Aptargroup Inc (ATR) 2014 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Aptargroup's 2014 second-quarter conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session.

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

Thank you, Nova, 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 and year-to-date 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, and good morning, everyone.

Yesterday Aptar reported record second-quarter revenues and record earnings per share. Demand for our industry-leading innovative dispensing solution was broad-based, and sales increased across each of our business segments. We grew in each geographic region with the exception of the US, which we believe was tied to consumer softness that caused certain of our customers to be cautious.

Our earnings in the quarter were negatively impacted by several factors, including the softness we experienced in the US, a smaller resin pass-through benefit than in the prior year, and negative currency effects in facility start-up costs related to our Beauty and Home segment's Latin America operations. However, offsetting these headwinds was the positive effect of volume increases in most of our markets, savings from our European restructuring initiative, and a lower effective tax rate.

I'd like to give you a few brief comments on each business segment, and then I'll turn it over to Bob to review the financials. In spite of certain challenges, our Beauty and Home segment reported core sales growth of 3%. After a strong start to the year, demand from the US personal care market was weak in the quarter. Offsetting this softness was good growth in other regions, especially in Asia, that was driven by increased demand for our body care and skin care categories.

As I mentioned previously, profitability was negatively impacted by the softness in the US, weak currency conditions, and facility start-up costs in Latin America, and less benefit from the resin price adjustments compared to the prior year. We continue to participate in a wide variety of product introductions.

In Europe, Unilever and L'Oreal recently introduced several new hair care products with our stylish serum pumps. In Latin America, we created a custom dispensing closure and custom lotion pump for Natura's line of skin care. In the US home care market, we've introduced a new line of cleaning solutions that was introduced with our dual spray valve actuator.

Looking at our pharma segment, sales and profits increased over the prior year, driven by increases in the consumer health care and prescription drug markets. We continue to grow in the eye care category, with our unique ophthalmic squeeze dispenser that allows preservative-free treatments in an easy-to-use package.

Demand was also strong for our meter-dose inhalers, which deliver asthma medication; and for our nasal delivery systems that deliver pain medication. Sales to the injectables market decreased in the quarter due to lower custom tooling sales, and an isolated inventory de-stocking situation in the US. The fundamentals for this market continue to be very promising.

We participated in several new customer product introductions in the quarter. We're particularly pleased with our growth in the Latin America consumer health care market, with introductions both in the opthalmic and the nasal saline categories. Also in consumer health, our spray pump was featured on a new cough and cold relief product in Europe.

In the prescription drug market, we continue to do well in the generic space. In the US, Perago introduced a new generic allergy treatment; and in Europe, the French health authorities recently cleared a generic version of Nasonex. Both are equipped with our proven nasal spray pumps. Also, the FDA recently approved a testosterone gel that will be delivered intra-nasally with one of our dispensing systems.

Now turning to our Food and Beverage segment, this segment also had a good quarter. Segment sales and income increased in the quarter, as strong demand for our leading dispensing closures, particularly from the beverage market, drove growth. We are also encouraged by further penetration in the developing regions in both Food and Beverage markets.

Looking at some new products on the market, first in the food market, in China, Abbott introduced a new package for its Similac infant formula with our customized closure that features a bi-injected elastomer sealing ring. In Latin America, Unilever expanded their line of Hellmann's condiments using a no-drip inverted closure.

In the beverage market, in Europe, we leveraged our pump technology to further penetrate the concentrated flavorings category. [Rythmic] converted the packaging of a leading concentrated liquid flavoring to a more user-friendly package that utilizes an Aptar pump. We also participated in several new flavored water and nutritional drinks for children in the US, Asia, and Latin America.

Summarizing our year-to-date performance, it's been a good first half, with core sales growing in each business segment, and market and geographic region. I'm encouraged by the growth in newer market categories such as infant formula, pain treatment, and ophthalmics. We also continue to take successful solutions from one region to another, such as the infant formula launch in China. And also with liquid concentrated flavorings in Europe and skin care in Asia and Latin America.

Looking ahead, in the upcoming quarters we expect that our segments will grow over the prior year. Our Pharma and Food and Beverage segments are expected to continue to do well, while our Beauty and Home segment also has many opportunities to improve, but it's also going to face some ongoing challenges in Latin America due to the currency situation and the economic uncertainties there.

We've taking steps to improve our operational efficiency in our Beauty and Home segment in light of the recent US softness, and are further focusing on cost containment and price adjustments where possible in order to improve the profitability for this segment. There continues to be an encouraging level of project dialogue with customers, and we're excited about the opportunities to expand in existing market categories, and also to enter new ones.

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

Thank you, Steve, and good morning, everyone.

As Steve mentioned, we had another quarter of broad-based growth. Reported sales increased 5%. Changes in currency rates added 1% to our sales growth in the quarter, and therefore core sales before currency effects grew 4%. We also reported quarterly earnings per share of $0.79, our highest level ever. This compares to $0.70 in the prior year, when charges related to the restructuring plan of $0.04 are excluded from the prior-year results.

Cash flow from operations this quarter totaled $78 million, compared to $84 million a year ago. Capital expenditures this quarter were approximately $44 million, compared to approximately $37 million in the prior year. Therefore, free cash flow, which we define as cash flow from operations less capital expenditures, was $34 million in the quarter, compared to $47 million in the prior year. At the end of the quarter, on a gross basis, debt to capital was approximately 27%, while on a net basis, it was 13%.

Regarding our share repurchase program, we spent approximately $40 million to repurchase 600,000 shares in the quarter. This brings the remaining balance of shares authorized for repurchase to approximately 3.2 million.

Turning to market details by business segment, our Beauty and Home segment's core sales increased 3% over the prior year. Looking at our markets on a constant-currency basis compared to the prior year, sales to the beauty market increased 3%; sales to the personal care market were basically even with the prior year; and sales to the home care market increased 17%.

Our Pharma segment's core sales increased 4% over the prior year. Looking at their markets on a constant-currency basis compared to the prior year, sales to the prescription market increased 3%. Sales to the consumer health care market increased 11%, and sales to the injection market decreased 3%.

Our Food and Beverage segment's core sales increased 7% over the prior year. On a constant-currency basis, sales to the beverage market increased 11%, while sales to the food market increased 4%.

Looking at core sales, excluding currency effects on a regional basis, Europe was up 4%, Latin America grew by 11%, Asia was up 24%, and sales in the US declined 5%. I would like to point out that the devaluation of the Latin American currencies was significant again this quarter, and our Latin American sales on a US-dollar-reported basis actually declined approximately 4% from the prior year.

Looking at our year-to-date results, we reported first-half earnings per share of $1.49, compared to $1.40 in the prior year, when charges related to the restructuring plan of $0.09 are excluded from the prior-year results. Cash flow from operations for the first six months of the year totaled $110 million, which was equal to the prior year. Capital expenditures for the first six months of the year were approximately $87 million, compared to approximately $72 million in the prior year. Therefore, free cash flow was $23 million, compared to $38 million in the prior year for the first six months.

Looking forward, we continue to expect depreciation and amortization for 2014 to be in the area of $160 million, and capital expenditures to be approximately $190 million, which includes the $26 million related to the Aptar Stelmi expansion project that we announced last year. I would also like to point out that these amounts could vary depending upon changes in exchange rates.

For the upcoming quarter, we expect earnings per share, using a 35% effective tax rate, to be in the range of $0.72 to $0.77 per share, compared to $0.67 per share reported in the prior year, or $0.70 per share after excluding the negative impact of $0.03 per share from the European restructuring plan.

As mentioned in our press release, we are in the process of implementing a legal entity reorganization for our non-US subsidiaries that will allow greater financial flexibility in the future. As a result of this legal entity reorganization, we expect to record a one-time tax expense in the third quarter of approximately $3 million, or $0.04 per share, which is not included in the guidance given.

The impact of this one-time tax expense is expected to increase the effective tax rate in the third quarter to 39%. We anticipate that our full-year effective tax rate, including this one-time tax expense, will be approximately 35%.

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

(Operator Instructions)

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

George Staphos, Bank of America.

My questions are this, in sequence. Could you give us a little more color, in terms of why you saw some sluggishness in personal care in the US? The related two questions, was any of this related to some de-stocking that your customers needed to engage in, perhaps, and how would you rate your customers' inventories, overall. Lastly, that one-off on de-stocking at Stelmi, if you could provide a little bit more color on that and why you think it's behind you? Thank you.

In terms of the personal care market, George, first of all, I think we have to come back and take a look at the first quarter. We were up -- in the US, we were up over 10% in the first quarter, which was quite a bit higher than we had originally anticipated.

I think we actually had some sales -- actually some sales to our customers in the first quarter that probably related to product being sold in the second. That had -- I think you have to balance the first and the second quarter for us. That being said, what we have seen is some consumer demand in the US still being a bit soft. I think our customers are being very conservative with the inventories.

When you talked about the de-stocking in the personal care side, what we're hearing from our customers is there was a little that, but I don't think that was a large factor. I think it was more of a first, second quarter sales split for us, rather than a pure de-stocking.

When I look at the Stelmi -- and I think that's a good area. Again, we were up about 6% in the first quarter with Stelmi year on year, after a very strong year last year. When I look at Stelmi this year, we were down about 3%, 2% of which was from tooling sales. But the de-stocking really occurred in one customer. We've gone back, in terms of that one customer in the US, they had basically built inventory for what they had a launch scheduled for that didn't occur. We think that is temporary, and we haven't lost any market share to them.

Okay. Thanks, Steve. I'll turn it over.

Adam Josephson of KeyBanc.

Steve, just to somewhat follow up on George's question with respect to economic conditions, outside the US, have you experienced any notable changes of late? I know you called out South America as being uncertain in your Beauty and Home business for the third quarter. Anything beyond that?

Yes, it's a good question, because I think if you go outside the US, we've been pleasantly surprised this year by the strength we've seen in Europe. Europe, for us, is still doing particularly well. I think as you get into the quarter, we were up around 8%, 9% in the first quarter, and still did well in the second quarter. When you look at Latin America, as you pointed out, that's where we saw softness. Our customers were expecting a bit stronger impact from the World Cup area, with people traveling. That seems to not have taken place.

Then as we get back into the one bright spot for us has been Asia. That's gone across all three segments. We're up double digits across both Pharma, Beauty and Home, and Food and Beverage. We're seeing really good growth in the Asia market. That's particularly encouraging as we're getting into new applications, like in Food and Beverage the baby formula that we just entered with Abbott.

Thanks for that, Stephen. Just one more on your core sales growth outlook. Your core sales growth was 4% in the quarter, obviously on a 4% comp from a year ago. The comps get -- the comp is similar in the third quarter, and considerably more difficult in the fourth quarter. As a result, would you expect your core sales growth to decelerate over the balance of the year, particularly in the fourth quarter?

No. I think right now, as we look out -- and again within the earnings guidance, we're anticipating the core growth will still be in that 5% to 6%. It's a bit early to talk on the fourth, but we are seeing no indication we should be pulling back from those levels.

Thanks a lot, Steve. Appreciate it.

Chris Manuel, Wells Fargo.

This is actually Gabe on for Chris. A question with respect to the competitive landscape. I guess with a couple of assets changing ownership, and in the context of lower demand here domestically, has there been any change in the competitive landscape that you've noticed good or bad? If so, what product lines or geographies?

I don't think there's anything as a result of the most recent transaction. I don't think there's anything specific that's been out there. It's always been a competitive landscape for us -- probably as much or more so in our Beauty and Home, and even in our Food and Beverage segment. But I don't know that the acquisitions have had a major impact to that.

We gauge very closely what market shares we have. I'm pleased that we've been able to maintain the market shares we've had in these markets going forward, despite the change in, say, the competitive landscape over the last six to 12 months.

Okay. One other one with respect to the European tax restructuring. Will this prompt any sort of administrative restructuring down the road, and/or higher cost incurred here in the short run?

No, Gabe. Again, what we're trying to do is really align all our non-US subsidiaries in a single ownership change -- single ownership chain, rather, which isn't really the case today. We've got the majority of our legal entities today which are held in France, and we've got some of them outside that are also owned by the US. Really, it's just aligning them in one chain to be able to be a little bit more flexible with centralized cash pooling, and the re-deployment of that cash when needed.

Thank you.

Alex Ovshey of Goldman Sachs.

On the Food and Beverage segment, we've seen nice organic growth in the top line, but hasn't translated into improvement in the operating earnings. I know part of that is the start-up costs. Can you maybe just talk about the impact to the cost line in the Food and Beverage segment, and when should we expect the favorable top line to translate into growth in the operating earnings line there?

I think actually, Alex, we are extremely pleased right now with Food and Beverage. We have had a targeted margin profile for them of 12%-plus. You'll see in the quarter we're almost up to 14%. Part of what you've got is a very strong comparison to the second quarter a year ago.

As we look forward with the new product introductions, we still see continued excellent growth, and frankly, much more margin acceleration as we go forward. I think the new products that we've got and the new product categories that we're entering, not only here in the US and Europe but across the world, are really benefiting that segment in terms of its growth profile.

Okay. Got it, Steve. Then on share buy-back, is there an update that you have in terms of what we should expect the buy-back to be for 2014?

Right now we're continuing pretty much on the pace. We've been acquiring in the area of about 2 million shares per year. We're on that pace. That is an area that the Board continues at each of our Board meetings to evaluate. Do we want to do more in that area? How do we want to look at it? I'd say right now there has been no announced change, but it's an area that we need to consider quarter to quarter as to what we're going to be doing.

Got it. Thanks, Steve.

Mark Wilde, Bank of America -- sorry, Bank of Montreal.

Much better. (laughter)

I thought you had moved again, Mark.

Again? No. I don't move very often (laughter). I have a couple of questions. One is, can you give us some sense of what's in your third-quarter outlook in terms of resin expectation, either positive or negative? The other question I had, Steve -- one of your competitors has talked about moving capacity down into Brazil. I just wondered if you're seeing any impact from that so far?

First of all on the resin side, at least our projections are showing from the second quarter going into the third quarter -- let me first deal with that kind of sequentially -- that we're seeing a mostly flat to slightly down potential in the US, and a slight up-tick in terms of resin cost in Europe. When I compare that on an overall basis, it's relatively flat. If I compare that to where we were a year ago, we haven't seen, at least in our forecast, a material change in how resin's impacting our third-quarter results compared to a year ago.

When we look down at the -- on the competitive situation in Brazil, we still have a very significant -- we are the largest player in the Brazilian market in the fragrance-cosmetic, where this particular competitor is looking to target. At this point, we haven't seen any material impact from them coming. They've always been a player down there somewhat, any how. It's still taking some time to get up and running. It's going to be I think a while before they are up and running 100% in the Brazil market. To date, we've not had any major impact to that.

That's helpful. Thanks very much, Steve.

Jon Andersen, William Blair.

First, where are you now, in terms of the European restructuring savings? Have you hit a run rate level, and what is that at this point?

We're pretty much on target where we had hoped to be. We're probably a quarter behind in terms of what we would have actually wanted to be. In the quarter we had a savings of about $1.3 million, compared to year ago. But also keep in mind we were starting to get some savings a year ago. In total, we're probably closer to $1.8 million per quarter. Our target is to be at a $10 million run rate by the time we get to the end of the year. We're going to be pretty close to that by the time we get to the fourth quarter.

Great, thank you. On the beauty and home margins, I understand that FX and the start up costs were about a $2-million headwind in the quarter. How far along are we in terms of being able to absorb the start-up costs in Latin America? How do we think about that impact going forward?

The start-up costs themselves were about $1 million. You're right, currency was about $1 million in the Beauty and Home side. When we looked at Colombia, which is where the start-up cost is coming, we're really pleased that we are actually starting shipments in May of 2014. We've started the shipments, so we would expect those start-up costs to be going down pretty rapidly as we get into the second half of the year. We'll still be carrying some of those in the third quarter, but they will be less than the second, and again, less by the time we get to the fourth quarter.

Excellent. A last question. You mentioned infant formula a couple of times as an example of a new category, and also success in terms of leveraging an offering across geographies. Is the infant formula product in China, is that similar to the one that I think you participated in the private label market here in North America, or there are modification that you've made to that? Are there opportunities that you are seeing beyond the existing business you've established there? Thanks.

Again, it's a great question. A couple of things on the infant formula. One, this was our first move with infant formula into a branded market. Before we were with Perago on house brands here in the United States. The package itself is similar but different. The designs are different, and incorporate different features and benefits. I am really excited about it in terms of our business. We were able to leverage our design capabilities here in the United States and coordinate an introduction of production in China, which is no small feat when you're coming across.

I also want to point out that frankly, with Abbott, Abbott actually opened a new facility for this. Not only did we need to work with them on the product, but they needed to get through the whole new facility side. A tremendous amount of project management side, which I think in this market it's particularly exciting because it's a growth market. It's a converting market from cans back into more plastic. We see a lot of hope for additional transition in this over the next couple years.

Great. Thanks for the color, guys. Good luck.

(Operator Instructions)

Albert Kabili of Macquarie.

First question is on Beauty and Home. It sounds like now you expect in the upcoming quarter year-on-year improvement. I'm wondering what drives the improvement in trends, sequentially there. You mentioned some cost actions and some pricing. Is that the driver, or do also expect volumes to start to improve?

That's again, Al, it's a good question. Let me come back and try to deal -- I think it's a combination of factors. First, we expect the start-up costs we had down in Latin America, as I said, to continue to go down, so that should have a benefit. Right now our projection's showing a stabilization of currency. It's not getting better in terms of that in Latin America, so we're hoping that will also help.

The other side, frankly, North America for us was a disappointment in the quarter. We've made some operational changes there. We've changed some leadership in our North American team. We're right now taking a look at labor cost, and have initiated some very strong actions within labor, and looking at significant ways to cut inventory and other cost out. Both of those -- all those efforts, frankly, will have an impact as we get to the second half, and we'll hopefully start seeing that in the third. But certainly, we're going to have a major impact as we get to the fourth quarter.

Okay. Is there any way to size up what the benefits might be from some of the cost actions you're doing in North America?

Right now we haven't put a full dollar amount or disclosed that, because part of this, as you said, we have to be pretty flexible in terms of where the market is. Our customers, we actually had a reasonable strong end of the quarter in terms of demand. We'll have to see how that is going to play out of we get into the third quarter. We've got to be a bit flexible on those labor costs, to be able to deal with demand spikes that our customers are having.

Okay. Last question is on the -- I think you mentioned 35% tax -- adjusted tax rate for the third quarter. With the legal entity change, can you help us with if there is a material impact on your total corporate tax rate, or how should we be thinking about the long-term tax rate?

Sure. With all the recent increases in tax rates that we've seen, primarily today in France -- again, what we're doing is more for a facilitation of cash pooling and re-deployment of some of those resources. But I think this will also help us to keep the tax rate in that 33% to 35% range long term. Absent of any restructuring, I think you would have seen the tax rate gradually continue to increase. It's more of a long-term maintenance, if you will, of that 33% to 35% tax rate, rather than it is a full decrease in the tax rate compared to where we are today.

All right, that's very helpful. Thanks, and good luck the rest of the year.

Debbie Jones, Deutsche Bank.

You guys mentioned growth in China. I'm just wondering if you are able to give some thoughts on the opportunities you see there, and how fast are the markets growing that you have exposure to? What type of investment are your customers making in these regions?

Well, I think a couple of things that are going back. Let me try to take a couple of those, because I think you've got a pretty broad base. One of the things we've been encouraged with our growth recently in China has been now to what I would call that one tier below the multi-national. We're starting to deal with some of the stronger local Chinese companies, and that's really accelerating the growth.

The market growth for us is probably double-digit across most of the product categories. But what's encouraging is we are not only serving the multi-nationals there now, we are now also serving that top-tier of Chinese customers, which are continuing to use our products to expand sales of theirs. That's been particularly successful with us.

Again, we tend to be optimistic across our different categories, whether that's Food and Beverage, Beauty and Home, and most recently, even our Pharma business has continued to do well, serving both local Chinese for that local market, and then generics that are being produced in China to go back to the Western markets.

Debbie, you also mentioned investments in our customers' investments. I think Steve alluded to a very important fact with the evidence in formula. We are seeing our customers also invest locally in the ability to use, and our products impact them on their lines.

Abbott building a new facility is clearly a very strong indication that they are there, and other customers are doing much the same, whether it's converting bottling lines to adapt to our closures for the beverage market, or even in the Pharma market. They are -- we are seeing co-investment, as well, from our customers, which is always a good sign.

Can you give a sense on how your margins in this region might compare to the rest of your portfolio, or your return on investment?

Yes, I think in terms of margin profile, today we're actually in China, we're pretty much comparable or above, in some of our cases, margins we have in other areas of the world. We've now got -- we're now back to a more sizable mass in terms of being able to supply the market. What we're seeing is in terms of growth, it's falling pretty much to the bottom line in the same margin profile we have today across other parts of the world.

That's helpful. I wanted to get one follow-up on the resin commentary you made earlier. I know there is a differing in trends between Europe and the US. Can you just remind us, what is your split between your exposure to resin in the US versus Europe? Obviously polymer or polypropylene costs have gotten a lot higher in Europe recently. I'm trying to understand going forward how to look at the projections and how that might impact you?

I think our buy, because we have a different product portfolio between Europe and the States, were probably 50%-50%. I don't think it's much different than that in terms of our buy. We have more closures here in the United States, and we have more pump products that have less resin content in Europe. If you blend those, Debbie, it tends to be almost a 50%-50% split, if you just look at the US and Europe. Then again you've got certainly China and Latin America we've got to consider; but those are the two biggest spends for us.

Okay, great. That's helpful. Thank you very much.

Brian Rafn, Morgan Dempsey.

Give me a sense on what you guys are seeing -- new product line launches, geographic scope, maybe volumes of launches, and if there's any retardant that you are seeing or hesitation from your US-based multi-nationals?

I think right now, frankly, our customers -- I think this is one of the encouraging things, Brian, that I'm seeing is our customers are working on a lot of projects. If I look at the number of products introduced by our customers, even in the quarter, for the second quarter, it's one of the largest that I've seen in the last five to six years.

I don't think there's been a major change in how they're looking to introduce. We see, depending on the customer, both regional and world-wide launches, depending on where the product is. If you're in the food market, you're getting much more regional launches than you would in the fragrance market, which is much more world-wide. That's very dependent. I think right now our customers are also of the view they need to continue to look at how they differentiate themselves on the shelf, and they are looking at convenience as a critical way to be able to do that.

Can you talk a little bit about the perfume, cosmetics and fragrance? Maybe what you see globally, maybe high end versus low end? I know that tends to tie in a lot with the Christmas holiday season and we are a little early in the year. Give us a sense of what you see in that area?

I think a couple things -- let's take the fragrance, cosmetic, and the prestige side. Fragrance for us has done okay. We are seeing growth there. But we are seeing excellent growth on the cosmetics side. There, that's a double-digit growth. More people in terms of skin protection, eye protection, different serums being used. On the prestige market, that has been a growth -- Asia, US, Europe and Latin America.

Where we have seen a bit more softness -- and frankly, if you look at our customers like Avon, the mass market has been a bit challenged with Avon's most recent financials. That hasn't been as strong this year as it was last year.

Okay.

That's probably the best I'd give you in terms of (multiple speakers.)

Yes, okay. Give me a sense, when you look at things like the Winter Olympics, the World Cup, do these episodic events from a world standpoint -- do they impact any of your markets like Food and Beverage, or are they really a non-event?

I would tell you our customers probably had higher expectations for the World Cup -- both particularly in fragrance and cosmetic and in the food-beverage side. I think in terms of use it was okay, but it wasn't as big as what they initially projected. Generally those things will be new product introductions, there's more activity. But this year I think the World Cup, given some of the pre-negatives that were going, didn't have as much.

The other side, frankly, is the Latin American economy. I mean that across not just Brazil, but it hasn't been very strong across a lot of the Latin American countries. That's had an impact on the consumer spend.

Let me just ask one more. From the standpoint of your penetration in the infant formula, two questions. One is, are there piracy issues with that being in China? Two, does the design in the infant formula area at all segue to a penetration and getting in the US the milk boys to get going on something with your product?

First of all, I think the piracy issue -- one of the reasons our customers are working with us is exactly that. This is a dedicated design on this Abbott product in China to them. Certainly we're not producing that for anybody else. I think one of the reasons Abbott works with us is the integrity of that supply chain that we are giving them.

In terms of add-ons to that, we are looking in the baby formula. We are also doing things, Brian, in yours -- back to concentrates for milk which is flavorings for milk. We're doing more in the creamer markets. That whole dairy side for us is seeing more applications, and we're continuing to enter step-by-step into more application fields within that dairy market place.

Thanks guys. Good job.

Ghansham Panjabi, Robert W. Baird and Company.

Hi, good morning. It's actually Mehul Dalia sitting in for Ghansham. Given that the de-stocking is behind you now, do you expect core sales in injectables to rebound in the third quarter?

Right now we're still positive on where that's going to go. Whether that's going to be a full back to normal in the third or the fourth, that's going to be hard to tell. We are getting through the de-stocking with the customer and we would anticipate that picking back up. It will be between the third and the fourth quarter.

Okay, great. Are you seeing any pick-up in promotional activity by customers in the Food and Beverage market at all?

In promotions, the things that we would see would be mostly advertising. There's not sampling in types of products generally in the food-beverage side. What we are seeing is continued expansion into new categories for us in that area. That we're seeing.

The other side, you're continuing what I think is encouraging. You're seeing in the advertising, even in the advertising, they are showing the different packaging forms as a way to try to tell the consumer it's a better product. We're in effect getting our products highlighted as they go through either print or media advertising.

Great, thank you.

George Staphos, Bank of America.

Some questions on Beauty and Home, just to finish up, at least from my side. I want to make sure, and I think you were answering Al's question earlier -- are you suggesting that Beauty and Home will be up year on year in third quarter, or that it will be up sequentially in the third quarter? I just wanted to make sure if you are providing any specific guidance there?

I think it's going to be more sequentially that we looked at as we get through the year. We've been focused more second half than we are quarter to quarter. We would expect to be able to continue to build from where we are at today, sequentially, over the remainder of the year.

Okay. Thanks for that, Steve. The second question related to Beauty and Home is this -- now you were suggesting that -- you were stating that the weakness in 2Q was really driven by consumer softness. If I would editorialize, things not were initially in your control, just the market was weak. Would you agree with that?

To some degree, that's true. But I will also tell you we had some self-inflicted wounds.

Okay, well let's --

We didn't -- pardon me?

Go ahead.

We didn't operate in North America as well as we should. That's what I'm saying, is we've done some things to be able to try to deal with that, whether that is in terms of personnel, leadership issues, and we've put in significant programs in place to try to deal with those. Yes, it is a market issue, but I don't want to come back and tell you, George, that's 100% of it.

Okay, that's what I was going. Because if it was just a market issue, it would seem like the organizational changes you were talking about would be bringing a sledgehammer to hang up a picture.

The last question would be, and I'll turn it over -- given that Aptar has been in these markets in North America in Beauty and Home for a very long time, and clearly you have a global platform. Your business is ultimately doing well on a broad basis. I don't want to overly focus here. I'm surprised that you're finding ways now to become even more efficient and organizationally effective within Beauty and Home in the US. If you could give us a bit more color about what you found that you could do better, that would be helpful. Thanks, guys. Good luck in the quarter.

George, I would tell you that what we did, I think we lost sight of the ball for a while. It wasn't that we weren't -- I think we added costs that we didn't need to add. It wasn't that we've come back and started to do things different. I think we added some costs that when you looked at the business, we probably need to come back -- we needed to re-assess.

That's what we're doing today. That's what's had the negative impact on the results. It's not that we changed and have done something different. We're going back to really what's made us successful in the past, and really re-focusing on the business. Again, that to me -- that's more the truth of where we're at.

Understood -- and no share loss? Maybe last question there. You haven't seen any evidence of share loss in that market, or have you?

We haven't seen a share loss, and we track that pretty closely. I will tell you there's been some changes in some of the markets, whether it is sun care -- depending on where those are at, there's been some movements in those markets. We've kept our share of all of those markets -- the best we can do and the market knowledge we have.

All right. Thank you.

Adam Josephson of KeyBanc.

Thanks for taking my follow-up question, Steve. You obviously remain significantly under-levered compared to your peers, and that's been the case for a long time now. Do you have any desire to change that in the foreseeable future regardless of whether you find a large deal that attracts you? I ask this, given that many other US companies have been highly acquisitive of late, and they've been using low-cost debt to finance these acquisitions.

I think, to ours, the needs or the uses of our cash, Adam, continue to be focused both first for internal expansion, second for the dividend -- second for acquisition, dividends, and then share repurchase. But you're right. We continue to look at the balance sheet from a leverage perspective. We're looking at deals today in terms of strategic adds that we might be able to come back in. One of the things, I think, is challenging in today's market because of where some of the interest levels are. Some prices being paid are somewhat hard for us to understand where some of those prices -- how they get value from that. We'll continue to be disciplined in the acquisition side.

That being said, and as I mentioned earlier in the call, the Board looks at share repurchase, realizing that we are under-levered. We are not arguing that we want to stay at these leverage levels. We want to come back and consider how we want to move those back up on a reasonable basis over the next -- over the next year or so.

Thanks. Just to your question about multiples being -- to your comment about multiples being paid. Does it kind of hearken back to 2007 levels? How would you compare what's happening today to previous periods you've experienced?

My concern is -- and I tend to be somewhat of a fatalist to this -- I think I've lived this story before, where all of a sudden there is no cost of debt. Everybody can borrow money. Those tend not to have always good endings.

We are seeing quite a bit -- there's a lot of money on the sidelines, because there's no other place to get yield right now. As a result, everybody needs to become investing. What we want to do, as we did in the 2007, 2008 period, we want to acquire strategic assets. We are going to be in the market. But frankly, we can't just go out and pay what I would say would be uneconomic prices for that.

Totally understand. Thanks a lot, Steve.

Chris Manuel, Wells Fargo.

One follow-up. Actually, on a couple lines First, a little bit with the Pharma business. I heard earlier you talk about you anticipated some of the other markets to bounce back -- I think injectables and things, and maybe a couple tough comps. Just make sure there's nothing fundamentally changed that you are still not in that high-single-digit, long-term organic growth rate, that you still feel that's a reasonable trajectory? No legislative changes or different views in how folks want to use health care or anything along those lines that have changed that?

In fact I will tell you right now our Pharma growth, if I look at the number of products that our customers introduced in the quarter, it's been the largest we've seen going forward. Right now, Chris, I am very bullish in terms of what we're seeing in terms of growth opportunities at 6% to 10% -- forgetting quarter to quarter -- I still think is a very realistic growth target for us. We are seeing growth opportunities not only in the US and Europe, but also in Latin America and Asia. Again, we're very comfortable with the long-term growth numbers that we have out there for that segment.

Okay, that's helpful. The second question follow-up I had was also in the Pharma piece. It sounds like you're about done with start-up costs in -- for the facility, I believe, in Colombia. I think it was down to $1 million this quarter. I'm presuming the Stelmi stuff will probably start to ramp up. If you could give us any color there as to what that might look like the next few quarters, when that's targeted to start up, and have you begun hiring, or an update as where you are along in that process?

Yes, good question. As we indicated at the beginning of the year, this is a 2014 project. We have ordered the long lead time equipment for that project. That takes anywhere up to about a year to complete. That we ordered earlier in the year. We've now started the facilities expansion. We're expanding two of our facilities to be able to expand that. We've come back, and construction is actually starting almost as we speak.

We are coming back and doing -- we've started already the ramp up for some personnel, and we'll continue to do that. I don't expect it to be a major cost factor for us, but there is some cost even in the second quarter, and frankly, in our projections for the third quarter, for the start up, because this is not an insignificant amount of capacity that we're adding.

If I can push a little bit, within orders of magnitude, you had a couple million bucks a quarter start-up cost for facilities in the past. I think in France when you did the landmark stuff and in Colombia, is maybe $2 million, $3 million, $4 million a quarter, given the significant size of this, something that's reasonable to anticipate as we look at the 3Q and 4Q, and 1Q even of next year?

Probably you're closer to $1 million or so in the third, and $2 million as you get into the fourth. Again, as we get volumes ramping up, we're going to be getting some offset to that through the sales side.

Okay. That's helpful. Last follow-up along these lines. When will - when do you anticipate the capacity being operational? Is that still a beginning of 2015 event?

Yes, it's going to be -- we're going to be at least mid-2015 before we're going to start seeing some output to that, because we've got to get facilities done. We've got to get it in. Remember, the other key issue is our customers then have to come in and re-certify the site. Again, from ours it's running almost exactly on the timeline we put together when we started the project. But it is a 2015 event, and less of a first quarter, more after you get past the first.

Okay, thank you very much.

Chip Dillon, Vertical Research.

First question has to do with -- I think you might have touched on the edges here. When I think of two of the facilities that you are either building our have built, I'm thinking of the Lexington plant in Food and Beverage, and I know the new Stelmi addition.

Do you feel it might -- first of all, is the Lexington plant filled up, given the pressures you've seen in the quarter, or maybe transitorally they weren't? I don't know. Could you give us an idea of how much more there is possibly there for filling that facility up in terms of volume? Then will the Stelmi ramp be a little slower than you would've thought because of the decline you mentioned in this past quarter in the syringe area?

First of all, the facility that we've come back and started up for the Food and Beverage focus initially is in Charlotte. But if you look at that facility, it's about a 300,000-square-foot facility. We're probably utilizing around 70,000 to 80,000 square feet of that facility today. There is significant growth side to that. We are focusing initially some of the growth in terms of Food and Beverage, but we need to balance that with our other production facilities. Again, we're probably a quarter or so behind where we had on the original plan.

It's going to take a while to fill that. I think that's important as we bring in -- the other thing that has been critical for that, we brought in new technologies to that facility. The infant formula, which is a very significant manufacturing challenge. The Tropicana product -- it's also got different manufacturing sites. Not only have we opened a facility, we brought in new technologies. Again, this is really for future growth for us, but we are well-positioned.

Your question on Stelmi, I would -- again, I think it's an isolated issue to the second quarter. It's not endemic. We're actually staying very positive, as I said in my opening remarks, on the whole injectable market. We are continuing to be very bullish, not only with the existing customers of Aptar Stelmi, but also for potential new customers that we're starting to work with now, given our platform.

Got you. As a quick follow-up, and I probably totally misheard this. I know that within Food and Beverage the core growth was 7%, and you mentioned beverage was up 11% and food was up 4%. I think you said there was a major differential because of tooling changes, and that the actual underlying volume was stronger? Could you clarify that, please?

Sure. On the beverage market, Chip, you were right. Beverage was up 11%, but actual product sales would have been up 23%. Tooling was down about 12% in the quarter for the beverage market. Food is the opposite. The 4% increase we saw in the food market actually was all related to tooling, so product sales were flat on a global basis in the quarter.

Product sales, did you say overall were up 17%?

I believe that's about what it comes to, yes.

What kind of -- should we expect as a range -- that's a great number. As we look at the rest of this year and next year, and you might have addressed this. That's staying double digits, or was there something that made this particular quarter outsized on the up side?

No, we've been targeting 10% plus. I think, again, here it's the number of new categories that we can penetrate. As we said, the conversion opportunities in food are pretty huge. I think some of the points that Steve alluded to are very good signs in that, introducing whether it's a new technology or opening a new category.

In one market, we're now starting to see follow-on similar products and expansion of those categories. Infant formula was one. Steve touched on also the liquid concentrate market. We're gaining a lot of traction. I would say we're getting a lot more credibility, really across the globe, in the Food and Beverage area.

Terrific. Thanks very much.

Brian Rafn of Morgan Dempsey.

Steve, talk a little bit -- you mentioned a little bit about pricing and multiples of cash flow on acquisitions. I'm wondering, too, historically, you've always looked at things that had extension of your technology. You've also been very measured and very paternalistic relative to assimilating cultures and finding Managements that will stay with their acquisition, and their people -- their technology and leadership isn't just bailing. Is that also a constraint to you guys making acquisitions?

It's always been a constraint. I think you bring up the culture. Most acquisitions in my opinion, you can get a deal done. It's integrating the deal where you're going to make the money. What we want to do -- what we've come back to, and I think it's always important to look what companies don't do particularly well on. We're not turn-around guys. We're going to buy a business that is well run with good technology that we can end up leveraging as we go forward.

Those are issues, Brian, that we've looked at for the last -- I've been here 30 years -- we've looked at that for over the last 30. It's something that's very important. We're going to continue to do that. I still think, in my view, there are a lot of good opportunities out there. I don't want at all want to leave you that there's not any opportunities for us to be picking up acquisitions. It just makes finding them a little bit more challenging right now.

Sure. One more on -- when you look globally on packaging re-formulations, are you seeing any changes in the cycle time or the lifespan on the shelf of product designs? Is there any faster speed to that, or has it been about the same over the last 5 to 10 years?

I think if you look across the board, life cycles in general have gotten shorter. You're seeing products turned over. That's why you see a lot more new and improved version A and B. We think those are actually benefits for Aptar, because as people look to do that, you get more opportunities to bring in new products for that. As a general case broad-based, those things have come down over time rather than gotten longer.

Thanks, guys.

I'm showing no further questions in the queue at this time. I'd like to turn the call back to you, Mr. Hagge, for closing remarks.

Thank you very much. That concludes our call today, and I'd like to thank everybody for joining us.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the call. You may now disconnect. Everyone have a wonderful day.