Aptargroup Inc (ATR) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to AptarGroup's 2015 first-quarter conference call. (Operator Instructions) Introducing today's conference call is Mr. Matt DellaMaria, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Andrew, 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, Secretary. Steve will begin our call with an overview of our quarterly performance. Bob will then discuss our financial results in greater detail, after which we will open it up for questions.

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

I would now like to turn the conference over to Steve.

Thanks, Matt, and good morning, everyone. Yesterday we reported strong first-quarter earnings per share growth on a constant currency basis. This is encouraging given the fact that top-line core growth was difficult to achieve for two of our business segments. We were also up against very strong prior-year first quarter. I'll walk through some of the details on each of our businesses and their respective markets, and then I'll turn it over to Bob Kuhn for some specific financial information.

With our continued focus on cost, we've taken steps to improve profitability of our operations on a worldwide basis including reduced headcount and improved productivity. As a result, we've realized cost savings in the quarter, particularly in our Beauty + Home segment. We also benefited from the usual delay in passing through lower resin cost.

Each of our business segments reported operating profit margins that were equal to or better than the prior year and sequentially improved compared to the fourth quarter of last year. This improved profitability helped drive the earnings growth in the quarter. Our strong results also reflected another excellent quarter from our pharma segment, which recorded core sales growth in each end market. Volume increases along with the mix of business in the quarter drove operating margin improvement for this segment.

Now, looking specifically at our pharma market, in the prescription drug market it continues to be a very dynamic time for our two largest therapeutic categories -- allergy and asthma COPD. In the allergy treatment area, we are benefiting from the predicted harsh allergy season here in the US, and we are also benefiting from our customers growing their shares of the market as the move by some prescription drugs to the over-the-counter in the US has initially proved to be a positive for our business.

Successful examples include Nasacort and Flonase, which are now widely available. Also in the quarter, our innovative unit dose delivery system was chosen for a new prescription supplements to treat vitamin deficiency, and our gel delivery system was chosen for the first and only gel nasal system for testosterone product approved by the FDA. We also see supplements and hormone replacement treatment as opportunities for future growth.

In asthma COPD the category continues to grow, and here we are also benefiting from our customers growing their market shares. Within this category we are pleased to announce that our low-cost dry powder inhaler device for asthma is now on the market in China.

In the consumer healthcare market, we benefited from strong demand for nasal spray pumps or nasal decongestants, cough and cold treatments, and also spray devices for dermal application such as the recent introduction of Perrigo's new topical spray to [deep] eczema.

In the injectables market, we continue to leverage our commercial strength to grow our elastomer component business globally. We are excited about the opportunities we have with our recently announced expanded product offering. We now offer a range of coated stoppers that will allow our customers a wider variety of compatible choices for sensitive medicine formulations including biopharmaceutical.

Turning to our Beauty + Home segment, while continued macro softness affected our performance in the quarter and core sales declined in each market, I do want to remind you that first quarter of last year was exceptionally strong for our Beauty + Home segment. When we look at our two main markets -- beauty and personal care -- they continue to be weaker than a year ago, especially in the US where our fragrance, hair care, and sun care customers are experiencing sluggish demand.

Latin America was also soft in the quarter due to the economic pressures we see in that region, especially in Brazil. In Europe, our beauty business was mostly flat compared to the prior year while our personal care business declined primarily in the hair care and sun care categories. Asia remains a bright spot as demand for the facial skincare market continues to grow.

Although these key markets were soft and the quarter, we did see a good level of new product introductions using our dispensing system. In the personal care market, six new sunscreen products were introduced in North America, many of them using our Bag On Valve technology. Unilever also selected our Bag On Valves for their launch of a new line of Suave brand spray lotion.

In the beauty market, our pumps were selected for a variety of new fragrances including L'Oreal's new Lancome perfume as well as celebrity fragrances by David Beckham and Beyonce. Beauty + Home profitability was negatively impacted by the weaker sales volume, although we did realize benefits from our cost savings actions, mainly reduced labor costs. We also benefited in the quarter from lower raw material costs.

Following the early stages of improving the profitability of the segment, I am very pleased that we are beginning to see the impact of our cost reduction efforts. We were able to achieve operating margins that were equal to prior year's level and improved sequentially from where it was in the fourth quarter.

Next, looking at our Food + Beverage segment, demand and the food market was strong for our dispensing system used with condiments, coffee creamers, and infant formula. Our SimpliSqueeze valve technology for clean and controlled dispensing continues to see much success. In the quarter, Unilever introduced in the US a new inverted bottle with our custom dispensing closure, and SimpliSqueeze technology for their flagship Hellmann's mayonnaise.

We are also very pleased to report that the Daisy brand of sour cream is now on the market in a new inverted pouch package utilizing our custom pouch fitment enclosure with SimpliSqueeze technology. In the beverage market we still had some residual destocking effects that began late last year, but this destocking is now resolved and orders began returning to normalized levels toward the end of the quarter. We continue to see growth in the liquid concentrate area, and Kraft recently introduced a new Maxwell House iced coffee concentrate. We also continue to see new concentrate introductions in Europe using our dosing pumps and SimpliSqueeze systems.

I'm also pleased with the continued growth in emerging markets, particularly in Latin America where we are growing nicely in both food and beverage markets.

Finally, cost-containment, production efficiencies as well is lower raw material costs contributed to the improvement and profitability over the prior year for our Food + Beverage segment.

Now looking ahead, as mentioned in the press release, we currently expect another solid quarter of earnings growth on a comparable currency adjusted basis. The currency exchange rate environment will remain a headwind on our translated results. We are also expecting demand in Latin America to be weak given the economic situations existing there. However, our level of project dialogue across each market remains at a very good level. We are optimistic that our focus on the market and the value we are providing to our customer with the industry's broadest portfolio will drive profitable core sales growth over the prior year for each of our business segments.

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, changes in currency exchange rates had a significant negative impact on our translated results in the quarter compared to the prior year. Excluding the impact of currency exchange rates, our core sales decreased by 1%. We also reported record first-quarter earnings per share of $0.70. Comparable currency adjusted earnings per share were $0.60 in the prior year.

Our cash flow in the quarter improved over the prior year. Cash flow from operations this quarter totaled $39 million compared to $32 million a year ago. Capital expenditures this quarter were approximately $27 million compared to approximately $43 million in the prior year. Therefore, free cash flow was $12 million in the quarter or an improvement of $23 million over the prior year.

Looking at our balance sheet capitalization at the end of the quarter, on a gross basis debt to capital was approximately 45%, while on a net basis it was approximately 30%.

Turning to our quarterly market detail by business segment, I'll start with Beauty + Home. Core sales excluding the effect of changes in currency exchange rates decreased 4% from the prior year. Looking at our markets on a core basis compared to the prior year, sales for the beauty market decreased 2%. Sales to the personal care market decreased 6%, and sales to the home care market decreased 5%.

Our pharma segment's core sales increased 7% over the prior year. Looking at our markets on the core basis compared to the prior year, sales to the prescription market increased 9%. Sales to the consumer healthcare market increased 4%, and sales to the injection market also increased 4%.

Our Food + Beverage segments core sales decreased 4% from the prior year, primarily due to lower custom tooling sales. If tooling sales were excluded, sales would have increased 1% in the prior year. On a core basis, sales to the food market decreased 1%, while sales to the beverage market decreased 7%. Looking at core sales on a regional basis Europe was up 1%, the US was down 6%, Latin America was up 2%, and Asia was even with prior year.

Going forward, I would just like to give you a few comments regarding 2015. We currently expect our capital expenditures to be near our targeted depreciation and amortization level for 2015 which is $150 million. We believe our effective tax rate for 2015 will be in the range of 33% to 34%. Given where currency exchange rates are today, especially with the euro, we expect our second quarter translated results will be negatively impacted compared to the prior year. Assuming a similar currency exchange rate environment to what we used to develop our guidance, comparable earnings per share for the prior year second quarter would be reduced from the reported $0.79 per share to approximately $0.66 per share. For the upcoming quarter, we expect earnings per share to be in the range of $0.73 to $0.78 per share.

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

(Operator Instructions)

George Staphos, Bank of America.

Hi, everyone. Good morning. Thanks for the details and congratulations in the quarter. Despite the headwinds, a solid performance. Two questions for you and then I'll turn it over. First, I thought I heard you say that the outlook is for core growth in all of your segments in the upcoming quarter. Could you affirm that and could you provide to the extent possible where you feel most certain of core growth or where you think the outlook is best and where you are still facing difficulties, perhaps it's Beauty + Home, perhaps it's still the beverage market where the destocking has been lingering?

And then the second question would be relative to your guidance, what foreign-exchange forecast are you using specifically? What US euro exchange rate are you using? Thanks.

I'll take the first part of that, George, and let Bob then deal with the currency issue. In terms of the growth, you were correct; we are today expecting core growth across each of the three segments. In terms of relative strength, I think we are most comfortable today with the Food + Beverage and the pharma segments' growth. While we are still looking at Beauty + Home, given some of the macro issues, especially when you look at Latin America for us -- that's probably the one that has, let's call it, the biggest risk. Despite that, the diversity of our product line we still expect to grow on a quarter-to-quarter basis.

George, consistent with the past we used the spot rate at the end of the quarter to calculate our guidance which was 1.08 for the euro and that was the same rate we used to recast last year's $0.79 to $0.66.

Steve, if I could ask just one follow-on, if you look at Food + Beverage, certainly it has been a market where you've seen increasing penetration of your dispensing systems. Is that an area that we should also still worry a bit about, the consumer perhaps being pinched in his or her wallet and that being a risk to your volumes? Or do you feel there's enough momentum behind your new products and share gains and the product share gains as well that you should have a pretty solid quarter there? Thanks.

I think it's a good question, George. Again, I think we feel pretty good there and I think one of the big issues for us -- and I touched on this even in my prepared comments -- we continue to enter new markets. For example, we just entered into the sour cream market [for us] on a flexible package, which I think offers significant opportunities for future growth. We are also expanding in Latin America in terms of markets where we have not been really a major factor. So while I do think there's always consumer pressure, I think the convenience we have in the market is we are working with -- we feel very good comfortable about the future potential growth.

Okay. Thanks. I'll be back.

Adam Josephson, KeyBanc.

Steve and Bob, good morning. Bob, just the obligatory resin question, how much of a benefit was the lag to resin pass-through in the quarter? And are you expecting any additional benefit in the second quarter?

So in total on a consolidated basis, it was slightly more than $3 million -- that breaks out to about $2 million for Food + Beverage, about $1 million for Beauty + Home, and a slight positive for pharma. No, we are not seeing that as we are starting to see resin cost increase primarily in Europe in the second quarter, so we are not anticipating that. But I would like to highlight that that $3 million in this quarter -- we were actually at a positive resin variance last year in the first quarter of about $1.5 million as well.

Okay. So pretty significant benefit in terms of the year-over-year cost, and that leaves into the question about Beauty + Home. You talked about core sales in that segment being down 4%, yet your margins were stable year on year so you had a decent resin benefit there. And then you talk about some other cost-saving initiatives. Can you just parse out what enabled you to keep margins flat year over year there, resin versus other cost savings initiatives?

I think it was a lot of the initiatives that Steve has been talking about on the past quarters. We estimate the cost savings in the Beauty + Home segment on a global basis are a little bit north of $2 million in the quarter, so pretty consistent to what we were expecting last year when we talked about some of those initiatives.

And I think it's also important, Adam, that while resin was a positive, that $1 million positive we had, we also had some comparable resin products positive a year ago. So what I think is particularly encouraging is the base business and how we are operating that business has continued to improve, and we expect that to continue on a quarter-to-quarter basis going into the second quarter and to the second half of the year.

I got it, Steve. Thank you. And just on your pharma margins, obviously you came in high end of the range and you've been at the high end of that 23% to 28% EBIT margin range for several quarters now. Is there any reason -- any reason for you to think that range still applies? Or was or something exceptional about this quarter such that you were above that high end.

I think again we've been very fortunate in terms of how our new products has been accepted and also how our customers' products have been accepted. So when you look at having core growth in that of about 7% and also pretty strong growth when we were in the fourth, we would still say that we should be within that 23% to 28% and I actually think that's a real positive, Adam, because of the diversity of the products that we have. So we were very strong in this quarter on our Rx product line. So sometimes that maybe end up balancing back out so today we wouldn't be changing that guidance.

Great. Thanks a lot, Steve and Bob. Appreciate it.

Chip Dillon, Vertical Research.

Yes, good morning, Steve and Bob. Speaking about the exchange rate -- and I know it will change every two seconds -- but it is remarkable that there's been about a 4% move since the $1.08 that you all put into the guide. Can you just remind us what you're sensitivity is to each 1% or EUR0.01 change to the earnings?

You know we haven't given that just because of all the interdependencies of all the currencies that are out there. Obviously, in a quarter is going to be much more muted than it would be on the full-year. Most certainly a stronger euro is going to be a slight positive on what guidance we gave, but that's still going to be comparable when we recast the last year comparables. So when we finish the quarter we are going to give you a like-for-like comparison, whether it's at $1.08 or $1.13.

And I guess as a follow-up on that, if we look at last year if we just saw of saw sort of saw what the average euro exchange rate was that would be -- and you are saying $0.13 is the delta to the $1.08 -- I guess there would be a fairly straight line. So I would imagine it's somewhere around $1.30 last year.

Yes, it was about $1.37.

In the quarter.

In the quarter, yes. If you actually look at first quarter and second quarter, how last year was and where we were expecting it, it's pretty similar. It's not that far off.

The only issue, Chip, that I want to make sure that you do think about is while the euro is certainly a major currency, the Brazilian real and the other currency currencies, particularly given some of their volatility, also impact to that. So it's not just the euro that we have to think about, it's also has to be the other currencies worldwide.

Got you. Which is even better because that's up 10% so far in the last month. Now, could you talk a little bit about the Food + Beverage tooling? If I heard you right you said that I think the revenues with an up or down -- the base revenues a percent but tooling really dragged it down. How do you see that flowing? Is that just -- was it an unusually low quarter, or was it just that the comparison was difficult?

No, in fact, it was more the comparison. We've actually had some pretty significant tooling in the past few years which hit in the first quarter, so it's more timing of the tooling. But Food + Beverage was down about $4.5 million, $5 million compared to last year. But I don't read too much into that other than it was just timing of when tooling comes in.

Okay. And then this is the last one -- think about the Pharma improvement, which is terrific. If I hear you, a lot of it was actually tied to -- and this is a very general statement -- to the cold and flu season. You talked about the cough and the colds and the nasal applications. Does that mean that -- is that a correct read that the growth is kind of more seasonal and maybe we'll see a slightly more seasonal pattern there? Or am I misreading that?

I think again it depends. On the Rx side, if you separate the allergy seasons do impact the sales of that. The bigger the allergy season in Europe, North America, Latin America, etc. So on the allergy, it's a little bit more seasonal. For asthma COPD, it's much more standardized. In addition, you've got to now balance that portfolio that we have with the injectables which tends not to have major seasonality, and also our consumer healthcare which gives you a bit of balance, particularly as you look at the ophthalmic expansion that we see in that market. So, again, we don't have heavily influenced -- allergy certainly is our biggest, let's call it, seasonality product.

Okay. Got you. All right, thank you.

Chris Manuel, Wells Fargo.

Good morning, gentlemen. Congratulations on a strong quarter. Couple of questions along the lines of new product development. It sounds like, Steve, you said that activity if I heard you correctly remains at good levels here through the quarter, new products for customers and stuff. If I think about the last few quarters, you've talked about it kind of being its best ever. Maybe I'm kind of over reading things but it sounds like things may have slowed a little bit. So maybe if you have any thoughts there. In particular I know that you mentioned Kraft and I know that Heinz are both pretty good-sized customers of yours. And we think about other transactions of folks coming together it's been pretty disruptive, and we've heard of some projects already being delayed. So maybe some thoughts on if you have seen some slowing, if it's isolated to specific areas, or how you are looking at that?

First of all, on the new product side, I don't think we've seen any slowdown in terms of the activity. We've seen good activity going forward. Where we've been impacted more on the sales side has been more macro issues. General economic slowdown in Latin America, etc., so I don't think that's been tied to new project side.

The issue with Kraft coming together with Heinz certainly is a major -- both are very good customers with us. I think they are both going to be looking for continued growth in their business, and we have several active projects that are still going on with both of those. And I don't see those changing. We do anticipate cost pressure there, but offsetting that is they are continuing to look for growth projects. So we've managed behind integration when 3G bought that, I thought very well. We are very confident we'll be able to manage the Kraft/Heinz situation as it goes forward.

Okay. And did I hear your right? It sounds like you have a dry powder application in China. I think that's a technology you bought maybe a decade or so ago. Is this the first commercial application that that's been in use?

This is the first commercial application, and it actually does not relate to the one we bought several years ago. This is a much more low-cost version that we would be not frankly be able to use probably in the Western markets, but we think in the developing markets it's the way to be able to use that. So we were successful introducing that in China. We are today continuing to work on that much more sophisticated device and that we expect to be hopefully introduced the market over the next several years. But that's a much longer-term process.

Okay. That's helpful. And last question is restructuring benefits. I think you should of had a little bit come through in the Beauty + Home side. Can you maybe, Bob, give us a sense of what you had this quarter, what's yet to come, and if you are contemplating any other actions across your other businesses?

On the restructuring side, Chris, we did have a slight positive over and above what we had last year. We talked about in the past, we had one last phase that we were yet to move some products -- we've started that. So there was some cost in the quarter related to that last phase that we are in the prospect process of right now. So the net of the two was relatively immaterial in the quarter.

But, as Bob pointed out, we are actually achieving our targeted goals on that restructuring which was in the area of about $10 million on a run rate per year. We had a majority of that also introduced last year, so it's not as much of a year-on-year positive benefit.

Okay. Thank you.

Mark Wilde, BMO Capital Markets.

Good morning, Steve and Bob. A couple of questions. One, just Food + Beverage, the ramp-up in this business seems to be a little slower than some of the targets that you put out there in the past. And I think you've got quite a bit of untapped potential capacity at that facility down in North Carolina. Can you just talk about that?

I think overall, Mark, we are still actually very positive with this. Last year, overall, our core growth in Food + Beverage was 9% for the year. We continue to get into new application fields or new markets, so in terms of our growth projection I'm still very optimistic about that going forward. We are continuing to ramp up that North Carolina facility, but we do have still capacity available for that. Again, that would be heavily focused to the North American market. What's nice for us is we are seeing good growth in Asia, good growth in Europe, and now also good growth in Latin America where we actually didn't have much of that in the past. So, I much more confident we have even a better balance on our growth Food + Beverage worldwide.

Okay. And the second question I had as follow-on is just a little brother question and that really has to do with kind of the corporate portfolio. And you really wonder whether kind of mayonnaise tops and pharma packaging really belong together, because it seems like you've got about 60% of your EBIT coming out of the pharma business. Valuations for pharma-related packaging companies tend to be higher than overall packaging companies. So just longer-term, this seems like an issue the kind of lurks out there -- can you address that?

I think it's a good one because I think -- again, I pretty strongly view that the diversity of our products in the markets we operate is a big advantage for Aptar. When you talk about those caps for those products in the pharma the majority of those products today outside of elastomers came out of our Beauty + Home segment. So the ability to leverage products between segments for us is a real positive. We're seeing growth today in Food + Beverage coming out of Beauty + Home.

So again the other side that's very helpful when you look at our businesses, the manufacturing capabilities that are needed to make our products are very similar across all three segments with the exclusion that you need clean rooms for some of our pharma. But the assembly technology, the molding, we are able to benefit across all of those markets. The other side, as we enter new markets we are able to go in with one segment and very rapidly expand to the other two segments. So, again, rather than just look at the margins we need to take a look at the portfolio. And we leverage a fair amount of IS costs and other costs that we have internally across all three of the segments.

And just to follow that out a little further, though, from just a valuation perspective it seems like where you look at kind of public companies that have all or most of their exposure to pharma they do trade at higher multiples.

I can't get into the specifics because I'm sure you are closer to that than we are. But I think the other side is when we talk our pharma business, it is a very niche business for us, as our other businesses. And, again, I really view that the diversity of our business is a long-term plus for us in case there is a blip in a product or a quarter in terms of pharma, it helps the overall growth of the business. So we think even when you look at the valuations, the combination of that still makes Aptar a more valuable commodity for our shareholders than just the single product [base] or single market base.

That's a helpful perspective, Steve. Thanks. I'll turn it over.

Albert Kabili, Macquarie.

Hi, thanks. Good morning. I just wanted to get some additional color on the (technical difficulty). I wanted to get some color on the US, on the core sales down 6% which stuck out to me a little bit. Which areas sort of drove that and do you feel you are maintaining your shares, or is some share loss happening in the Beauty + Home side?

I can give you some color on the markets and what drove the decrease in sales, and then maybe Steve can talk more macro. On the US -- so if you look at it -- and our injectable business did very well in the US in the first quarter, but we were down really and all the other markets that we serve. Food was down; a lot of that was the tooling. That's where that came from. But the beauty business was down, the home business was down, beverage was down, personal care was down. So it's really everything other than the pharma business in the US.

And, Al, talking about a little bit on the market share -- again, one of the other things that drove a little bit of that business is we have continued to try to localize some of our products. Some of those products that we are producing in the US are now being produced in Latin America. That shows a decline in one and up in the other. But specifically to the market share, we feel that we are maintaining or accelerating our market share across really all of the markets that we are in, particularly on a worldwide basis because we have to look in the Beauty + Home on the fragrance market as that is a worldwide market rather than just the regions. But we don't feel we are losing any market share.

Okay. That helps. And then just on the outlook of the sequential pickup that you see in Beauty + Home, is that driven -- there's not a lot but I think there's a little seasonality in that business. Is your outlook driven by some underlying improvement that you are seeing either from the tone of your customers on volumes or some new business that you are picking up that's driving that sequential pick up?

It's really driven by several factors. One, we are seeing a pickup in sales as I mentioned on a year-over-year basis. The other side though -- and this is been a major focus of the Company -- we are seeing margins improve internally, both in terms of scrap, productivity, labor. Those things we saw a good pickup coming into the first. We expect that to continue into the second. So it's a combination of sales growth and also being more productive in the products that we are making.

Okay. Good. And then just the final follow-on for me is -- I think it was related to Chris's question on the cost savings. Is there any way to help us size up maybe what some of those extra costs were that you incurred in the Beauty + Home business on the restructuring? Thanks, and good luck.

On the Beauty + Home segment? No, I would say it was probably somewhere in the area of a $0.5 million in additional costs, but we were probably $1 million more on the savings year over year. So net net, it was maybe a $0.5 million positive.

Okay. Thank you very much.

Brian Rafn, Morgan Dempsey.

Give me -- you guys talked a little bit about (technical difficulty) were really relative to (technical difficulty). You talked about consistency (technical difficulty) or visibility -- Food + Beverage and pharma. Can you look at those as being driven by strong new product launches or (technical difficulty) launches across all of you? Are you seeing it across all of your segments? I guess I'm asking how broad-based your product launches are.

Brian, I apologize -- I am going to try to answer what I thought was your question because you were breaking up at least from what I was getting. I think you were asking how with these new product launches -- is it just one segment base or is it across all three segments? And for us, it's across all three segments. We are opening up probably more new application fields in our Food + Beverage side, so it opens up more new areas but in terms of product it's across all three segments.

Okay. [Core annular visibility] or dynamics from the standpoint of the cosmetic and perfume market, the premium side versus more of the lower-end economy side. What (technical difficulty) are you seeing in those two different areas?

I think that we see it a little bit stronger on the prestige side. Again, just to come back -- I think the question was -- you break up a little bit Brian in terms of your call. But you were asking, I think, are we seeing differences in the prestige and the mass market? We've seen the prestige market be a little bit stronger for us. Some of the mass market has been influenced by products being sold into the Russian market, even if it's coming from Europe, and some of the challenges that Avon has had, as you've seen in the press. But, overall, the prestige market has continued to do reasonably well. And the other one that is doing well is skin care, particularly the prestige skin care market.

That's good for me.

Debbie Jones, Deutsche Bank.

You guys had a pretty significant exposure to a certain drug delivery markets. A few years ago you expanded into Stelmi. I'm just wondering on the M&A part of your strategy for the segment. Could you comment about which markets might be the most attractive to you? Do you want to expand within your existing portfolio, or do you see other drug delivery methods that might be interesting to you?

We are really evaluating both of those. If we can get add-on technologies kind of around our core products today, that's something we are looking at. But like we did with Stelmi, we are also looking for things that are corollary to our competence and that's an area that we are pushing very hard. So today we are actively looking at potential issues that are out there. I'd say the M&A market as a whole there are opportunities. Pricing is becoming more of a challenge in the M&A market today but going back to your core question, it's not just looking at pumps, valves, closures, and elastomers. We are looking at also innovating innovative other dispensing systems that might be able to be a good add for the portfolio.

And you mentioned the pricing or valuation for these potential acquisitions. But do you see much of an opportunity set outside of your core business?

Again, we are going to continue to look at it. I don't want to comment specifically to that, but the answer in general would be yes. We looked at several other opportunities that would be outside of our current product line that we are actively looking at.

Okay. And I guess my second question is your performance in Asia -- how is that compared to your expectations and what you think you can do this year?

I think if you -- we have to break Asia down a little bit for us. I think in terms of if I look at China, China is doing as well or better than what we had expected across the markets, and our expectations are for good growth going forward. When you look at India as the other big market for us, again, it's a little choppier. But we need to make sure is we continue to get the profitable growth out of that sales side. So, overall, I would say that China is doing well, and then India, kind of Thailand, Indonesia is good for the sales growth but we need profitable growth from that.

Okay. Thanks. I'll turn it over.

Ghansham Panjabi, Robert W. Baird.

It's actually Mehul Dalia sitting in for Ghansham. Can you talk about your organic growth in the quarter by business relative to your expectations? Did the pharma growth surprise you and, if so, what led to that?

I would say what surprised more than anything was the strength in the latter half of the quarter across all three business segments. It was -- it sequentially got better as it went along. Were we surprised by the pharma growth? Maybe slightly towards the end. I think we would probably be a little surprised how we finished compared to how we started in all of them, but they were in line, more or less, with where we thought we would be.

Okay. Great. And just as a follow-on to that, do you feel any different about your underlying demand expectations for 2015 across your businesses relative to your previous expectations maybe last quarter?

No, if anything I think we've probably started to solidify. I mean the challenges we saw at the last quarter frankly are still challenge that exist today. So I don't think there's been a material change to that, and if there has been anything on the margins it is probably more positive than it was even a quarter ago.

Okay, great. Thanks. And then just one last one, can you expand on the changes being brought about in the US Beauty + Home business post management changes there? Is there any difference in strategy?

No, I don't think it's difference in strategy -- it's more on the execution. We are much more focused on the execution of the plan. The team that we put in place today is doing, I think, a very good job of executing to that, and we are now even more so beginning to see the results. So, we've started to see that in the first quarter and, as I said in my prepared remarks, I'm very positive we are going to see that trend continuing to the second quarter and to the second half of the year.

Great. Thank you.

George Staphos, Bank of America.

Thanks for taking my follow-up, guys. A couple of last ones -- you were talking earlier -- I think Debbie had teed up the question through the private market valuation. Just remembering back from company commentary back in the fall around the Analyst Day, valuation levels back then were relatively high. Is there a way to size how much multiples of moved over the last two quarters or so? Are they up another 10%, 20%? Or any kind of qualitative commentary would be helpful there? And then on private companies and their level of competitive activity, recognizing that you think you don't think you lost market share. Again, is there any measurable change in their level of competitive activity, what it might mean or not mean for pricing? And then I have a follow-on, unrelated.

Let me try on the multiples -- I would think since we talked back in September you've probably seen multiples go up about half a turn on an EBITDA basis from what's out there, at least looking at even the most recent transactions that are getting reported that we get a chance to see. So, I think there is probably -- and that has to do with the relative depositions and the interest that is out there and the availability of money.

If I look at our private -- your question on these guys that have gone private, is it a change in the competition? In some cases, overall, the answer is probably we haven't seen a big change because I think there is now more of a focus on getting cash for the business as opposed to just driving sales growth without the profitable side. So, the basics of the market haven't changed and the competition -- we still feel the innovation is our key differentiating factor and that hasn't changed with these other companies either going private or being spun out of some of the public businesses.

Okay. And for some of the companies that are held by larger publics but they themselves are obviously private, you haven't seen any kind of change in their competitive activity? I know it's a question we asked frequently but just want a mark to market here.

No, I wouldn't say that there is a material change to that.

Okay, Steve. My follow-on -- just a quickie -- we've seen from some of the companies, unrelated specifically to the dispensing system, but no less commenting on lower promotional activity and we are seeing it basically in display activity declining. To the extent that you have any visibility on this and to the extent's it's relative for some of your sun care and other seasonal products, are you seeing that as well? And is it a headwind or is it not a real big deal considering that you are expecting core growth to be positive into 2Q? Thanks, and good luck in the quarter.

Again, I think it's a good question, George. And we would have to break that down by market segment. I think in Beauty + Home we are seeing a bit less on the promotional activity, so there's been much more conservation there. Certainly in the short-term that probably has a negative impact on some of the demand. I think we saw that in the fourth and the first. Long term, it's all going to be driven by consumption anyhow, so I think that levels out, which is somewhat of our expectation as we go forward in the year.

When I look at pharma, we've actually seen an increase in quite a bit of the promotion with this movement on the over-the-counter. So the Flonase advertisement is significant. And it's interesting in that market they are targeting pills, so it's not just targeting other spray devices they are targeting pills, which I think is increasing their share and also helps us.

Food + Beverage we see -- because of some of the new packaging, for them to come out you see, again, as it's new packaging, probably more promotional. Existing packaging may be somewhat affected by this lack of some of the promotion. So it's very dependent on market to market.

Thank you.

(Operator Instructions)

It looks like that's all the questions that we have for today, so I'd like to turn the call back over to Mr. Hagge for the closing remarks.

Thank you very much, Andrew. This concludes our call today, and I'd like to thank everyone for joining us. Have a good day.

Ladies and gentlemen thank you again for your participation in today's conference. This now concludes the program, and you may all disconnect your telephone line. Everyone, have a great day.