Aptargroup Inc (ATR) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2013 second-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 Steve 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 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 undertakes no obligation to update the forward-looking information contained therein. I would now like to turn the conference call over to Steve.

Thanks, Matt, and good morning, everyone. Yesterday we reported record revenue of $641 million with record earnings per share before restructuring charges of $0.77 per share. I'm pleased that we were able to report such strong results in spite of continued softness in certain markets in the US. Similar to the first quarter, the US was our weakest region, while demand for our innovative products in other areas of the world grew over the prior year. I'd like to briefly summarize our segments performance for the quarter.

First, for Beauty and Home, our sales growth was predominantly due to increased sales to the beauty, and personal care markets in Europe, and the personal care market in Latin America. This strength offset the weakness in the US, and decreased to the sales in the beauty markets in Latin America and Asia. We continue to face some underutilization from our US operations, and we've not yet replaced certain businesses that we exited. However, we do expect to see an improvement in the second half of the year. We remain committed to cost containment, and the development of innovative new products and we're encouraged with the current dialog with our customers.

We participated in several new launches by customers in the Beauty and Home segment this quarter including, in the beauty market, the newest Bond No. 9 fragrance, Central Park South was launched with our low profile spray pump, Estee Lauder selected our cosmetic lotion pump for their Perfectionist facial care cream. Also our silicone ten-point dispenser was selected for a new anti-wrinkle treatment. A new men's cologne from -- by Unilever utilizes our fragrance spray pump. In the personal care market, P&G selected several of our pumps for their Oceana line of skin products. And also Ulta Beauty selected our bag on valve system for a new body mousse product.

In the Home Care market, we designed a custom dosing dispensing closure for one of P&G's surface cleaners that was introduced in Europe.

Now looking at our Pharma segment, our Pharma segment performed very well in the quarter including both our legacy business and Aptar Stelmi. As we expected, sales to the US generic allergy market improved from the first quarter and, on a global basis, sales to both the prescription and the consumer health care markets grew over the prior year. Also, Aptar Stelmi had another terrific quarter driven by growth in the overall injectable industry. Because of this recent growth at Aptar Stelmi and the projected growth in the near term, we announced that we'll be increasing our capacity to better serve our customers. And I'll speak more about this in a couple of minutes. The profitability for both our legacy business and Aptar Stelmi remained at a high level due to the leverage from the increased sales.

In the quarter, there were several interesting consumer healthcare launches including a new eye care product in Europe that utilizes our opthalmic squeeze dispenser, a new nasal decongestant in Latin America using our classic spray pump, and also a topical anti-itch treatment that was launched in Europe using our low profile spray pump.

Now turning to our Food and Beverage segment, our Food and Beverage segment had another very good quarter with sales growth in both food and the beverage markets. Profitability improved over the prior year to the leverage gained by the increase in sales, especially with our facility in Lincolnton which started shipping to customers in the second quarter of last year. We did experience softness in the beverage market in Europe in the second quarter due to the cold summer that they were experiencing there, and we expect this to continue into the third quarter.

Now, looking at several new launches that took place in the third quarter, first in the beverage market, several new children's enriched water drinks were launched in Western and Eastern Europe using our sports closure, a new functional sports beverage was introduced in China with our beverage closure, and also our closure was chosen for a new bottled water in Latin America.

Now in the food market, in the US, our pour spout closure was selected for a new line of flavored syrups, our flip top jar lid was selected for a new package of powdered sweetener, and General Mills introduced a ready-to-use pancake batter in a squeezable bottle that uses our snap top closure. Also two new honey packages, one in Europe and one in China, were introduced with our dispensing closures.

Now just a brief update on a couple of other announcements that we made in the quarter. First, for our European restructuring plan, it is on schedule. Costs are within our original expectations and we're now beginning to see some of the savings from this initiative. Now as you saw in the press release, we'll be increasing the capacity at Aptar Stelmi. This business has performed extremely well, and we've been preparing a long-term business plan for the future.

We'll be making an additional investment of $26 million to expand our facilities in Europe, and add new equipment and technology. While the long-term plan calls for production capabilities outside of Europe, we believe that our customers are best served by this initial investment.

We've also decided to open a production facility in Columbia to serve existing and future customers in the Andean region. We've been importing products to that region for decades from various facilities. The time is right for us to expand in Latin America, and we're excited about the opportunities across each of our segments in the Andean region. Our investment over the next 18 months will be approximately $5 million.

Now as we look forward to the third quarter, we expect to grow sales and profits over the prior year. However, certain macro challenges remain, including decelerated economic growth in certain developing regions, and the speed of recovery of certain markets in the US and Europe.

I remain optimistic about our long-term growth potential. I believe that the recent moves we are making, investing in Aptar Stelmi, and investing in a very promising region like Latin America, will contribute to our future success. Our balance sheet remains in great shape, and we look forward to continued growth in the second half of the year.

Now I'll turn it over to Bob who will review the financial results in more detail.

Thank you, Steve. And good morning, everyone. As announced in our press release, our reported sales grew 11% to a record quarterly level. On a constant currency basis and excluding the Aptar Stelmi acquisition, our core sales increased 4% in the quarter. Our second-quarter guidance did not include any costs from our European restructuring plan, which was about $0.04 in the quarter. So on a comparable basis to our guidance, when you adjust for the $0.04 from the restructuring plan, we earned $0.77 in the quarter, and this compares to the $0.66 in the prior year when costs associated with the Stelmi acquisition are excluded from the prior year results.

As Steve had mentioned, Aptar Stelmi had a strong quarter, and results of this business contributed $0.07 to our earnings per share. Free cash flow, which we define as cash flow from operations less capital expenditures, was $47 million in the quarter, compared to $18 million the same period a year ago. On a gross basis, debt to capital is about 22%, while on a net basis, it is roughly 12%. We paid approximately $17 million in dividends in the quarter, representing $0.25 per share.

Regarding our share repurchase program, in the quarter we spent approximately $33.8 million to repurchase 600,000 shares in the quarter. As we previously announced this month, we increased the number of shares authorized for repurchase by 4 million shares, and this brings the total authorized for repurchase to approximately 5.2 million as of today.

Turning to market details by business segment, our Beauty and Home segment's core sales increased 2% compared to the prior year. Looking at our markets on a constant currency basis compared to the prior year, sales to the personal care market increased 6%. Sales to the beauty market decreased 2%, and sales to the home care market decreased 9%.

Our Pharma segment's reported sales increased 38%. But if we back out the impact of the Aptar Stelmi acquisition which accounted for 29% of the quarterly growth, and the impact from currency effects which added 1%, our core sales increased 8% in the quarter. Looking at our markets on a constant currency basis compared to the prior year, sales to the prescription market excluding the Aptar Stelmi acquisition increased 6%, while sales to the consumer health care market increased 12%.

Our Food and Beverage segment's core sales increased 10%. On a constant currency basis, sales to the beverage market increased 16%. However, a strong quarter of tooling sales contributed 11% of this growth. If we exclude the impact of an increase in the tooling sales, Beverage product sales increased 5%. Sales to the food market increased 6% in the second quarter.

Looking at our year-to-date results, our six-month year-to-date reported sales grew 8%. On a constant currency basis and excluding the Aptar Stelmi acquisition, our core sales increased 2% in the first half. On a comparable basis, when you adjust for the negative impact of about $0.09 from our European restructuring plan, we earned $1.40 per share in the first half, and this compares to $1.30 per share in the prior year, when costs of approximately $0.06 associated with the Stelmi acquisition are excluded from the prior year first half results. We also generated free cash flow in the first six months of $38 million, which compares to negative free cash flow of $11 million in the first half of 2012.

Just a few comments on our European restructuring plan. As Steve mentioned, the plan is progressing as planned. Charges recorded in the quarter include approximately $3.1 million of expense, about $600,000 of which is noncash, and is included in our depreciation and amortization line. The remaining $2.5 million is primarily related to severance payments and is included in the line called restructuring initiatives.

We anticipate that we will recognize approximately $6 million in additional expense related to the plan, the majority of which will be recognized in 2013. Of that remaining total, about half will be noncash. These amounts could change depending on changes in exchange rates. And annualized savings are expected to be approximately $12 million.

Looking forward, presently we expect depreciation and amortization for 2013 to be in the area of $150 million with capital expenditures expected to be in the area of $160 million. I would like to point out that these amounts could vary, depending on changes in exchange rates. We currently anticipate that our full-year tax rate for the year will be between 33.5% and 34.5%.

We currently estimate that diluted earnings per share for the third quarter of 2013 will be in the range of $0.68 to $0.73 per share compared to $0.62 per share reported in the prior year's second quarter. Prior year third quarter per share included $0.02 negative impact from the third-quarter results of Aptar Stelmi which also reflected certain purchase accounting adjustments. Our third-quarter earnings per share guidance does not include any potential costs from our European restructuring plan.

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

(Operator Instructions). Ghansham Panjabi from Robert W. Baird.

Good morning, it's Matt Wooden sitting in for Ghansham today.

Hey Matt.

Hey Matt.

Longer term, do you have plans to increase the investment and further expand Aptar Stelmi into North America? And are there specific reasons for not adding capacity in North America in the short term?

Yes, and that's a good question. I think as I made in the comments, long-term, and as we bought the Company, we knew we needed to expand outside of the European footprint we have today. But given where we're at on capacity and the customer's need for the product, we're also -- we felt it's best to come back and increase capacity where we're at today, improve some of the technology, and then be able to bring that, whether to the US or other international operations after we've got that up and proven. So I think it's still in the plans, but it's more of a timing issue to deal with the current demand situation with our customers.

Understood. And then switching to the beauty and home markets for a second, was the inter-quarter volume trajectory consistent month-to-month? And have you see any indication of increased order patterns for the second half of the year? And if you could just help us parse that by region, particularly in Latin America and Brazil as it seems like the economy is weaker.

Okay. So Matt, the actual sales month-to-month within the quarter were very stable. So there wasn't any one particular month which was more significant than the others. So I would say it was pretty stable. Looking forward, again, for beauty and home, I think your question was we see volumes improving, particularly in the US. And then your third question was, by region, and I'll give you basic Aptar overall rates in the region. So what we saw in the third quarter was improvement overall in Europe. If you remember, we were basically flat in the second quarter, and now we're up mid-single digits, 6%. The US is still our softest market, as Steve mentioned, but it is improving. We were down about 2% in the second quarter. Latin America is pretty consistent for us. It was still up about 10%, which is consistent with the prior quarter as well. Asia, for us, if I strip out a decrease in tooling sales in Asia, Asia product sales were up 5%. So a bit slower than what we'd been experiencing prior to that.

Okay. Thank you and good luck with the rest of the year.

Thanks, Matt.

Thanks, Matt.

(Operator Instructions). Chris Manuel from Wells Fargo.

Good morning, gentlemen.

Hey, Chris.

A couple of questions. First, if I could talk a little bit about the guidance. If I'm looking back to you old elements -- so a couple of questions here on your guidance. A couple of pieces here. What's the element that's in there for Stelmi in this current quarter you have right now?

The current quarter. You mean Q2?

Yes. I think (inaudible) $0.05, or no, in 3Q. So it did, I think, $0.05 in 4Q last year; $0.06 in 1Q; and then I think you mentioned it was $0.07 this quarter. What are you anticipating -- or what's embedded into your current guidance for Stelmi in 3Q?

Okay, let me come at that a slightly different way, Chris. If we focus on the back half of the year, starting with last year.

Yes.

Altogether, Stelmi added a $0.01 to our 2012 second half results. We think the second half this year will be anywhere between $0.05 and $0.08 positive for the second half of this year. The reason why it's less than what we've experienced, as you said, $0.06 in Q1 and $0.07 in Q2, for a couple of reasons. One, we've historically seen planned maintenance shutdown for the Stelmi facility and this year is going to be no different in the month of August. So historically, Q3 has lower volumes, lower sales levels due to that, primarily. And then due the announcement that we made with the capacity increase, we will be starting to add structure and headcount people in advance of that capacity increase, to make sure that they're trained for when it comes online. So our estimate is $0.05 to $0.08 add in the second half.

Okay, that's helpful. Really, what I was trying to get at is, if I start at -- and I'm looking at your 3Q guidance of what you set forth for us. And if I start at $0.62 last year, if I remember correctly, in 3Q last year, you had a $0.06 currency headwind that was sort of discreet with the way some currencies moved intra-quarter, and between the Swiss Franc, et cetera, some things were moving around. But if that doesn't recur and, specifically, in 3Q last year you had a couple of cent drag, that kind of take the $0.62 cents we started at last year and makes it look more like $0.70. And then with a little contribution from Stelmi again in 3Q this year, and some of the share count reduction, organic growth, I guess it almost looked as though -- base earnings, if you look at it that way, would in fact be flat or slightly down. And I was, kind of, trying to understand, maybe, were there some other factors of things into play? Whether it's maybe start-up costs for some of the new facilities that you're working on or, Steve, you alluded to some areas where you're still seeing some softness, I think, in Food and Bev or Beauty and Home. Or anything with the growth profile that maybe has changed in the near term.

Okay, Chris. Let me address that because I think I need to clarify your FX comment. When we look at FX the best way to look at that is, when we look at Q3 guidance going out, we used a spot rate, and I'm going to focus only on the euro for a moment. Spot rate today is around $1.30, $1.31. That's the rate for our euro currency that we used in Q3. If you look at Q3 last year, the average rate for the quarter was about $1.25.

Yes.

So it's not -- each quarter, if you will, each period stands on its own. So when we talked about that 8% last year, it was related to 2011. We try to neutralize currencies so that, when we talk on a comparative basis quarter-to-quarter, they're similar. You have no currency. So now we're looking at Q3 this year to Q3 last year.

And that, I think, Chris would tell you we're not looking, basically, at any currency impact. So that $0.06 is also -- it's frankly not relevant to our projections in the third quarter.

So in other words, Chris, the base starts then with last year's Q3 at $1.25.

Okay then. That's helpful. And, I guess, my follow-up question is the contribution or when do you anticipate the new capacity for Stelmi being on stream? Is that a 2014 event or, kind of, some timing parameters there? And then the 26 spend for it. When is that anticipated?

Yes, what we're going now is going through the permitting process in terms of the expansion of the facility. So we need to go through the government side. We expect that will take place through the second half of this year. We would expect construction to start in 2014 with the addition of the capacity. So it's more of a late 2014, 2015 event as to when we'll be up and running. In terms of the spend, that's also pretty much timing. The spend for the $26 million will be, primarily, a 2014 issue, and not a significant amount coming in '13.

Okay, thank you.

Al Kabili from Macquarie.

Good morning. Thanks. This is actually Danny Moran on for Al.

Hey Danny.

Hey, it looks like Pharma has returned to its longer term growth rates. At this point, do you feel like the inventory issues have cleared out and, kind of looking forward, what gives you confidence that we're back to normalized trends?

Well, I think, first of all, you're right on that. We're back to more of a normalized Pharma legacy business -- our normalized growth. Because it was at 7% to 8% in the second quarter. We think that the majority of the inventory issue we saw with the nasal spray for the allergy market here in the US has pretty much worked through the system, and we're now seeing, kind of, market conditions going forward to that. So when we go out, and the other thing I think is very positive on the Pharma which I mentioned earlier was our consumer health care business is also seeing some nice increases year-from-year, and that was soft for our previous two to three quarters. So when you look at those, we're reasonably confident that, as we go out, we're going to be continuing to grow the business. Whether it's the same percentage each quarter, that's hard to say, but we are looking at nice growth as we go forward.

Okay. That's helpful. Thanks. And given the ramp in Capex due to the new facility in the Stelmi expansion, should we expect this to be the current run rate when looking out to '14 or '15 in Capex?

Well, let me comment. On the $26 million for Stelmi, you won't see, really, any of that hitting in 2013. The spend on that will really be incurred in 2014. As far as the Capex of that $5 million for Columbia, that is baked into our $160 million guidance for this year. So we have not yet gone through our budgeting process but, clearly, the $26 million is going to be additive to, I would say, more normalized Capex in the next year.

Okay. Thanks. Good luck in the quarter.

Usha Guntupailli from Goldman Sachs.

Good morning. A quick question. Could you comment on your customer order patterns in the second quarter? And if you have noticed anything different in early third quarter?

The material cost is -- is that what you were asking? I think, about the material cost.

About the customer orders.

I'm not sure I understand the question.

Just the customer order patterns in the second quarter. And if anything has noticeably changed in early third quarter.

Okay, on the order patterns for the customers, as Bob said, I think, through the quarter we were pretty consistent. What we've seen in the third is, I think, an improving North America beauty and home market which we expect will be the case. The rest of them is, kind of, following our normal patterns with seeing growth in each of the segments as we talked about in our outlook for the third quarter.

That's helpful. And then the Food and Beverage EBIT margins, the second quarter. That appears well ahead of the past two-year trend. Do you think this is sustainable and a good proxy going forward for the segment?

Yes, I think it's a good question. It was a 14% margin for us in the quarter which has been above where we've been at. Now, I think that was benefitted in the quarter by the resin content -- raw materials went down in the second quarter, primarily in the US. That had a positive impact in terms of profitability for Food and Beverage. Now we're seeing, on a third quarter-to-third quarter basis, resin actually going up between the third quarter of 2012, and then all of the third quarter of '13. So we're actually going to go negative in terms of resin comparison as we look at our business. So I would anticipate that the 14% won't be sustainable going into the third quarter, and we'll be in the more 12% to 13% area rather than the 14%.

Thank you. Good look in the quarter.

Thank you.

Phil Gresh from JP Morgan.

this is actually John Royal sitting in for Phil this morning. So in the core Pharma business, you've put up a couple of quarters in a row of near 30% margin which is towards the high end of your historical range. Is there any reason to think that's not sustainable through the back half of the year?

Yes again, what we've said, and I'll go back and reiterate this. For our old legacy business, that's a 25% to 30% margin depending on where the product mix and utilization will be. So it's still -- that 30% is going to be at the high end of the range, and if you go back to last year, you'll see that ranged anywhere from 26% to 30%. So you still will get variability in that, John, on a quarter-to-quarter basis, but within the 25% to 30% for the old legacy business.

Okay, great. Thank you. And then just looking at the margins in Beauty and Home, they were down about 100 basis points year-over-year in 2Q compared to about 200 basis points last quarter. Obviously in 1Q you had a volume decline and some storm headwinds and you walked away from some business. This quarter volumes are growing and the storm issues aren't there. So I guess the question is, around the margins and the business that you walked away from, were those high margin businesses? And what other drivers should we be thinking about? And then how should we be thinking about that in the second half?

I think a couple of things went back -- similar to what we saw in Food and Beverage, is that we had some raw material increases coming back through which was a positive impact. We don't see that into the third quarter. Going back the other side is we still had some underutilization issues, and that was probably the biggest negative that we had in the quarter. But I think if we look at, as you pointed out, John, while we've had -- while we're not where we were and where we want to be, we are up from about a 6% margin to around an 8% margin and we would anticipate that going up into the third quarter.

Great. Thank you.

Debbie Jones from Deutsche Bank.

Hi. Good morning.

Hi Debbie.

I have another Stelmi question, if that's okay. I was taking a look back and, in 2011, I think this company did just over $100 million in sales. I was wondering if you could remind us what you did in 2012 or what Stelmi did in 2012 on a stand-alone basis. And kind of, where you are year-to-date -- I know you said $39 million in the quarter. I just want to just get a better understanding of what the specific growth drivers have been, whether either by product or region. And then how you, kind of, compare to the overall market.

Let me come back and give you, at least on a year-to-date basis. Stelmi, on a comparative basis to last year even though they weren't consolidated, sales grosses were about a little over 15% from us on a year-over-year basis. Now that sales growth is coming from growth in the market. We're seeing growth in the injectable market that's out there, so that's a market growth. And we've also got some pricing side that we've been able to take a look at our pricing and, I think, that's been one of the big benefits on the integration. As we've looked at that, the pricing has also been a benefit for us. So it's both volume and price going into 2013.

Okay, thanks. That's helpful. And then on Beauty and Home, can you just remind us? How much of your revenue in that segment is derived domestically? And then it seems to me like it's more broad-based weakness but is there anything you can highlight, specifically on product lines that you would like to see improving over the next couple of quarters?

Well, I think, again, we're -- I'd say probably the business in Europe that Bob said, I think, overall for Aptar on all segments was up about 6% year-on-year. That is a good portion of the Beauty and Home Business. I think it's good to point out, though, that while we see Europe up in terms -- that's where we sell our products. I think it's important to remember that our customers that we sell those products to are basically doing well internationally. So it's not necessarily that the L'Oreals or the LVMH's or the Diors are doing necessarily well in Europe; but their worldwide business in terms of their export business is doing well. So we're seeing some good growth in that and new worldwide introductions to products. So again, it's more of a worldwide look rather than it is regional look.

Okay. And then can I just ask, on share repurchases, what you might have baked into your guidance for the back half of the year? I know you've only given it by quarter. But what you're thinking about that.

You now, we've been pretty consistent, historically. And to be honest with you, Debbie, we haven't changed as far as forecasting going forward, you know, any different assumptions. The share -- the additional authorization of 4 million is just pretty consistent so I wouldn't read anything more into that in terms of any unusual estimates going into Q3.

And that's generally been around 500,000, 600,000 shares per quarter that we've been buying. So that's, at least, what we've baked in so far.

Okay, great. Thank you very much.

Jason Rodgers from Great Lakes Review.

Good morning.

Hey Jason.

The comments you're making on resin costs, was that just for the Food and Beverage segment or is that corporate-wide?

It's corporate-wide but, again, Pharma is less affected because they're more heavily European. So what we're seeing on resin is more of a US phenomenon. So US resin prices went down pretty dramatically in the third quarter of 2012. And if you look from the second to the third in '13, they're flat to going up somewhat. So it's more the delta between last quarter and this quarter where we're seeing the negative hit in terms of our numbers.

And any changes in the competitive environment?

I mean, nothing that's notable out there. It continues to be a competitive marketplace and we consider ourselves, as we have in the past, the most innovative in our market and the market leader. But it is a competitive marketplace as it has been in the past.

Finally, could you provide the cash flow from operations for the quarter's six months?

Yes, Jason. Let me look at cash flow from operations in the quarter is going to be $83 million in the quarter, and then year-to-date would be at roughly $110 million.

Thanks a lot.

(Operator Instructions). Todd Wenning from Morningstar.

Good morning, everyone.

Morning, Todd.

Could you give us an idea of what the competitive landscape is like in the Andean region and what advantages you have in that market by being local?

Okay, that's a good question, Todd. It gives me a chance to talk a little bit about the market. We've been shipping -- we have customers, both regional and international customers that are both in Peru, Columbia, and that whole region. And we've been servicing those customers from other facilities within Aptar, whether that is Brazil, Argentina, or even our North American facilities. Those customers have continued to grow and, frankly, at this point, we felt the need that we need to be closer to them to really move even the service to a higher level. The advantage we have today in Columbia, we'll be the first of our overall competition to go into that marketplace. So we also think that there's a first mover site. So today in Columbia, we'll be the first in our product lines to be competing in that area.

Okay, great. Now are there any other regions that might benefit from a similar move?

Well, again, we'll continue to look at that. I mean, some of those in Asia we continue to look at where growth is. Today we're in Thailand, we're in Indonesia. Both of those are growing. We may need to be adding capacity in both of those areas. So we continue to look at that. And again, I think it's important -- we're actually going to these regions on a customer pull strategy. So we're going in there with committed business as opposed to just moving into the market and hope we can sell.

Great. And then finally, on the recent share repurchase announcement, can you walk us through the Board's thought process there and how you made the buy-back decision versus other investment opportunities.

Todd, we look at it, really -- it's something that we evaluate, really, at almost every board meeting. So we take a very balanced approach to it. Obviously, we announced the dividend increase a few quarters ago. Share repurchase is also a part of that. And we also look at the opportunities that are on the table, for example, two that we mentioned here. Our goal is not to grow the cash balance. So if you look at it, we think we're generating enough cash flow, if you will, that we can provide that either in the form of dividends, or through share repurchase. It also still leaves us enough balance sheet to deal with any M&A activities that come up. So again, it's really a holistic balanced approach that we take to the Board and we look at that every quarter.

Great. Thanks and good luck, guys.

Thanks.

Brian Raffin from Morgan Dempsey.

Good morning, guys.

Hi Brian.

Hi Brian.

Steve, can you talk a little bit about you went through quite a robust litany of new product launches. Are you seeing -- you mentioned, a little bit, that some of your customers do it on a global scale. Are you seeing the number of new product innovations and launches either in scope or global size or the number of units and volume and launches increasing? It seems like there's been a lot of activity in that area. How has that, say, moved from, say, 2013 to 2012?

I think in terms of the Beauty and Home activity, because that's kind of more where I think you're looking at, in that particular market we're seeing an increase in activity going from '12 to '13. There are more projects coming back out. Some of those are introduced regionally. So, I would say also, there's not as much of global introductions. Or if they are, they're a little bit more subdued to see how successful the project is. So the advantage for us is that we're around the world so we're able to deal with those on a regional basis as the customer wants to roll those out. But we have seen a pick-up from '12 to '13. Now in the food and beverage market, that's also where we're seeing quite a few new introductions. Those are kind of new dispensing systems. So that's actually opening up nice incremental business for us as we grow forward.

Okay. Are you seeing any, in the cosmetic area, are you seeing any early signs as to what their Christmas build will be for 2013?

I think it's a little bit early. Overall, our customers tend to be -- I mean, you can see our sales in Europe have been reasonably strong. So I would tell you, in the prestige fragrance market, I think expectations are that it will be an okay to a good Christmas season. And people are starting to get ready for that. The other side is, is we continue to see excellent growth in the cosmetic or the skincare-type markets on a worldwide basis.

Okay, and what is your total global footprint relative to hiring in that -- you (inaudible) talked about the increased capacity in the Andeans and certainly with Stelmi. What are you looking at from a capacity utilization across all of your factories, across all of global? Would you be a net higher? Would you be slightly down? Kind of status quo? What would you look, if you looked on the entire world?

If I took the entire world and, again, this is such a broad -- again, we're probably up. Certainly our business is stronger this year than it was last year. So that's -- it's up. But again, it's going to be very specific region-to-region and, frankly, product-to-product. If I took an overall basis, we're going to be up a little bit.

Thanks, guys.

Thanks, Brian.

Thank you. This does conclude the question-and-answer session of today's program. I'd like to turn the program back to Mr. Hagge.

Thank you very much, Jonathan. That concludes our call today, and I'd like to thank everyone 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.