were seeing more flattish demand, but we're seeing excellent growth in the cosmetic side of the business in terms of what we're seeing, lotion applications. Those are continuing to grow worldwide. So in terms of the cost factor, I haven't noticed that there's been anybody moving downscale. I think in that, it's very much a product differentiation, how does dispensing help the application, having products that eliminate preservatives. Those types of things are actually in very big demand in that part of our business.

Thank you very much.

Jason Rodgers, Great Lakes Review.

Just one question left that I had. Are you seeing any material changes in competitor pricing?

I wouldn't say material changes. It's always been a competitive business that's been out there, so I don't think there's anything that says significant one way or the other.

Okay.

Thank you. George Staphos, Merrill Lynch.

Hi, guys. Two product-related questions. SimpliSqueeze has been out probably since the mid 1990s. You're seeing it grow in things like honey now. Can you go through what the growth ramp has been in SimpliSqueeze over time, kind of what the average growth rate has been, and are you seeing an opportunity for its growth to accelerate in the next few years? You mentioned the honey application, which I think you talked about ten years ago. Any new places where we're starting to see SimpliSqueeze get in?

I think -- let me give you a couple. I would guess -- frankly, George, this is a -- I always -- this dangerous because I'm guessing. I'm guessing SimpliSqueeze probably has been growing for us on the average of over 10%, 15% a year --

Really?

-- in terms of application. If I look at it, going back -- let's go back on a couple over the last year. The water flavoring that Kraft's got on their MiO project, that's been significant growth in a market that didn't exist. The other one that I talked about in my comments was the -- there's a powdered system that actually uses SimpliSqueeze and dispenses powder, vitamin powder, into water, which is a category we've not been in before. What we're finding is as we get into new categories, it's providing different benefits and that, I think, that's been the beauty of what we've got. We are certainly the most cost-efficient producer now worldwide of the silicone valving system. That technology, we're away head of where competition's at.

That actually isegued -- I didn't recall where you stood in terms of patent protection on that, but it sounds like that's long gone, so now it's just trying to keep ahead of everybody else?

Well, it's actually -- the patents are just starting to expire, depending where you're at worldwide, so they started late last year and going to this year. But to your point, it's really right now the competitive advantage in terms of the cost structures we have and the, frankly, the knowledge of the system. The ability and the production of different valving systems around the world.

Okay. My last question, I'll turn it over. Do you have anything in development -- and if you already have and have talked about it, apologies for forgetting it -- do you have anything in development regarding plastic lidding that as opposed to bonded aluminum, that would be able to hold up to retort and provide a barrier particularly for Food and Beverage applications?

I can tell you we are looking at that. We have several projects we are working on. We don't have anything we can talk about specifically in that area.

Thanks. Good luck on the quarter.

(Operator Instructions)

And this does conclude the question-and-answer session of today's program. I would like to hand the program back to Steve Hagge for any closing comments.

Thank you very much, Jonathan. This concludes our call today, and I would like to thank everybody for joining us.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.