Aptargroup Inc (ATR) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Aptargroup's 2014 first-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 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 over to Steve.

Thanks, Matt. Good morning, everyone. Yesterday we were pleased to report an excellent quarter that was driven by broad-based demand for our industry-leading innovative solutions.

Similar to what we saw in the fourth quarter, sales increased in each business segment and market and geographic region. Bob will cover the details on the market and geographic growth in a few minutes.

We reported record first-quarter earnings of $0.71 per share. Earnings reflected operational leverage from gains in volume. We also realized savings from our European restructuring initiative that was substantially completed at the end of 2013.

However, these savings were offset by certain headwinds in the quarter, including negative currency FX and facility start-up costs primarily related to our beauty and home segments, Latin America operations, and a higher overall effective tax rate. I'd like to give a few comments on each business segment and then I'll turn it over to Bob.

Our beauty and home segment experienced strong demand from beauty and personal care markets across each geographic region. Profitability improved over the prior year, particularly in part due to improved operating efficiencies in the US and savings realized by our European restructuring plan. However, these gains were partially offset by the weaker currency conditions and facility start-up costs that I previously mentioned.

Skin care continues to be very active in a growing consumer market. In the quarter, we supplied a variety of dispensing solutions to customers in both the facial and body skin care categories.

In the facial skin care category, our lotion pumps and airless systems were chosen by several of our customers in Europe and the US on their anti-wrinkle lotions, cosmetic products, and hydrating serums. In the body skin care category, we continue to be the preferred solution provider to customers who are launching new spray-on-the-go moisturizers that utilize our proven Bag-on-Valve system with locking actuators.

This includes both branded and private labels. This particular category is transforming in ways similar to what we saw in the sprayable sunscreen market several years ago.

We also participated in several new fragrance launches in Europe, the US and Brazil, including fragrances by LVMH, Cartier and Coty. In the home care market, our dispensing closures was chosen by OxiClean's dish washing detergent product.

Looking at our pharma segment, we had another excellent quarter. Demand for the prescription drug market was strong, particularly for our metered dose inhalers which deliver asthma medication, and our nasal delivery systems for pain medication.

In the consumer healthcare market, demand was strong for our nasal spray pumps used with decongestants and our ophthalmic squeeze dispenser for eye lubricants. Sales to the injectable market also increased in the quarter.

Segment incomes 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, which include, in the consumer healthcare market our ophthalmic squeeze dispenser was chosen by two European customers for use with their eye moisturizing products. And a new Vick's brand of nasal saline was introduced in Europe with our Bag-on-Valve in a special spout actuator.

In the prescription drug market, as we mentioned last quarter, the launch of the over-the-counter Nasacort continues to do quite well. And we continue to see good growth in the asthma inhaled treatment category.

Turning to our food and beverage segment, this segment also had a good quarter, with sales increasing in both the beverage and food markets. And our segment income also increased in the quarter. It was another active quarter in terms of new product launches in both the food and beverage markets.

In the food market, following the successful restage of their flagship mayonnaise with our inverted SimpliSqueeze closure in Brazil, Unilever has introduced a new Hellmann's mustard package with the same dispensing closure. In Europe, Nestle introduced a line of barbecue sauces using our SimpliSqueeze dispensing closures.

In the beverage market, water enhancers and concentrated flavorings continue to be an area where our flow control expertise is taking us to new accounts and new regions. In the quarter, two new concentrates were introduced, one in the US in the dairy category, called MilkSplash; and the other a water enhancer in the UK.

Now a brief comment about our capital allocation. As we announced earlier this year, we increased our quarterly dividend by 12%, and we're now paying a dividend on an annualized basis of $1.12 per share. 2014 will mark our 21st consecutive year of increased dividends.

Now, looking forward to the second quarter, I'm pleased with the broad-based sales increase we've seen, and I expect that most of that momentum will continue into the second quarter. I expect that each segment was going to achieve core sales increase over the prior year, even if last year's second quarter was quite strong.

It looks like we'll again be experiencing challenging currency environments in the developing regions in the second quarter, especially for our beauty and home operations. But I do expect profitability to continue to improve in this segment as the year progresses, due to the operational improvements in the US and increased sales overall.

We also don't anticipate the impact from resin pricing adjustments to be as favorable as it was in the prior year. Overall, we expect to grow earnings over the record level we achieved in the 2013 second quarter. At this time I'll turn it over to Bob, who will review some of the details behind our financial results.

Thank you, Steve, and good morning, everyone. As Steve mentioned, we had another very good quarter. Currencies did not have a significant impact on translated sales in the quarter and therefore, reported and core sales each grew 9%.

We also reported strong earnings in the quarter of $0.71. This compares to $0.64 in the prior year when charges relating to the restructuring plan of $0.05 are excluded from the prior year reported results.

Cash flow from operations this quarter totaled $32 million compared to $26 million a year ago. Capital expenditures this quarter were approximately $43 million compared to approximately $35 million in the prior year. Therefore free cash flow, which we define as cash flow from operations less capital expenditures, was slightly below the prior year level by about $2 million.

At the end of the quarter, on a on a gross basis, debt to capital was approximately 26%, while on a net basis it was 12%. Regarding our share repurchase program, we spent approximately $13 million to repurchase 200,000 shares in the quarter. This brings the remaining balance of shares authorized for repurchase to approximately 3.8 million.

Turning to market details by business segment, our beauty and home segment's core sales increased 9% over the prior year. Looking at our markets on a constant-currency basis compared to the prior year, sales to the beauty market increased 10%. Sales to the personal care market also increased 10%. And sales to the home care market increased 2%.

Our Pharma segments 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 9%, while sales to the consumer health care market increased 27%. And sales to the injection market increased 6%.

Our food and beverage segment's core sales increased 5% over the prior year. And on a constant currency basis sales, sales to the beverage market increased 7%, while sales to the food market increased 4%.

From a geographic view, it was a strong balanced quarter. Core sales, excluding changes in currency exchange rates, increased in each region.

Our core sales in the US grew by 9% compared to the prior year. Europe was up 8%. Latin America grew by 14%. And Asia was up 16%.

I would like to point out that the devaluation of the Latin-American currencies was significant in the quarter. And our Latin-American sales on a US dollar-reported basis actually declined approximately 6% from the prior year.

Looking forward, we expect appreciation and amortization for 2014 to be in the area of $160 million. And capital expenditures to be approximately $190 million, including the $26 million related to the Stelmi expansion project that we announced last year. 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 34% to 35%. We currently estimate that diluted earnings per share for the second quarter of 2014 will be in the range of $0.78 to $0.83 per share compared to $0.77 per share in the prior year, when the negative impact from charges related to our restructuring plan, or $0.04 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)

Our first question comes from the line of Ghansham Punjabi from Baird. Your question please.

Given the inflationary conditions across some of the emerging markets that you're exposed to, a lot of your customers are talking about either raising prices dramatically and the cost of doing so. How should we think about the impact on volumes for you in terms of your positioning in Latin America, specifically?

You hit on a key point for us. We are seeing quite a bit of inflation going on, particularly today in Argentina, and to a certain degree also in Brazil.

We are increasing prices. We tend to do that somewhat about 30 days after the fact. So we do get a bit of a negative impact.

We are concerned that we're going to see some slowing in volumes as we get to the second part of the year. Because with the size of these increases, it's going to be difficult for the consumers to continue buying the product.

So it's something we monitor closely. We actually had a pretty good volume quarter in the first quarter, so we'll see how things play out for the remainder of the year.

Okay. Then on pharmaceuticals, you know, obviously significant growth there. I think you had a pretty easy comp from a year ago.

But in terms of the actual operating margin itself, there wasn't a level of improvement that we certainly would have thought so. Were there any unfavorable variances in there from foreign exchange, or something like that, that impacted that business?

I think again, Jonathan, we've indicated that our margins are going to be between 23% and 28%. So we ended up the quarter at 27%, which is really on the high side of that. Overall we're pretty pleased with the overall operating margins that we achieved in the quarter.

So I am not anticipating -- I think overall we had good volume. Our volume growth was good across all three of our segments. So it's going to be the mix of the product going forward, but there was nothing unusual in the quarter.

Okay, great. Thanks so much, guys.

Thanks.

Thank you. Our next question comes from the line of Adam Josephson from KeyBanc. Your question, please.

Thanks. Good morning, everyone.

Good morning, Adam.

Congratulations on a really good quarter. A couple questions. Steve, your core sales growth picked up substantially the past two quarters after several quarters of sub-5% growth. What, if anything, would you attribute that, the recent pickup, to?

I think if you look at the first quarter, we had a bit of an easier comparison, because last year's we were actually down a bit in the first quarter. Secondly, I think we've seen the success of our new products coming out.

We're seeing good growth across all three segments. And we're seeing a recovery in the beauty and home segment, particularly in North America, where we had some challenges last year. So I think we still feel pretty good.

I think there's some macro events going on worldwide that may provide challenges as we go through the end of the year. But right now I think our customers are pretty realistically optimistic, if you use that term, going into the rest of 2014.

Got it. Steve, one more on beauty and home. Margins were 7.1%, higher than a year ago despite the FX drag and the start-up costs that you mentioned.

Nonetheless, lower than they've been in recent years. What are your expectations in terms of where that segment's margins ought to be on a consistent basis in the quarters ahead?

I think first of all, I think you're right, Adam, in that we took about $1.4 million charge in the quarter for the start-up costs, and about $1.8 million in terms of transaction costs in Latin America. So both of those had a pretty significant drag on the earnings.

Overall, we do continue to expect beauty and home should be operating in around the 10% segment income side. We expect, we're not going to get there, frankly, in 2014. But we do see progressive growth coming back over the next couple years to be able to get to those levels.

Thanks a lot, Steve.

Thank you. Our next question comes from the line of George Staphos from Bank of America Merrill Lynch.

Good morning. Congratulations on the progress. I wanted to ask you a quick question on beauty and home, maybe segueing on Adam's questioning.

Steve, did I hear you correctly saying that you expected to see beauty and home profitability improve over the course of the year? I took the implication meaning that maybe 2Q you might not be up. I know you typically don't guide for the segments, but I wanted to see if there was anything we should have picked up, or had our antenna up for on that comment.

I think that what we're going to be seeing is we're still going to have some of the start-up costs, particularly related to the new Columbian facility, going into the second quarter. We're going to have a little bit of that.

Again, the European restructuring positive side will continue to ramp up as we go to the second. So I'm positive we're going to be -- I'm very optimistic that we're going to be seeing improvements. But as you said, George, we don't comment on a quarter-to-quarter basis.

Okay, fair enough. We also shouldn't take from your comments any more caution than normal about the second quarter.

No. And again, I apologize if I was giving that inference.

Okay, maybe we just heard it incorrectly. No problem. Secondly, it doesn't sound like the Stelmi capacity -- to say it positively, it sounds like Stelmi's capacity expansion is progressing smoothly.

Could you confirm that? And could you confirm where you are with the rollout? And whether there might be any inefficiencies, et cetera, related to that later in the year?

It's a good question. What we've done is, we're progressing according to the schedule that we put together a year ago.

We have ordered a fair amount of the equipment that we're going to need, and that has about a year lead time. So that equipment has been ordered.

We expect to begin construction of the facility expansions that will be part of this whole capacity expansion during the second half of the year, maybe late second quarter into the second half. Again, I think everything at this point is on target.

One of the other things, George, and I think it's positive for us, we're actually beginning the hiring side. Because we'll need to go through some training as we ramp up our personnel in that area. Those additional costs will be carrying through the second half of the year.

Okay. My last follow-on, if you will, could you comment whether weather had any effect, realizing it's difficult to parse this out, over the quarter? Did you see an exit volume trend in March or early April that was higher? And if so, how did you build that into your guidance? Thanks.

It's a good question. I think the biggest negative we had on weather, we had a shutdown of our North Carolina facility for a couple of days because of some snow. We had some interruptions both in the Northwest and here in the Midwest.

Offsetting those, frankly, Europe had a very good weather period. So we actually were pretty positive over there.

When you look at our sales coming back out, we actually saw progressive increase in sales as we went through the quarter. So we had a pretty strong exit to the quarter in terms of overall revenue.

George, I would add to that, that that's pretty typical for us in the first quarter, as March tends to be one of our stronger months of the year. I would say nothing unusual to read into that. But it was progressively stronger exiting the quarter than heading into it.

Thank you, Bob. I'll get back in queue.

Thank you. Our next question comes from Chip Dillon from Vertical Research Partners. Your question, please.

Good morning. On the Stelmi expansion, could you give us some idea of how, once the construction is completed for the expansion, how long you think it takes that process to ramp up?

In other words, there's a phase of where you're incurring a lot of expense and then there's a phase once you're shaken down, where you fill it up. How should we think about that unfolding over the next few years?

I think you're going to see some additional costs as we get people trained in the second half of 2014. We need to get people on board.

But you're right, we need to go through commissioning all the equipment, getting all that approved with the customers. We think that can occur relatively quickly, so we would expect to see positive results in the first half of 2015.

Then we have to come back and build the sales through there. So there is certainly going to be some additional cost that we're going to be carrying through depreciation, et cetera, as well as labor as we get into 2015.

So we don't have, unfortunately, an exact number for that, Chip. But it will be through 2014 and into 2015, we'll still be carrying some ramp-up costs.

Got you. Shifting gears a little bit, I noticed certainly with the strong stock performance, your employees have been smart to exercise their options. It looks like your exercise and grant ratio is about 2.5% or so of the outstanding each year.

Is that something that you target specifically as you think about the future? That does put pressure on you to buy back at least that much if you want to neutralize the impact, depending how fast they're exercised. Could you talk about how you view that?

I think first of all, we view the equity component to compensation as a critical factor. Given Aptar's worldwide outlook, that the options have been an effective way to get our employees across the world to benefit in terms of where Aptar's overall performance has gone, and basically line that up with shareholders.

If you look at our option grants over the last almost 20 years, we've been pretty consistent at about that 2% rate. We've generally been quite a bit, or not quite a bit, but 3% or so above that in terms of our stock buyback rate.

We've been consistent to that. We consider the equity to be a critical component of long-term comp. It's an area that we'll continue to look at, but each year the Board makes an evaluation as to what they want to do with that.

Got you. Very helpful. Thank you.

Thank you. Our next question comes from the line of Alex Ovshey from Goldman Sachs. Your question, please.

Thank you. Good morning, Steve and Bob. First question, you guys were talking very positively about the opportunity you have in the skin care market with your Bag-on-Valve technology, if I understood it correctly.

Can you remind me about if some of that's proprietary to you? And you also made the comparison to the opportunity that you saw in the sun care market several years ago. How do you see the size of the skin care market relative to the sun care market as this opportunity plays out for you?

Again, I think if you look from ours -- first of all, let me go through the technology. The technology that we have is not necessarily proprietary.

Some of the actuators, or the devices that go on top of the spray site, are proprietary. And those, I do think add quite a bit in terms of how the product performs.

But what we've seen is, starting with the Vaseline Intensive Care on their spray product, people like that. They're actually changing formulas now to be winter formulas, summer formulas. And when you're out there first, what we're seeing is other customers coming to us because we've got more expertise to that.

When you look at the volume, the whole lotion market is probably even bigger than the sun care market overall. What we see is people starting to convert, and we think that's good for us because we offer both sides of that. We have pump products and we have spray.

So I think, again, it's diversity of the product offering that Aptar has. And the ability to meet the customer needs that puts us in a good position to be able to grow with that overall market.

Got it, Stephen. The addressable size of that market and potential profit pool, can you help frame that for us?

Unfortunately I don't have those numbers. I don't have them in front of me in terms of what the size would be.

It's not really a new market for us. If you look at it, it's an alternative for a heavy lotion-based body care type product, for which we have a dominant market share as well.

So it's a trade-off between the typical lotion pump where you have to rub in the cream versus a spray and go. Similar to the sun care, the use-up rate is much higher. Net-net you may end up with greater volumes, or growing volumes, in that category. It's a bit of a cannibalization.

Understand. On the price cost, I think you mentioned it would be a little bit less favorable price resin cost. What's your expectation for the full year? Is that going to be a modest headwind for you in 2014? How should we think about that?

It's too tough for us to guess what it's going to be for the full year. I can give you a little color on Q2.

Last year from Q1 to Q2, we saw a pretty significant decrease in resin. Therefore, because of the lag, we had a pretty good positive last year in the second quarter.

This year, while resin is decreasing, it's more flat-lining. We're not expecting as much of a positive in the second quarter of this year as we were last year. We're wouldn't be able to give you any guidance for the remainder of the year.

That's helpful. Thank you.

Thank you. Our next question comes from the line of Jon Andersen from William Blair. Your question, please.

Good morning, Steve. Good morning, Bob.

Hi, Jon.

One area that stands out in terms of the growth in the quarter, while there was strong growth across the board as you pointed out, is the consumer healthcare business. 27%, I think you indicated. Could you talk a little bit more about the drivers of that growth in the quarter? And the sustainability as we look ahead over the next couple of quarters?

First of all, Jonathan, we have to take a look and compare it to last year. We had a bit of an easier comp to last year.

That being said, we're still pretty bullish in terms of where the consumer healthcare is going. So what we saw is very good growth in the decongestant market.

One of the markets that we've talked about on the call that is actually relatively new for us, is the eye care market. And what our ophthalmic squeeze dispenser today is growing significantly in that category.

We see quite a bit of potential growth, whether it's artificial tears, eye moisturizing type products. Again, we're very bullish in terms of both of those.

Also products in the saline area continue to do well, particularly nasal saline. It's good growth. Again we're against a little bit of an easier comp in terms of where we were in the first quarter.

That's helpful. I think in the press release you comment on new projects coming on over the next 12 months. I'm wondering if there's any more texture that you can provide there.

Is it the level of new project activity greater than you've seen over the past 12 months? Or in line? Any kind of texture there would be helpful.

It's tough to come back until those things get to market. I do think what we are seeing is more new products, or more new projects, with our customers today than we saw, for example, a year ago.

And that is occurring across almost all of our different segments. So we've got quite a few new things. How soon they come to market. And frankly in some cases, particularly in Pharma, do they even get to market, it's hard to tell.

But I do think it reflects a little bit of our customers' more optimistic look to the overall marketplace. It also reflects Aptar's innovative products that we're working with them on, to give them alternative facings in the marketplace.

Great. Just one quick follow-up on Stelmi. The capacity situation at Stelmi, and I understand the investment that's going on now that sounds like will bring on additional capacity in 2015.

But the situation today, is that limiting the growth of that business at this point? Or your ability to take on new business? As capacity comes on line over the next several quarters, could we see growth accelerate there into 2015? Thanks.

Overall, I guess on the Stelmi side, we're not seeing it being a limiting factor in terms of growth. It does sometimes affect our lead times in terms of new product and when we can come out.

Overall we're able to deal with our customers' needs to that side. Certainly as we get into 2015, we would expect to be able to ramp up sales as we add additional capacity. Right now it's not negatively affecting the sales side for us.

Thanks, guys. Congrats on a great quarter.

Thank you.

Thank you. Our next question comes from the line of Chris Manuel from Wells Fargo. Your question, please.

Yes, good morning, gentlemen. Congratulations on a good start to the year.

Thanks, Chris.

Just a couple quick ones. I wanted to follow up on Stelmi, start there. When you bought the business, it didn't have much in the way of sales or revenue here in North America. I believe it was mostly a European-centric business.

I know part of your goal through time has been to expand that a bit. At this point in time, have you begun, or where are you at with, if you can share this with us, commercializing and with customer activity here in North America?

First of all, if you look at Stelmi in terms of their sales here in North America, about 30% of Stelmi's revenue is sold into the North American markets. While it's not as large as what we would like to see in the future, it's certainly not a bad start.

We do have a sales organization in place here selling the product. What we're beginning to see with Aptar's now acquiring Stelmi, we're getting involved in more and more projects here in North America.

Initially we worked with our customers, letting them know that we'd have to be importing these products in from Europe. But given the size of that, it's not a huge transportation issue. We're still working today on a lot of new projects and we see a lot of activity in the North American markets.

Okay, that's helpful. The other element I was trying to get a sense of was, you have pretty good growth rates across many of these segments. You looked geographically as though that was a pretty diverse piece. I think earlier you mentioned weather was good in a few regions.

As you saw some of the growth, how would you characterize the state of the consumer? Do you think that -- you mentioned earlier as well, too, that there may be some headwinds from a macro perspective at the end of the year. Maybe if you can expand on that a bit.

As you look across the customer base today, do you still think that these growth rates are somewhat sustainable over the next year or two? Or is there some concern you have there?

Again, I think when you talk to consumers, it's really very different part in different parts of the world that we operate in. In the US I think the consumer, as well as in Europe, we're seeing that being okay. Consumer continues to, I think, improve somewhat.

There are certainly challenges when you get into Latin America. The consumer is doing reasonably well in Asia. It's different across each of the regions.

I think it's important, though, that when we look at Aptar, our long-term growth rate is at 6% to 8% across all of Aptar. One of the real advantages that I think we view as the Company, is the diversity of what we have. Whether it is product, whether it is market, it is geographic. We still feel that that 6% to 8% long-term growth rate still will make sense over the next several years.

Okay, that's helpful. Thank you.

Thank you. Our next question comes from the line of Al Kabili from Macquarie. Your question, please.

Thanks, good morning. Bob, I wanted to follow-up on the resin adjustment. Is there any way you could help us size up the year-over-year variance that that would have on earnings?

Sure. For Q1, again comparing Q1 2014 to Q1 2013, it had a positive impact of about $1.5 million in the first quarter.

Okay. And then how about on 2Q?

On Q2, what I can tell you is we that we had about a $3 million positive in Q2 last year, comparing Q2 2013 to Q2 2012. We'll see how it plays out, but we're not expecting that same $3 million over last year's number.

Okay, got it. If you could remind us, Q3 is at that point it's sort of a more normalized, or not as sizable of a resin adjustment as we look to Q3 and Q4. Is that fair?

It's hard to say. These are factors that are outside of our control. If you look back the last several years, I think two of the more volatile quarters have been the first quarter and the second quarter.

And then we've seen a little bit more flat-lining or predictability in Q3, and sometimes even a decrease in the Q4. I wouldn't even venture a guess to say that that's the trend and it will continue going on into the future.

Any kind of macroeconomic event in the Middle East or oil or hurricane in the third quarter in the US, any of those things could impact resin pricing going out. It's been a little bit more stable in the third and fourth the last couple of years.

Okay. That's helpful. And then also I wanted to follow-up on the commentary in the European restructuring.

Did I get that right that while you saw some positive contribution there, you weren't yet at that full annualized run rate in the first quarter? So you'll see a step up in the benefit from that in the second quarter? Did I get that right?

We're actually pretty close. If you look at the gross savings we had in the first quarter, it was pretty close to $2.5 million. On an annualized basis, you're right at that $10 million.

We did have about $0.5 million in savings last year in the first quarter. So the net positive Q1 2014 over Q1 2013 was roughly $2 million. But on a gross basis we're pretty close to the annualized basis.

What you've got though, Al, is we will be seeing savings. We still have certain expenses as we move some of the equipment, even into the second. It will continue to ramp as we get through the end of the year.

Okay, good. All right, thanks. And then, Steve, I guess as far as -- I think you had mentioned that your customers are feeling pretty reasonably optimistic on things in general.

I was wondering if you can maybe give us a sense of has there been a change in tone in that regard over the last, say, three months? And if so, any notable variations by geography?

I know you mentioned some caution around Lat Am, but how about in the US and Europe as well? Has that tone improved over the last three months or has it been more or less consistent?

I think it's been more or less consistent. Again, I think if you look at last year, when you looked at our European business, which is really much more of a macro worldwide business given some of our fragrance business and pharmaceutical, we saw our customers continuing to look at a lot of new introductions.

Again, Al, a lot of that has to do with the new products that we're bringing out. So we're seeing a lot of these projects, and frankly the enthusiasm with our customers reflecting what products we're bringing to them to help them come out.

But I don't think it's been fundamental change over the last three months. The only area that we've seen more of a challenge to would be Latin America, where given some of the inflationary issues, our customers are much more cautionary down there today than they were six months ago.

Okay. Appreciate it. Thanks a lot, Steve.

Thanks.

Thank you. Our next question comes from the line of Jason Rodgers from Great Lakes Review.

Good morning.

Good morning.

Would you provide the growth in food and beverage, if you take out the lower tooling sales for the quarter?

It impacted about 1%. It would have taken the core sales from 5% to 6%.

If you could provide some general commentary on acquisitions, the pricing you're seeing, any opportunities that are at the forefront. Thank you.

On the acquisition side, there continues to be several potential companies that either are -- maybe coming to the market or rumored to come to the market. It's an area we'll continue to look at.

Certainly if you look at where the multiples have come back in terms of pricing, they tend to have gone up over the last year rather than gone down. So acquisitions on a whole, on average, would have been somewhat more expensive today than they would have been 12 months ago. But again, we'll continue to evaluate anything that makes sense strategically for Aptar in the M&A category.

Thank you. Our next question comes from the line of Debbie Jones from Deutsche Bank. Your question, please.

Good morning.

Hi, Debbie.

I just want to ask a question about your priorities for cash. And also looking at your annual dividend, it's bit above your targeted payout ratio range that you've had in the past, if you look at 2013 EPS and estimates for 2014.

Can you read anything into this? And how are you feeling about your payout ratio target, given your low leverage levels?

Overall you're right, Debbie. It's a little bit outside the upper end of the range we've been indicating. But I think overall in general, I would say the entire industry has been creeping upwards a little bit.

We're comfortable with being a little bit outside of that range for now. But we'll be pretty close by the time we get to the end of 2014, heading into 2015.

Okay. And then you talked a lot about the volume uptick and looks like you have a reason to be more optimistic about US beauty and home. I'm just wondering, though, in that specific business, are there product areas or trends that you remain concerned about from a demand or utilization perspective that might to continue to negatively impact the business?

I don't think there's anything -- there's not one product that actually can move any of ours. That's one of the things that I think actually helps Aptar is quite a bit of the diversity and even the market diversity that we have in North America. I don't think there's any one area there.

Again, the one plus we see, and I think North America is the leader to this, is some of theses sprayable lotions. And that is seen initially in the US and frankly we think that will continue to expand overseas. But that's probably the one major category that we see a positive going into the remainder of the year.

Okay. Thank you very much.

Thanks.

Thank you. Our next question comes from the line of Brian Rafn from Morgan Dempsey Capital. Your question, please.

Good morning, Steve and Bob.

Hey, Brian.

You were talking about your new project activity. Can you give us a little more granular visibility? Are launches more global in scope? Are they more regional?

Are you seeing still launches in the unit volumes in the millions? Is there any shift branded versus private label? And how many of the new launches are really being driven by some of your new technology, like Bag-on-Valve or bond aluminum plastic?

It's a big question. I think there is some consistency. We're seeing some of our customers doing looking at more worldwide launch and staging those. I think again, it has to do with some of the confidence that they have in the market.

So I would say that there's a bit of a trend to be looking at more worldwide, but they're staged introductions. They're not doing it at one pop, everything in every country.

When you look at branded versus non-branded, that really becomes much more regional. There, that's a regional trend, whether that's Europe, the US, Latin America.

There's no question that we participated in more store brands, if you will, introductions, just because of the growth in that market. What we do see is our branded customers trying to come back and use packaging to differentiate themselves against those store brands.

That's a trend that we've seen over the last couple years. But outside of that, I don't think there's anything that is a major change, certainly over last 12 to 18 months.

Okay. From a 50,000 foot view on Stelmi, can you give us a sense what your new capacity growth will be? Either square footage floor space or dollar sales capacity that you're adding? Can you give us a little sense as to where the global sales would be maybe in 2014 or 2013 versus where you bought Stelmi from a legacy basis a few years ago?

Again, some of that detail I probably am not going to get back into. I can tell you what we've talked about is that the capacity that we're adding, the equipment, particularly the mixture, which is the largest part of what we're adding, we'll add capacity of about 40% to what we had in Stelmi.

Most of that will translate again based on currency to revenue, if we're able to fully utilize that. Keep in mind that we'll wind up ramping that up as we finally bring it on and it's not going to occur from day one to day two. So we'll be looking to do that over a several-year period.

Okay. Steve, what, from your sense, what are you doing from a labor standpoint, number of shifts, how much overtime? There's been a little discussion certainly in the United States on the salary wage about raising the minimum wage.

What do you see globally in wages? And what are you seeing in labor utilization?

First of all, I think Aptar has always been -- when we've looked at labor, we have almost none of our employees that would be at the, quote, the minimum wage level. In terms of a living wage, I think across the world we've been pretty consistent about how we've paid our employees.

Our overtime has to do with where capacity is at and where's demand in the market, and we use that as a lever. If we have a lot more demand, we'll use overtime to try to fill that. So we determine if that's something long term, we need to add capacity.

So in some areas, and in Europe we're seeing this today. We're stretched a bit at capacity as we're adding on new capacity during all of 2014.

So we're adding overtime in those areas. But I think that's just business as usual. There's really nothing usual that we're doing today.

Okay, and then you talked about new products, Steve. You mentioned the word Dairy Splash and then the ophthalmic thing. Is that, the eye spray, is that relative to contact lens also, relative to eye lubricant?

It's going to be actually for artificial tears, anything that has to do with that. The real advantage that we have with that on the eye product, is you do not have to put in a preservative. It gives you a multi-dosing capability without a preservative, which we think is a very big advantage in the market.

The product in the food beverage is a concentrated product to be able to flavor milk. And that just got introduced. You'll see that in Target stores today.

That's a whole new entry into a market that didn't exist prior to about a month ago. So we'll see how that product plays out in the marketplace.

Superb job, guys, as always. Thank you.

Thank you.

Thanks, Brian.

Thank you. Our next question comes from the line of -- it's a follow-up from Adam Josephson from KeyBanc.

Thanks for taking my follow-up. A couple quick ones. Steve, in terms of Latin America, how concerned are you about the inflation, currency devaluation, et cetera, occurring in those markets on a longer term basis, if at all? And how does it affect your approach to that market, appreciating that Latin America is not just one market?

First of all, I think we've been committed to the Latin America market for years. This isn't the first time they've gone through some of these challenges.

It's something that we have to watch very closely, though, in terms of how we pass along additional costs to our customers, how we manage cash in the region. So it is a concern of ours, but it is certainly not one that we would come back and go, we're going to exit the market.

So I think you made a very good point, Adam, when you talk Latin America, you have a lot of -- Argentina is not Brazil. So we see different challenges in each of the markets.

But overall, we still see very good growth coming out of the key markets. But it's one that we're paying a lot closer attention to, to manage all of those cost challenges that we have today.

I think one of the things that we will continue to do is, we'll continue to invest in Latin America to get more production locally. To help at least offset some of the FX impacts on some of the imports on what we're bringing into the region today.

That will be a continued focus for us, is to continue to roll out localized production. So that's one area that we're doing to help offset at least part of those impacts.

Thanks, Bob and Steve, for that. Steve, one more on beauty and home. I know you talked about this in your prepared remarks and elaborated since.

Can you talk a little more about the beauty and personal care markets that boosted beauty and home in the quarter? How much of that pick-up was specifically attributable to skin care, with the sprayable lotion and the like? How sustainable do you expect that pick-up to be based on your product pipeline?

Again, it's difficult to break those back down because everything is a piece of a much bigger puzzle. Again, I think in beauty and home, we did have a soft quarter in the first quarter of 2013.

That being said, and I think even in my prepared remarks were, we're still optimistic we're going to see sales growth in beauty and home. And even more importantly, seeing improved operational results as we go through the year, for the efforts that we're doing, both in Europe, but also here in North America where we had certain challenges back in 2013.

But it's difficult at this point to give you a lot more color as to all the specifics. The good news is for us, we're growing both in personal care and in fragrance. It's pretty broad based in terms of the growth.

Thanks a lot, Steve.

Thank you. Our next question is a follow-up question from the line of George Staphos from Bank of America Merrill Lynch.

Thanks, hi, guys. One bigger-picture question. Every quarter, or probably every other quarter, one of us will ask you the question, are you seeing more impact from competition in your markets? And the usual answer from the Company is no.

When we talk to some of the other companies who are in the market or hear them present, they will often cite specifically Aptar as somebody who they emulate. Or certainly the products, the approaches that they're taking are very similar what Aptar has done over the last 20-plus years.

If you're not seeing them make any more, if you will, penetration in the market, you're clearly doing something right. Has the way you've gone to the market, have the things that you've been doing to maintain your market share and grow, have they changed at all relative to what would have been the case, say, five or ten years ago?

From where we sit, anyway, it does seem like there are a greater number of larger companies trying to get into markets that Aptar has had a strong hold on. Thanks, guys and again, good luck in the quarter.

Thanks, George. First of all, I think if you look back five to ten years, I think Aptar has changed a bit of how we've looked at the market.

We were, I think, five, ten years ago more of a product-focused company. We had closures, valves, pumps.

Today we're much more market focused. And I do think, and I think to some degree, some of our competitors are trying to copy that.

We first look at the market, and then even the sub-market, to understand the consumer needs. And as a result, being able to work with our customers to meet those needs.

I think that is a very key differential that is helping us bring more innovation to the market and bring us into markets that we weren't in in the past. You look at some of our food and beverage applications, whether it's orange juice or others, we weren't even in those market two or three years ago.

In terms of what we do, it's always been very competitive. For us it's staying close with our customers. Yes, there's a lot of competition, but I think what we do we do really well.

I can't give you much more than that, George. It's always been a challenge, but I think when you focus on the innovative side of dispensing, it's really helped us long term. We think that strategy works for us going forward.

Steve, do you think long term that that basically -- you're obviously maintained your core growth rate forecast to one of your earlier questions. Do you think the new approach and that mix of competition means that margins longer term might not necessarily keep up with revenue?

Or no, you think you still have the same ability to improve margin or return on capital like you've done over the last number of years? Through the new approaches that you're bringing, market focus, et cetera, more productivity-driven, certainly as well, within the confine of my vantage point over the years.

Yes, I think that we're still very confident that we can continue to improve the margins to the levels we've talked about. And the other thing that I think we like to do and look at, as we've got to these new markets, is potentially new products that we might be able to offer.

So we have looked at other things that are in the dispensing areas and we might be able to offer those, the better we understand the market needs from the consumer in different market sections. So that, I also think will add to the future growth of the Company, is we'll become broader in the product portfolio that we're going to offer in the future.

Okay. Thank you very much. Have a good quarter.

Thanks.

Thank you. Our next question is a follow-up from the line of Brian Rafn from Morgan Dempsey Capital.

Yes, Steve, you talked about core sales growth, 6% to 8%. Do you see going forward the next few years, is that primarily centric on unit volume? Or do you see pricing inflation creep into some of that support?

Most of that, Brian, would be volume for us. Certainly you have pricing. I'm assuming today that inflation is relatively mild and we get that 6% to 8%.

If you have 20% inflation, certainly those numbers will adjust. So those tend to be inflation-adjusted. And it's mostly volume. You do get a little bit of a mix impact, but it's mostly volume.

Okay. And then in the cosmetic fragrance side, what are you seeing in that specific market? Is there strength both in the high-end premium fragrances versus some of the lower-brand, economy brands? How do you see that market relative to levels of quality?

Again, I think we'll flip that a bit. I think in the fragrance market, we've seen pretty good strength. Not as strong maybe -- that's in that, let's say, 3% to 4% on the fragrance side, both in the upper end, call it the prestige side as well as the mass side.

On the cosmetic side, which would be the lotion, we're seeing probably much higher growth rates. Because I think there our customers are using that as a differentiating feature.

Again, we're seeing that both across both skin care, and I mentioned that in the prepared remarks, skin care on the facial, both body care. Again, we're seeing both of those continue to grow, but at a faster rate than the perfume or fragrance side of our business.

Okay, thanks, guys. Appreciate it.

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.

Again, I would like to thank everybody for participating and we look forward to talking to you next quarter. Thank you.

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