Aptargroup Inc (ATR) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2013 fourth-quarter conference call. (Operator Instructions)

Introducing today's conference call is Mr. Matt DellaMaria, Vice President, Investor Relations. Please go ahead, sir.

Thank you, Jonathan. 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 will 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 over to Steve.

Thanks, Matt. Good morning, everyone. Yesterday we reported a strong finish to the year. Broad-based increases in demand for our innovative dispensing solutions pushed sales to a record level for the fourth quarter. Sales were up in each end market we serve. Bob will go over some of those market growth numbers in a few minutes.

Equally encouraging, we grew sales in each geographic region. We also reported strong earnings of $0.69 per share before restructuring charges and the impact of new French tax regulations that were enacted at the end of December. The guidance we gave for the fourth quarter of $0.62 to $0.67 per share also excluded any potential impact on these two items.

I would like to give a few brief comments on each business segments, then I will turn it over to Bob.

Our Beauty + Home segment continues to lead the industry in innovative dispensing solutions for the beauty, personal care, and homecare markets. We reported good sales growth in the quarter for this segment, but profitability is still not where we would like it to be. Sales grew in each region; however, we continue to see softness in the US that contributed to suboptimal operational conditions.

In addition, weakened currencies in Latin America and Southeast Asia and facility startup costs in Latin America had negative effects on the results of our Beauty + Home segment. I'm confident that we're on the right path to improve profitability as we navigate these challenges, and our European restructuring initiative will help improve overall profitability for this segment.

We also have a good level of new project dialog with our customers. In the quarter, we participated in several new product launches across the fragrance and skincare application fields. We also saw an increase in the orders in Latin America for a variety of our dispensing systems for use on branded sun care products.

It was also an active quarter for our gift and promotional systems, including our flat sampling systems for fragrances and cosmetic creams and our mini pumps.

Turning to our Pharma segment, which had another excellent quarter, sales increased in each of the markets served by this segment. In the prescription market, we saw good growth in the allergy and pain application fields. In the consumer healthcare market, demand was up in the decongestant and nasal saline application fields, and demand continued to be strong from the injection market for our Aptar Stelmi products.

Segment income increased over the prior year and overall profitability was driven by the strong sales volumes in the quarter. We participated in several new customer product introductions in the quarter in both the nasal and pulmonary delivery route categories.

One interesting Pharma development worth noting is Sanofi-Aventis' decision to make their successful prescription strength nasal allergy product called Nasacort available over-the-counter in the US beginning here in 2014. Just as we have been the supplier on the prescription version, we are also supplying the over-the-counter version as well.

Now looking at our Food + Beverage segment, this segment had a good quarter with strong product sales and increases in custom tooling sales. Demand was strong in both the food and the beverage markets. We continue to successfully penetrate different categories and our customers continue to demand the cleanliness, ease-of-use, and the flow controls that our dispensing systems and sealing technologies provide.

Segment income increased in the quarter, but profit margins were negatively impacted, due in part to the increased tooling sales and higher personnel costs as we have added key positions to support our global growth.

It was another active quarter in terms of new product launches in both the food and beverage markets. In the food market, Unilever's Hellmann product launched a new inverted package for their flagship mayonnaise product in North America with our dispensing closure and flow-controlling silicone valve.

In the beverage market, Pepsi extended their Tropicana package into a larger 118 ounce family size after the success of their 89 ounce package. Our hinged closure with proprietary bonded aluminum to plastic, or BAP, technology continues to deliver increased consumer convenience in the orange juice category.

And speaking of the BAP technology, I would like to take a minute to recap the transaction that was mentioned in our press release. For the past few years Aptar has had a nonexclusive license agreement for the sealing and tamper-evident technology. We are confident in this technology's potential and the minority equity stake that we purchased in the fourth quarter enabled us to secure an exclusive global license. This technology is used today on a variety of our Food + Beverage closure, but it also has the potential to be deployed in other markets.

Looking back on the year 2013, even though we started off slowly and faced some challenges throughout the year, our team stayed focused on our customers and how best to help them grow their businesses. There were market challenges in Europe and the US, but we were able to navigate through those and our results improved as the year progressed. This was the first full year after the Stelmi transaction and we couldn't be more pleased with how this business has performed and how smoothly the integration has gone.

We also made significant progress on our European restructuring initiative. It was a huge effort on the part of many individuals in our organization and I want to thank our people for their efforts.

We finished the year with upward momentum and we achieved record annual sales of just over $2.5 billion. Each segment grew sales over the prior year.

Earnings are also strong when we exclude the charges related to our restructuring and the impact from the French tax regulation change that occurred at the end of December. With our strong cash flow, we are able to continue to allocate capital to enhance shareholder value. We spent approximately $119 million on share repurchases and paid another $66 million in dividends to shareholders.

Now, as we look ahead into 2014, we expect improved results in the first quarter compared to the prior year. However, the challenging currency environment, especially in Latin America and in Southeast Asia, is expected to continue and we are facing higher tax rates compared to a year ago. In 2014, we will maintain our ongoing efforts to control costs and improve production efficiencies in all of our businesses.

In addition, I am encouraged by the level of project dialogue we have with customers across each of our segments and our efforts to drive growth in new application fields.

At this time, I will turn it over to Bob, who will review some of the details behind our recent financial results.

Thank you, Steve. Good morning, everyone. As Steve mentioned, we had a strong quarter with reported sales increasing 12% to a record fourth-quarter level. On a constant currency basis, our core sales increased 10% in the quarter with each segment posting increased core sales.

Our fourth-quarter earnings-per-share guidance did not include any costs from our restructuring plan, which equaled $0.05 per share, nor did it include any negative effects of the recently enacted French tax regulations, which totaled $0.10 per share. So on a comparable basis to our guidance, excluding these items, we earned $0.69 in the quarter. This compares to $0.57 in the prior year, when charges related to the restructuring plan, also $0.05 per share in the prior year, are excluded.

Free cash flow, which we define as cash flow from operations less capital expenditures, was approximately $50 million in the quarter compared to $75 million the same period a year ago. The decrease in free cash flow was primarily due to an increase in working capital in part due to the strong sales growth in the quarter.

On a gross basis, debt to capital is approximately 25%, while on a net basis it is roughly 11%. We paid $16.5 million in dividends in the quarter, representing $0.25 per share.

Regarding our share repurchase program, we spent approximately $38.6 million to repurchase 600,000 shares in the quarter. This brings the remaining balance of shares authorized for repurchase to approximately 4 million.

Now I would like to turn to market details by business segment.

Our Beauty + Home segment's core sales increased 6% over the prior year. Looking at our markets on a constant currency basis compared to the prior year, sales to the beauty market increased 6%, sales to the personal care market increased 9%, and sales to the home care market increased 4%. Our Pharma segment's core sales increased 12% over the prior year.

Looking at our markets on a constant currency basis compared to the prior year, sales to the prescription market increased 10%. Sales to the consumer healthcare market increased 23% and sales to the injection market increased 8%.

Our Food + Beverage segment's core sales increased 24% over the prior year. If we exclude the effect of higher tooling sales, product sales actually increased 17% over the prior year. As we looked at the two markets served by this segment, the increase in custom tooling sales compared to the prior year was nearly all in the beverage market.

On a constant currency basis, sales for the beverage market increased 35%. However, if we excluded the impact from the increased tooling sales, product sales for the food market increased 20% and sales to the food market increased 17% with little tooling impacting.

Looking at the annual results, our reported sales for 2013 grew 8%. On a constant currency basis and excluding Aptar Stelmi sales from the first half of this year, our core sales increased 4%.

Regarding earnings per share, when you exclude the negative impact of approximately $0.17 per share from our European restructuring plan and a $0.10 impact from the change in French tax regulations, we earned $2.79 per share for the year. This compares to $2.52 per share in the prior year when we exclude charges from the restructuring plan, of which again were $0.05 per share last year, and transaction costs and nonrecurring purchase accounting adjustments related to the Stelmi acquisition, collectively about $0.09 per share.

We also generated free cash flow in the year of $134 million, which is a decrease of $6 million from last year's free cash flow.

Regarding our European restructuring plan, the costs associated with this plan are substantially complete now and totaled approximately $19 million. We expect savings to be in the area of $10 million to $12 million on an annualized basis.

Looking forward, we expect depreciation and amortization for 2014 to be in the area of $160 million and that capital expenditures will be approximately $190 million. And that includes the Stelmi expansion project which we mentioned earlier in 2013. I would like to point out that these amounts could vary depending upon changes in exchange rates.

We believe our effective tax rate for 2014 will be in the range of 33.5% to 34.5%, and we currently estimate the diluted earnings per share for the first quarter of 2014 will be in the range of $0.65 to $0.70 per share compared to $0.64 per share in the prior year when the negative impact from charges related to our restructuring plan were $0.05 per share are excluded from the prior-year results.

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

(Operator Instructions) Al Kabili, Macquarie.

Good morning. It's actually Danny Moran on for Al. Thanks for taking my questions.

Just moving back to your earlier comments on Beauty + Home, what would you say is the primary driver of the softness? Is it mostly volume or are you seeing some price pressure?

The majority is actually volume for us coming back in, but we are seeing price pressure in different parts of the world. Again, we have to look at Beauty + Home where it's really a very different game depending on where we are playing.

We have had a very strong operational result in Europe. In 2013 our softness has been mostly in the US. And, again, I think the other side that has impacted us is our startup cost of operations in our new Colombian facility that's going on in Latin America and some moves we are making on plants in Brazil.

But, overall, I would say it is mostly a volume issue in terms of the softness rather than it is a price issue.

Okay, that's helpful. Then switching gears to Stelmi, you mentioned in the past that Stelmi did not have much price increases and this was an area you were looking at as you moved further down the integration phase. As we look to this year, do you anticipate any positive pricing from Stelmi?

We had -- first of all, it is important to note that we've done quite a bit in terms of pricing looking at the product, and some of the growth that we are talking about in that Stelmi product line of around 15% on a year-on-year pro forma basis is partly pricing. So I think when you look at that we are going to continue to look at pricing going forward, but again we are not going to have that same impact on in terms of year on year as we did -- in 2014 as we did in 2013.

Okay. Then last question just on your CapEx guidance, just a clarification. Does this still include about $25 million for Stelmi?

That's correct, Danny. We are expecting that $26 million to essentially hit in 2014.

Okay, great. Good luck in the year.

George Staphos, Bank of America Merrill Lynch.

Thanks, good morning. Congratulations on the year. I guess the first question I had; could you update us on how the Stelmi capacity add and investment cycle is going for you this year?

Then the second question unrelated. Can you parse out what, if any, weather effect was in the fourth quarter year on year with it being a more severe winter and what, if any, cushion you are building into the first quarter for that? And that is probably more art than science, guys, but I wanted your thoughts there.

George, let me come back and try to deal with the Stelmi side. First of all, in terms of the normal capacity expansion, we have been doing capacity expansions throughout 2013. Let's call it on an incremental smaller basis.

The large project we did that we announced in the second quarter, which is roughly $26 million in capacity, that we are just now going to be doing in 2014. So we've had very little impact in terms of capital spend on that in 2013. Most of that will be in 2014 and we are just now starting to bring on personnel to be able to deal with that side.

So the majority of that will be a 2014 event. If you look at the weather for us, other than some operational issues of getting people to the plants and stuff during some of this Midwest weather, I don't think we had material impacts in terms of weather in the fourth quarter. So I don't think there's going to be huge difference between the fourth and the first quarter as a result of the weather issue.

Do you think perhaps that maybe it has benefited you in terms of your pharmaceutical business? Those growth rates were better, in fact, than normal. Do you think you had the benefit of any stronger-than-normal cold season or not really?

I don't think it's as much in there, George. We have had good allergy. One of the things I think that is important that we talked about a year ago, we were starting to see some inventory destocking from some of our generic products here in the United States. That now -- we've crossed that year and we are probably much more -- today we are very much more on a year-on-year normalized basis. So that had a plus.

What I brought up in my comments, though, I think the Nasacort issue for us is also going to be a plus as we see certain of these allergy products now potentially going over-the-counter, which I think in the short term anyhow should be an advantage for Aptar.

Okay, thanks. I will turn it over.

Ghansham Panjabi, Robert W. Baird.

Good morning. Can you just touch on the emerging markets? You called out foreign exchange as it relates to a negative variance, and that will probably continue into the first quarter as well.

But just in terms of underlying demand, have you noticed any meaningful change? There seems to be a lot of worries about Latin America, Turkey, and other parts of the world.

A couple things on that. First, I will let Bob touch on the currencies because that is an impact with us, but if I look at our demand, we actually had pretty good demand. Even in the fourth quarter we were -- in Latin America year on year we were up 11% on a constant currency basis and in Asia 18%. So we are still seeing good growth in terms of our volume, but we are seeing challenges as that translates back into US dollars.

So I think, for example, if we get into Brazil the World Cup should hopefully benefit it as you get some more people going down. And realistically we have in some of the markets we serve, like food and beverage and pharma, we are still a relatively small player so I think we have good potential ways to grow in those markets.

Maybe I will let Bob touch a little bit on the currency issue because that is an impact for us.

Sure. So if we just look at the Brazilian real and the Argentine peso, which is probably our two primary markets down there, just in the fourth quarter alone, Q4 to Q4, the real depreciated about 10% compared to the dollar and slightly more compared to the euro. And the peso devalued 21% quarter four to quarter four. And if you have been following the news, it has continued to slide even further.

So if I look forward into Q1, if I compare where rates are today compared to Q1 last year, the Brazilian real is down about 16% compared to last year Q1 average and the Argentine peso is down about 36%. Also, Mexico, which is also a market for us down there, is about 4.5%.

So you can see the depreciating currencies, how that will impact some of our -- just on a translation side alone will be roughly $1 million and that doesn't even include any transactions. So to give you a point of reference, there was about 800,000 transaction losses in Q4 in Latin America.

That's helpful. Then, Bob, I'm not sure if I missed this, but did you give us 2013 full-year free cash flow and also an estimate on 2014? Thanks so much.

We don't really comment on Q4 estimated cash flow, but for the year, if you look at free cash flow, was about $134 million compared to $140 million in 2012.

In terms of 2014, that's what I meant, not Q4.

That was the year 2013 compared to the year 2012, but we don't really project 2014 ahead cash flow.

Okay, all right. Thanks so much.

Brian Rafn, Morgan Dempsey.

Good morning, guys. Give me a sense, if you look across your businesses, what type of -- from the weakest capacity utilization to the strongest globally, what are you hiring? How much overtime in the different operating segments? Give me a sense kind of CapEx, capacity utilization, hiring, and then maybe overtime.

Let me come back and deal with that (technical difficulty) more qualitative basis. If you look today in terms of capacity utilization, we are somewhat down because of sales drop here in the US and that's probably our softest. But even in the US we are seeing some capacity constraints because some of the product lines are doing very well, even here.

Our biggest challenge today in terms of capacity has been in Europe. We are seeing very good growth in Europe and there we have been able to be able to service our customers who are needing to come back and add direct labor. And we are also increasing the efficiencies.

In terms of our people, I don't know that we have had any -- again we have added some people in the US to deal with some of these one-time issues, but I don't if it's significant in the other areas. It tends to be we move up and down with business on a regular basis.

Okay, all right. Then back to the Beauty + Home. Could you breakout the fragrance, cosmetics side and maybe talk a little bit about the higher end premium versus kind of the lower end? Then any color that you can give us on kind of what your experience was with Christmas sales.

I think overall our customers -- again, this is more qualitative than quantitative. Our customers have said, I think, Christmas is a pretty good season for them. Not a great season, but a reasonable season.

So if you look at our Beauty sales in the fourth quarter, we were up 6%. So overall our 6% growth I think is at or above kind of market averages. Within that, that has been positive both on the lower end of the market and the upper end.

Keep in mind, on the lower end when you look at Latin America for example, which a lot of people would consider more middle, that has been a very strong growing component for us. So I think we've done well across all of those. We track very closely our new product introductions from our customers on the high end and we continue to be the market leader on all of those introductions.

As I pointed out lastly, our new sampling in terms of sampling side in our fragrance has done very well and we had a very strong fourth quarter in that area.

Then just finally, on some of your conversations you had about new business product lauchings, are you seeing any trends -- national launches, international launches versus regional; products, sampling sizes that you are launching, hundreds, thousands, millions? What is kind of the trend that you are seeing in the new product area?

I think it going to depend, frankly, on that one, Brian, on the market. In the beauty market we are seeing again probably more global launches going back to that side, particularly on the prestige. Personal care tends to be more regional, Europe, the US. And if you get into the food side, it is very much regional because the products are different. So it depends on side.

I think the biggest difference over probably three years ago was Beauty is moving to bigger product introductions on their big brands, so they are doing more worldwide introductions.

Thanks, guys.

Chris Manuel, Wells Fargo.

Good morning, gentlemen. Just a couple questions. First, kind of maybe an easy one for you, Bob.

When you look at the tax issue for 4Q, obviously that's something that's going to be recurring now on a go-forward basis. How would we spread that back across the quarters? $0.10 was the whole hit here; is it kind of pro rata across the quarters or how would I think about that?

It's difficult to say without getting too much into the technical side. I think you can use roughly a pro rata 2% to 2.5% in each quarter. It might be slightly higher than that, but in terms of cents $0.02 to $0.025 is what we would be looking at.

Okay, that's helpful. Then, Steve, I recognize Nasacort is just one of hundreds and hundreds of drugs that you've got in the stable that you're providing dispensing systems for, but what has been your traditional experience as you've seen something go from -- I think we spoke in the past about what it's like when one goes generic, but what happens when one goes from script to over-the-counter? Is there typically kind of a 2x or 3x that penetration can improve? How -- what is typical?

It's a good question, Chris, because, frankly, this is the first time in our product space we've seen one of the products move from prescription to over-the-counter. So I think the interesting issue and I think this is an important point, a lot of times when we talked about this people have made the incorrect assumption that the regulatory would change. What is important here is regulatory still applies even when it goes over-the-counter, which is really one of the key reasons why we are still on that product.

Our view is right now, it's going to be difficult to see what happens long-term. It's hard for us to view that. But short-term it's certainly a positive, because if they start to come back -- I've just seen this now. We are starting to see this show up in some of the drugstores; Sam's Club has now introduced this.

So we are going to see some market penetration and I do think you may see other customers doing the same thing over time.

That's interesting. Maybe it's something we will check back in on in a couple of quarters to see how it's going.

Last question I had was when you think about capital redeployment for 2014, probably nothing materially changing. You're still looking for acquisitions, so maybe any update as to what the market is like, how you are feeling with respect to that. And then I guess just anticipate balance for share repurchase and dividends, is that fair?

I will deal with the M&A and I will turn it over to Bob on the share repurchase and dividends, but essentially what you said. We are continuing on the same path we've been at. As you know, there's been certain different properties come in the market. We continue to evaluate those to see if they make sense for us.

So I would say that the number of things available for sale is probably up. Getting transactions done is taking some more time. But again, I would say the M&A environment today is reasonably positive with the one negative that prices of property seem to be moving up. So in terms of share repurchase, Bob?

Yes, from what I can say today, Chris, I really can't say anything different than what we've talked about. We continue to look at it. It is an area we are spending a fair amount of time looking at to get to the right solution. And in terms of what I can tell you, there's nothing different then. We will continue to balance both the dividend and the share repurchase in the short-term, but it's an area that we continue to look at.

Thank you.

Alex Ovshey, Goldman Sachs.

Thank you. Good morning, guys. Steve, a couple of questions. Very strong margin performance in the pharma business. I'm curious if there's an update on what you think the medium- to longer-term margin outlook could be for your Pharma business.

Alex, I think the good news is you can see even through the year for us in 2013 we have seen margins fluctuate within the range. We are still very comfortable that it's between a 23% and 28% margin for us, and that will be depending on volumes and product mix, etc.

So I think it's a strong product mix and I think Stelmi has continued to help that. But we are staying with I think where we've been in the past at that 23% to 28% margin target.

Got it. Then can you talk about what resin price assumption you currently have in your first-quarter outlook and whether you think it will have any impact on the results in the quarter?

Again, I think let's take resin because I want to approach resin from two parts. There is no question that resin, particularly here in the United States, has moved up from the fourth quarter to the first quarter.

If you went back to last year in early 2013 that same occurrence happened, so we are passing those resin increases on in the second quarter. So there's a negative impact between the fourth and the first, but if I compare first to first it's a much more comparable side. It's kind of a two ways to look at, Alex.

In any case, our process of passing the cost through is identical to what it has been. We pass those through as soon as we can, both up and down, in terms of resin pricing.

Thanks, Steve. I will turn it over.

Chip Dillon, Vertical Research Partners.

Good morning. I have noticed the strong operational and stock price performance. There has been quite a bit of options exercised activity and I just wondered how that might change going forward, just from the standpoint that it looks like in the last couple of years roughly a fourth of the free cash flow has been used to kind of offset the -- to augment the money coming in from the exercises.

And would you --? Obviously it's a function of the stock price, but could you talk a little bit about how you view the equity component of compensation and how far deep in the organization it goes?

The equity compensation is a critical part of our overall long-term compensation. But you're right; in terms of share price, as it goes up you do get a little bit more acceleration. But I think there's a couple key aspects when we look at options for Aptar that I think is a bit different than the outside.

One of them is the length of time. If you look at our footnotes when you get to the 10-K or last year, our people are holding the options almost seven years on average. So it is really viewed as much more of a proxy to the long-term market and I think that will continue. People have a strong feeling about where Aptar stock is going.

In terms of the stock price and the dilution, you're going to always get fluctuations, but from what we have looked at, there hasn't been huge changes in terms of the number of options being exercised from year to year. And in terms of the scope of the people we go down probably to around 200 to 250 people in terms of getting options up. And it goes down reasonably far through our management group and maybe a little bit more than that through the organization.

Got you, that's very helpful. Thanks, Stephen. When you look at the toolings, I guess the segment for Food + Beverage, it looks like if the tooling component must have just been way outsized versus what's normal. Given that, should we expect that to be kind of a precursor to, you would think, to higher product sales and maybe some acceleration in that segment in 2014 and maybe 2015?

We have had some pretty consistent high tooling sales if you look at in the Food + Beverage market. That is one area that we have seen.

In answer to your question, can you see an acceleration, you know, we will see increased volumes typically from the tooling sales that we sold in the coming quarters. But, again, you're also lapping up against other tooling sales that occurred last year in the beverage market and whatnot.

So it is a good -- we view it as a positive overall. And as Steve mentioned, we continue to get into different categories, both in the food and the beverage side of things. So for us it is definitely a good indicator for us, but it's difficult to really say that it's going to go up any higher than what we have been currently running at.

One other thing on that, Chip, to go back to, because I agree with Bob very much on what he said, and I think it's also important to take Food + Beverage as a total for tooling. So while we had a huge increase in the fourth quarter, if you look on a year-to-date basis, we are up about 1% on a year-over-year basis. So the challenge with us in tooling, as you have seen with our results, they tend to be choppy from quarter to quarter.

Got you, helpful. Thank you.

Todd Wenning, Morningstar.

Good morning, everyone. What medium-term impact, if any, might this week's news about the Coca-Cola Green Mountain partnership and small, but growing, at-home beverage preparation industry have on Aptar's beverage business?

It's going to be difficult to say. The one thing I can tell you is that certainly, as we look at our customers in the food and beverage side, that at-home or single-serve, even more importantly, is a key issue. The dispensing systems around that are critical to how those products perform.

So I can't talk on any specific projects that we are working on, but I can tell you that there is a lot of interest in our customers around this whole area.

Okay, great. Thank you. What have you learned about the Latin American markets since breaking ground on the new facility there?

We've learned that currencies continue to be very volatile is probably the biggest issue. I think, though, despite that I think it's important that when you look at our business in Latin America, volume growth for us continues to be strong double-digit growth. And the new business that we have in Colombia, our customers in that region, outside of their sales into Venezuela, which have had the biggest impact, continue to do well.

So I think it's more -- and this is something if you are in those markets it's a challenge dealing with currency day to day, but it's something that we have been doing for the last 20 years. So challenging, but still we view it as good growth markets.

Great. This is probably a question for Bob, but with the dividend payout ratio around 35% on an adjusted earnings basis, should we think about that being near the high end of your comfortable range? Or would you be more comfortable with even a higher payout ratio?

We will look at that every year, Todd. We also try to look at it internally from a projected earnings perspective to see where we would be for the year looking back at the earnings for the year. Then that's something that we will discuss with the Board and make recommendations on how much and when to increase.

Great. Thanks, guys. Good luck.

Greg Halter, Great Lakes Review.

Good morning, guys. On the Stelmi side, is there any update on some of the new fields that they've been looking at, like eye care, vaccines, heparins, veterinary, and so forth?

You know, we continue to work on that. There's not as much on the eye care side. On the heparin issue, there's is certainly -- that is a syringe-based product so there's areas we work. I would tell you that in terms of sales in 2013 there's not much sales into those markets other than what historical Stelmi has done.

We have several interesting projects we are working on that I think we will favorably impact 2014, 2015, etc., but not significant impact so far in 2013.

Okay. And what was Stelmi up on a year-over-year basis, 2013 versus 2012?

If we look at it pro forma, and again we only have six months in our 2012 results, but if we were to take a look at what they had 2012 for the full year versus 2013 it's up around 15%, 16%.

Okay. And on the BAP business, besides the orange juice, what else? I think Perrigo has an infant formula and maybe fruit juice, but are there other applications that are being used on that you can discuss?

I think you hit on the two biggest ones today, so it's relatively -- in terms of Aptar's $2.5 billion sales, still relatively small. But really two key products: the infant formula with Perrigo and Tropicana with the orange juice.

We are working on several new applications around that, outside of those two markets. And I think the other thing, Greg, for us it's encouraging is we are starting to look at applications in the consumer healthcare market, even in the personal care markets and cosmetics because of the sealing capabilities here.

So we are excited about this technology, but it's still early and that's still -- and that's one of the reasons we are adding people to make sure we can continue the development on that side.

I think you mentioned that might have been, from a very low base, like triple-digit percentage year-over-year increases?

Again, I want to be careful on -- the low numbers are low numbers, so we have had good growth. Again, we got into the baby formula for the first time in 2013 so we went from zero to something so that's a positive. But, again, my reaction has always been I think the technology has good -- is a good technology and I think bodes very well for Aptar in the future.

Okay. A couple of housekeeping items. What was the cash flow from operations, either for the full year or the quarter?

I can give you both, Greg. Cash flow from operations for the full year was $285 million and cash flow from operations for the quarter was $91 million.

And what were the capital expenditures for the year?

Capital expenditures for the year were $152 million and for the quarter they were $41 million.

All right, thanks a lot.

(Operator Instructions) George Staphos, Bank of America Merrill Lynch.

Thanks, everyone. One last question for me to finish up. In Beauty + Home, realizing that it's mostly a volume issue in the US as you see it; one, what outlook are your customers giving you about the potential for there to be a pickup in 2014 vis-a-vis new product introductions, promotions that you perhaps know are going to be run?

And then the related question is you mentioned that there has been also some pricing pressure, some more of a volume issue, but where have you felt more of the pricing pressure? I'm assuming it's mostly in the US. So within the US, if that is a correct assessment, which end markets are you feeling most of the pressure? Thanks, guys, and good luck in the quarter.

On the Beauty + Home side, I think if you looked at the US, we are seeing some increase in volume in terms of expectation. The other thing I don't want to underestimate is we have some operational issues we have got to get better on in the States, so we have both of those that we need to be working on.

When you look in terms of the pricing pressure I think US has probably been larger, but what we have seen on that, both in personal care and beauty and fragrance side of our business, is that we have been taking a look at doing more long-term contracts with some of our key customers. And as a result, getting volume commitments over a longer period and giving a little bit up in price. So we of kind of balance those, so those are the two key issues for us.

George, I just want to add one other thing. Oftentimes we don't think of it as pricing pressure, because when we think of pricing pressure we think of price decreases. But going back to what I was mentioning in Latin America, with the depreciation of those currencies and the amount of imports that we are bringing in, our costs are going up in those areas and you've seen inflation starting to be a significant number.

We will go out with price increases, but I would say there's pricing pressure there as well on our customers to limit what that is. So it's a balance between how fast the cost structures, if you will, and those inflationary environments are going up and how much of that and how quickly we can pass that through. When we talk about pricing pressures I would also through that in on the upside.

That's helpful, Bob. So basically you are seeing a transactional loss as you were mentioning earlier because you are bringing that product in and you've got prices basically on a local basis that are, at this juncture, coming down because of the currency? Would that be fair?

It's not that prices are coming down, but if you look at inflation in general, you are up 20%, 23% in Argentina alone. So you've got wage inflation. You've got the transaction side of us bringing either components or finished goods coming in.

That's more tied to the currency side and then it's the push on our side to pass both of those on to the customer. And that's tough when you're passing through both currency and inflationary side to the customers. So it's more that than anything else.

Okay. In the US it sounded like the issue is really more a mix of how you are -- going to market is not the right term, but how you are trying to lock up more volume longer term and less competitive activity. Would that be fair? And if that's true, why you trying to lock up more volume longer term?

Is it an acknowledgment of, in fact, maybe there is a little bit more competition than would have been the case, say, five or 10 years ago? Again, thanks, guys. Good luck in the quarter.

First of all, I think we've always been trying to lock up volume long term. I think it works well for us in introducing new products.

Again, I think there's probably more of that in Europe today than actually in the States, and I think our challenge in the US today again is a little bit on trying to get more volume through to use more effectively operations. Also, frankly, we've got to improve our efficiencies here in the United States. So we have got a combination of those.

Thanks for all the details.

Chip Dillon, Vertical Research.

I apologize; I missed the 2013 CapEx number. Then, as you answer, could you also give us an idea of -- of course considering no acquisitions or changes like that, what you think directionally we will see happen in 2015?

On the CapEx you mean?

Yes.

First of all, the CapEx for 2013 was $152 million. And so your question was, in absence of acquisitions, what would we see CapEx being in 2015 or 2014?

2015.

It's difficult to say. Really this year in 2014 we've got the bump up of the $26 million on the Stelmi capacity, but it's tough right now to sit here and say do we have another one-off capacity expansion, a facility expansion at this time. Again, like we've said before, we typically target at or around depreciation and amortization, and then we will play with it from there depending on the projects that are in the pipeline, the growth prospects, and things like that.

So we are too early on right now to make a guesstimate. $190 million is what we think for 2014, but it would be too soon for me to even try to guess what 2015 would be.

Got you, thanks.

Chris Manuel, Wells Fargo.

One quick follow-up related to CapEx-oriented stuff. I recognize, to your point, this year is going to be a little elevated because of I think you've called out $25 million, $26 million for the Stelmi expansion. And I also appreciate you've got a plethora of projects.

But could you kind of maybe highlight specific areas or product component and pieces that you are concentrating the bulk of your other capital on? It gives us a sense as to where you are anticipating growth the next year or two.

It's hard to give you a specific area that we are focusing on the, but let be highlight a couple things in general.

First of all, we have very high return on invested capital from what we are investing in. So if we see good opportunities out there, whatever product line that may be in, whatever segment that may be in, we are not going to shy away from those good return possibilities. A lot of what we are spending is to industrialize some of the innovation that we have been talking about and working on for the last several years, which is also a fair amount of, I would say, continued localization of production in the emerging countries.

So we continue to invest more -- I would say disproportionately more capital compared to the size of those regions there, really to help offset some of the things that we're talking about here in terms of transaction costs and what not. Then there is always going to be that element of maintenance capital that we have to deal with. And that is both facility-related, equipment-related, replacement of molds and things like that.

So that is really about all I can kind of give you in terms of where we are focusing.

Okay, that's helpful. One last follow-up there is I think in the past we've talked about maintenance CapEx levels being probably in that $75 million range. Is that still accurate or has that stepped up with some of the --?

It's a little high, Chris. The way we would tend to look at maintenance is probably more in that 50% range, but even then at 50% we are not typically investing like for likes. We are investing in newer technologies, so for replacing an assembly line, for example, we may be replacing it with higher output or whatnot.

So while it's a maintenance capital item, it's also partially a capacity increase, if you will, or cost reduction in there. But 50% is, I would say, a more realistic number on how we would consider maintenance capital.

Thank you. Good luck, guys.

Thank you. This does conclude the question-and-answer session of today's program. I would like to hand the program back to Mr. Hagge for any closing comments.

Thank you, Jonathan. This concludes our call today and I would like to thank everyone for joining us. Goodbye.

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