Aptargroup Inc (ATR) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Aptargroup's 2015 third-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, Kevin, and welcome, everyone. Participating on the call today are Steve Hagge, President and Chief Executive Officer; and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Steve will begin our call with an overview of our quarterly performance. Bob will then discuss some of our financial details, and then we'll open it up for questions.

Information that will be discussed on today's call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to Aptargroup's SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. We will post a replay of this conference call on our website, and Aptargroup undertakes obligation to update the forward-looking information contained therein.

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

Thanks, Matt, and good morning, everyone. Yesterday, Aptar reported another strong quarter. I'm particularly pleased that we were able to achieve improved operating margins compared to the prior year across each business segment and report record third-quarter earnings. When you look at earnings per share on a comparable currency basis, our third-quarter earnings per share increased 30% over the prior year. I'll briefly comment on the performance of each segment and then turn it over to Bob for a financial review.

Our Beauty + Home segment reported another good operational result in spite of a challenging quarter in terms of top-line growth. Demand from the beauty and personal care markets continued to be weak, while we saw increase in demand from the home care market. Even with the reoccurring softness in the two key markets, operating margins improved over the prior year due to cost-controlling efforts and lower input costs compared to a year ago.

In our Pharma segment, demand for our drug delivery systems continue to be particularly strong in the prescription market, where we saw increased sales of our metered-dose inhaler valves for asthma and COPD treatments and nasal spray systems for allergy treatments. Demand for our elastomer primary components for the injectables market also increased in the quarter.

The consumer healthcare market was more or less flat as orders from certain customers servicing Eastern Europe continued to be soft relative to the prior year. Excellent operating margins were achieved due to the favorable mix of products sold, high levels of productivity and the impact of our cost-savings efforts.

Our Food + Beverage segment also had a good quarter, with broad-based demand for our innovative dispensing closures. Core sales growth was muted by a decrease in custom tooling sales compared to the prior year and the impact of passing through resin decreases to our customers. And when we back these out -- when we back both of these out, we reported excellent product sales growth in both the food and beverage markets across a wide variety of categories.

It was also a strong operational quarter, and high levels of productivity along with focus on cost containment led to improved operating margins compared to the prior year.

As we look forward to the fourth quarter, the currency exchange rate environment should continue to have a negative effect on our translated results. We also don't foresee any significant changes in the macroeconomic conditions that we're facing today. As we've seen in recent years, our fourth quarter has a tendency to be one of the softer quarters of the year, in part due to customers seeking to reduce their inventory levels towards the end of the year and the seasonality of our Northern Hemisphere beverage market. However, the diversity of our business remains a key strength. And with a diligent focus on our cost, we expect earnings to improve over the prior year on a comparable currency basis.

Aptar is well-positioned to grow over the long term in the different markets we serve as we continue to leverage our product and process synergies across our three business segments. The Company is also in excellent financial condition. We recently completed an accelerated share repurchase program, and last week we announced an increase to our quarterly dividend. We will continue to execute our balanced capital allocation strategy, including investing in projects that will drive profitable growth and returning value to shareholders.

At this time, I'll turn it over to Bob, who will cover a few financial details.

Thank you, Steve, and good morning, everyone. I'll briefly cover a few details, and then we'll turn it over for questions.

In looking at how our business segments performed in the quarter, I'll start with our Beauty + Home segment. Despite a challenging quarter, operating margin improved to 8.7%, primarily due to continued cost-containment efforts and lower input costs. Weak conditions in key markets resulted in lower sales volumes compared to a year ago, and core sales declined 1%. Sales to the beauty market were equal to the prior year, as weak demand in the fragrance category was mostly offset by increased demand in the facial skin care category. Sales to be personal-care market decreased 6% as softness continued in the hair-care and sun-care categories.

Sales to the home-care market increased 8%.

Our Pharma segment had another excellent quarter, achieving an operating margin of 30.2% and core sales growth of 10%. Sales to the prescription market increased 16%, primarily driven by increases in demand for metered-dose inhalers and our nasal delivery systems. Sales to the consumer health-care market were equal to the prior year, and this is mostly due to certain customers choosing to reduce inventory and continued weakness in Eastern Europe compared to the prior year. And sales to our injection market increased 9% due to broad-based global demand.

Looking at Food + Beverage, this segment also had a very good quarter and reported improved operating margins of 14.8% and core sales growth of 3% compared to the prior year. As we pointed out in the press release, core growth for this segment is negatively impacted by approximately 7 percentage points, coming from a decrease in custom tooling sales and another 3 percentage points due to the passing-through of resin cost decreases to customers. If we excluded these two effects, core product sales increased approximately 13%.

Looking at each market, sales to the food market increased 5%, primarily due to increased demand for our dispensing closures in both the condiment and granular food categories. And sales to the beverage market increased 2%, driven primarily by increased demand for our innovative closures used on bottled waters.

I'd like to point out that the Food + Beverage market growth rates include the negative effects of the decreased tooling sales and the resin pass-through effect. When stripping out both of these effects, core product sales increased in both markets by double-digit percentages.

Turning to cash flow, our free cash flow in the quarter was approximately $45 million, compared to $52 million in the prior year. For the year to date, our free cash flow is approximately $125 million, compared to $76 million a year ago, or an increase of $49 million.

Looking at our balance sheet capitalization at the end of the quarter, on a gross basis, debt to capital was approximately 42%, while on a net basis it was approximately 22%. We currently anticipate that our capital expenditures will be near our expected depreciation and amortization level for the full 2015, which is $150 million.

The tax rate used in our fourth-quarter guidance was comparable to the prior-year fourth-quarter rate, and this will put our expected full-year effective tax rate in the range of 31.5% to 32.5%.

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

(Operator Instructions) George Staphos, Bank of America.

Thanks for all the details, everybody. Two questions on volume and new products, and I'll turn it over. Broadly, can you talk about the new-product pipeline? You've been in the last couple of quarters quite optimistic on that heading into 2016. At least that was our take. Can you update us on your views there and if there are any particular end markets looking more attractive than perhaps the last quarter?

And then specific, my second question in Food + Beverage, recognizing you said again it's broad-based, are there any end markets that are particularly good within Food + Beverage? And what do you think is changing in your customers' views of your dispensing systems and their applicability to their products? Thanks.

Thanks, George. On the new-product side, again, we continue to be very optimistic about the pipeline. And I think what's really positive for us, it really crosses all three segments. So we are seeing some very interesting applications across our Pharma, Food + Beverage and Beauty + Home side.

We have -- one of the things, we've introduced a couple of new products, and maybe I'll touch on a couple of these real quickly. We've got a new product, for example, in Beauty + Home, a company called Nu Skin, which is now introducing an electronic dispensing system with multiple, different products you can use at various times during the day and the evening. And that is an airless system that's using a lot of our technology. And that just got introduced and is doing very well in its initial market introduction.

We are doing a product with J'Adore on a product that is a glass-stopper application where you can apply it to the skin, and it's got, again, a dispensing device and has unique Aptar technology. Our Pharma base, we continue to have new products both in the over-the-counter market as well as in the prescription side. We are seeing some stuff coming out on dermatology in terms of Bayer in Brazil. We are doing some stuff on sprays in terms of the marketplace, and that's been positive.

And then we've got a couple of new applications in Food + Beverage in the quarter, both in terms of ketchup products, the sriracha sauce and also some water.

So, again, I think from ours, it tends to be very positive going in. And the indications are, at least, our customers are looking probably, let's call it, a more optimistic as they go into 2016.

The second part of your question, again, in terms of Food + Beverage, we've historically been a bit stronger in terms of percentage of our business in food than it was beverage -- you know, 60%-40% at one point. That's now becoming almost 50%-50%. So we've seen some increases in our beverage market with new applications. And, again, I think it's a broad-based market in terms of where we are seeing the business. We are introducing -- continue seeing our customers introduce new products really worldwide. So, again, we are seeing good growth in Asia as well as in Latin America.

Steve, you don't have to spend a lot of time on it, but relative to what you are seeing right now, would these trends be positive, negative or neutral to your existing mix? Thanks.

I'd say, we would come back and say they would be positive to the existing mix.

Thanks. I'll turn it over.

Ghansham Panjabi, Baird.

Just as a follow-up to George's question on the growth outlook, any way you cut it for Pharma, it's been a very, very strong set of top-line numbers the last few quarters. I know, Steve, you touched on some new products that you are excited about there. But should we be concerned that as you cycle through these tougher comps in 2016 the growth rates will slow meaningfully in that segment?

You know, Ghansham, I think when you look at the business, I don't think meaningfully slowing. It's going to be tougher comps as we get into 2016. We are growing at 8% to 10% in that Pharma segment this year. Our kind of growth is that 6% to 10%.

So I think you're going to see more of a comeback to more of the mean as we go into 2016. But, again, I'm really excited about a lot of the new projects we've got in a lot of the different regions. So, I don't think you are going to see an appreciable drop-off as we start the year.

And then in the hair- and sun-care weakness, is that primarily in the US still, or is it broader from a geographic standpoint? And is there any incremental thought from your customers as to why these two categories remain so weak? Thanks.

Well, you know, I guess if you take a look at it, I think it's more broad on a geographic on both the hair and sun care for us, and we are a major player in both of those categories. What I think is positive is we are starting to get some sun care -- some new sun-care stuff going on in the US where consumers are looking to maybe upgrade their brands and maybe revitalize some of the brands as they go into 2016. That, I think, is boding well for us. If you are asking why even on the hair care, some of that is style-based. And so we'll see where that goes going into the future. So we don't expect it to deteriorate. It's going to be more of how much it's going to accelerate as we go into 2016.

Okay, all right. Thanks so much.

Chip Dillon, Vertical Research.

First question is, could you just give us a general feel of what you're seeing in the M&A environment, how that might have changed over the last year? It's been -- I guess the last major acquisition you found was Stelmi, which has certainly worked out great. Are there more opportunities like that right now out there, or is it a function that people aren't selling or the prices are just too high?

I would say that in terms of opportunities we are getting a chance to look at, we are seeing the market to be, I'd say, relatively strong. So there's certainly challenges in terms of how people are viewing growth, the dynamic around price. But in terms of opportunities, we are seeing quite a few opportunities to look at that would fit strategically for us. So I would say we are optimistic about the M&A market as we look forward over the next 12 to 18 months.

Got you. And would -- I know you have said in the past that the Pharma segment, which just continues to show great numbers -- and this makes total sense that you would be willing to buy a business that might not have quite the same set of as fantastic a return profile as what you have right now. Is that still the case? And is that why we -- maybe the way to think of it is we shouldn't see those margins come down closer to the mid-20s unless you do an acquisition. In other words, there's nothing inherently in your businesses as a -- in your Pharma business as it exists today that would suggest the margins are coming down. That would still be a -- your best guess, a function of a change in the spend and how that segment looks because of an acquisition.

I think, Chip, there's a couple of things. Certainly, this year has been an outstanding year for our Pharma operations. And the 30% operating margins that we are generating today are outside, frankly, the range that we've given to the Street. We're looking still at 23% to 28%. Some of that is going to be growth that we anticipate coming in our consumer health-care market as well as our injectable market, which will probably have a bit lower margins than our RX market.

So to answer your question, we might see it come down a little bit, but I think offsetting that is still the growth. So those are excellent margins from ours. And as you said, we will continue to evaluate -- Stelmi was a good example. Stelmi had lower margins than our traditional Pharma, but we feel that's an outstanding acquisition for us and have been able to accelerate our growth.

Got you. And last question is, it seems like in recent months and certainly this earnings season that, of all places, you are hearing that Europe is more of the brightest spot for a lot of companies, even in some cases versus the US. And given your -- that's your biggest geography, have you noted things getting better there in recent quarters, or has it been good all year, or could it even be going the other way?

Maybe I can take that. I can give you some geographic breakdown. In fact, Europe was our strongest in terms of core sales in the quarter. They were up about 5%. A lot of that is being driven by the strength of our Pharma business, but also we've seen really good growth in the food-and-beverage business as well. For the year to date, it's up about 3%. So, pretty stable, but good core growth nonetheless.

The other thing I think, Chip, that is -- for us, in Europe is a bit of an anomaly because you have to continue to consider when we are selling products in Europe, a lot of our customers' products that we sell to, those products end up in other regions, whether it's upper-end fragrance cosmetics or Pharma.

So we've not really seen -- if you go back and look at Aptar, we've never seen as big of a drop as, let's say, some of the other companies in Europe. We've actually been relatively -- we've seen growth in Europe over the last couple of years where other people were seeing declines.

Got you. Okay. And last question is, when you look at your core sales growth year over year, would you say -- is there just a rough ballpark? I know you don't like to break it down by segment, but is there a -- if we look at the 3% for the whole Company, would that have been -- how much higher would that have been if we hadn't seen the resin pass-throughs?

The resin had about a 1% negative impact on the 3% core growth. So if we hadn't had resin pass-throughs, we would've been up 4%.

Which would approximate your volume improvement, I guess.

Correct.

Got you. Thank you.

Alex Ovshey, Goldman Sachs.

Just a couple ones for you on health care, just all the news flow around drug pricing and just the cost there. Do you think that has any impact on your business as you look forward? And then I think in the press release you talked about de-stock. What business segment were you most referring to there?

Well, first on the health care side, I think there's certainly -- our -- and this deals as much with our customers are feeling pressure in terms of drug pricing. But on the other side, I think what we are also seeing is a lot of opportunities for growth where you can make drugs more cost-effective by taking those in the home, not doing them -- the over-the-counter business for us continues to improve.

So I would tell you that the net effect of today's market probably for us is at worst neutral and probably today positive in terms of what we are seeing the growth.

When you are looking at -- so, again, we're still very positive on that side. When you're looking at de-stocking, you have a couple of things I'd like to point out, and we talked a little bit about this in my comments. In the Northern Hemisphere, our beverage market, since we are out of the summer season, fourth quarter tends to be slower in people's consumption of water and isotonic drinks. So that has a natural occurrence, and that will slow for us in the quarter. But our customers as they go to year end always talk about they want to get careful in terms of the balance sheet. So while we don't see any huge inventory de-stocking, we are going to see it in really pockets of each of the three business segments.

Got it. Very helpful. And just taking a step back and looking at the business over the last, call it, years, as resin prices have been materially lower than in years past, can you just talk about what impact if any just the lower resin price environment has had on the business?

Again, I think we have to split the resin into a couple of areas. As you can see, for the resin, we actually passed on in our dispensing closure business, which is a significant part in both Beauty + Home and in Food + Beverage. We passed those through to the customers. That should be a benefit from our customers as they look at their product.

That being said, in terms of some of our products that have resin componentry, we've been able to actually come back and accelerate margins due to those lower input costs. So, net net, it's probably been a net positive for Aptar. And we'd hope, at least as we go into the fourth, it looks like materials should be -- have a little bit of a slight downward bias, but a worst-case being flat as we go into the quarter.

Thank you, Steve.

Adam Josephson, KeyBanc.

In terms of your fourth-quarter guidance, I went back and looked. Over the past three years the average sequential decline in the fourth quarter has been about $0.07. Your guidance this year implies about $0.20. I appreciate there's some seasonality in your business, but it seems particularly pronounced this year unless earnings in the third quarter were unusually high for some reason. So, Bob, can you just help us with how much seasonality there really is in your business and why you are expecting the magnitude of the sequential decline that you are?

Let me try that, Adam. Because I think it's an interesting question. But, first of all, I think our third quarter was very strong. So if you looked at the numbers, we are coming off stronger than our third quarter would've been, for example, let's say, last year.

But the other side, as we look at the fourth, it's a tougher business for us to project given inventory issues and some of the seasonality. Seasonality for us is mostly going to come in our Food + Beverage business. That's more the seasonality. But, frankly, our customers -- as we get into December, there's a lot of plant closings, which makes it hard to project.

So as we looked at the fourth, we've got -- we had to take those into consideration, so we took a look at in terms of where we thought sales would come back. And also importantly from us is the mix of our business.

But I think when you strip both of those out, one of the things that I'm really pleased at on a constant currency basis, if you go to the mid-part of our range, we are still looking to be up over 10% -- or around 10% over the 2014 level. So, that's our best shot at where we think we are going to be in the fourth.

Got it. Thanks for that, Steve. I know you were asked about Pharma margins earlier. This is more of an overall margin question. Your year-to-date EBITDA margins are just in line with your long-term target already, so you are there. So what should we make of that? Do you think that you might be able to raise that range -- that target in the foreseeable future? Or do you have reason to think that you are perhaps over-earning this year on account of the lower raw material costs that you mentioned earlier? Extremely strong growth in Pharma or any other factors, for that matter?

Again, I think if you look at it, we are extremely pleased with the margin profile this year. I think in terms of our business, the people internally have done an outstanding job of controlling costs.

But that being said, the other thing you brought up is the lower input cost. And I think that's certainly had a benefit to where we are at. As we have said in the past, the targets we've given on the long-term margins, we're going to stay with because I think as we look over time, you're going to see things moving up and down.

So the good news is we are at the high side, but I'm not -- at this point, we wouldn't be willing to go out and say we are going to move the target another 2 to 3 points up.

Okay, Steve. And just one on Latin America. Steve or Bob, can you just talk about what you're seeing there just given everything we are hearing and reading about Latin America? Did you see any notable deterioration as the quarter progressed?

I think in Latin America, this just really goes back to, I think, one of the strengths of Aptar. It really becomes very dependent on our different markets. So, the biggest negative impact that we saw in the quarter was coming in our Beauty + Home operations, the fragrance/cosmetics side. But, frankly, we saw growth coming in our Pharma and our Food + Beverage side.

So I would tell you that when you look at the economic side, I think it is starting to stabilize a bit but certainly not seeing a huge amount of improvement. So our customers are maybe a little bit more optimistic going into 2016, but it's still going to be a challenging market for us as we go into next year.

Thanks a lot, Steve. Appreciate it.

Mark Wilde, BMO.

Bob, a couple of questions for you. One, just any thoughts on kind of pure repurchase activity now that that accelerated program is complete?

Well, we've got about another $100 million left on the authorization from the Board. So, we're going to be evaluating that at the opening of the fourth quarter. And if anything, we'd probably going into open market and then review that, as we normally do, on a quarterly basis with the Board in the future.

Okay. And then just one other one. It looks like the tax rate guidance for the year has dropped by about 100 bps. Can you give us a little color on that?

Sure. So in the US, if you remember back to last year, we were slightly lower than 30% in the fourth quarter. A lot of that is dependent on the extension of some of the US pass-through legislation. So, because it hasn't been extended yet, which in the last couple of years has happened in the fourth quarter, we are not allowed to assume that in our tax rate. So we have to kind of go along assuming and reporting that it will not get extended. But our feeling is that it's going to get extended again, so that's why we went with guidance consistent on the tax rate with the last year.

Okay. That's two. I'll turn it over.

Debbie Jones, Deutsche Bank.

I don't want to discount at all your performance in Beauty + Home. It's a pretty good improvement, better than we were expecting, but it is shorter than your long-term target. And I'm just wondering if you could give us kind of a path as to how you get to that 10% EBIT margin in the segment.

Well, I think, Debbie, again, as you pointed out -- and I appreciate we've seen significant improvement in the Beauty + Home performance throughout the year. And I think what's been particularly impressive from my perspective as I look at the business, despite really challenging market conditions, we've improved operating margins by almost 200 basis points.

That being said, we are, I think, 8.6% or something like that in the third quarter. To get us to the 10% where we need to go, we're going to need to see organic growth. So we're going to -- today, we are flat to 1% to 2%. We're going to need to see that 3%, 4% growth to get us back to 10%. I'm confident that the markets that we've got have been some unusual situations, that that's very probable as we go forward. But I think that's -- if you're looking for the one other component to get us back to the 10% is where we are going to come back.

One of the things that -- even looking going into next year, we just came out of a conference that we participate in in Monaco that talks about luxury goods. And it's probably been the most -- we've had more people attending looking at our products on the new technologies that we've got. I think that helps boding well for potential growth in that segment as we go into 2016 and 2017.

Thanks. That's helpful. My second question, you mentioned injectables. I think they improved 8% year over year. And can you talk -- how much of that is the market versus kind of Stelmi using Aptar scale? How should we think about that growth rate going forward?

I think it is probably a combination at this point. I think we were up 9% in terms of our injectable growth on a year-over-year basis. Certainly, the market is growing. But we're also benefiting that we are getting into -- and I think our benefit, really, of Aptar is going to be not as much in 2016. But probably as we get into 2017, 2018 -- because it's stuff that we are working on now getting qualified, that, frankly, the old Stelmi organization probably wouldn't have been even on those projects.

So, today we are at or slightly above the market, but I think it's more for the future that Aptar will really bring a lot of value here.

Okay, thanks. I'll turn it over.

Brian Rafn, Morgan Dempsey.

Maybe I missed it, but did you guys have any comment on the perfume/cosmetics side, the low end, more the economy versus, say, the prestige, the higher end? And then what are you guys seeing at all for Christmas sales?

I think on the fragrance/cosmetics, we've seen across both the upper part of the market and the lower that fragrance sales have been not as robust as what we've seen in the last couple of years. So that's probably a 1% to 2% growing market.

Offsetting that somewhat for us has been the facial creams cosmetics side, and that's been growing very well. So I think it's a bit of a mixed bag in terms of what you've seen. And you can -- there are certain customers that you can talk about, whether it's Avon or Coty, you can -- they've had certain challenges.

But if we looked at Christmas, I think the Christmas volume is going to be somewhat comparable to what we saw in 2014 from what we are hearing at this point.

Okay. And then just, Steve, kind of a bigger picture. Last couple of years we've seen certainly some heightened tensions. Just in the last week, the Russians buzzed the US Reagan's carrier group. We've got NATO troops moving to the Baltic borders. Iran and the bomb, Hezbollah, Hamas. Any sense on global tensions? I know obviously you guys do a lot of staple, a lot of necessity stuff, consumer care. What do some of these global big picture -- going back to the Cold War -- do they have any implications for your customers in their sense of trends going forward, their sense of business order patterns?

It's a tough question because it's fairly broad. But I think, Brian -- I guess I'll give you two things. I think it's somewhat dependent on the markets that we are in. So as you said, the real plus for Aptar is we're pretty well diversified.

Certainly, one of the areas we've seen a big softness is today is Eastern Europe including Russia. If you are a Western company selling into that market, that's a bit more challenging. Offsetting that is our local Russian customers who seem to be doing pretty well.

I think when -- if I had to take it from a macro standpoint, I think it adds to just a bit more conservatism on our customers as opposed to a robust, let's go all out into 2016. They are still looking to grow, but it's still more of a cautious growth would be -- that would be the best way I could articulate it.

Thanks, Steve. Appreciate it.

Chris Manuel, Wells Fargo.

Congratulations on a strong quarter. I wanted to circle back to the growth pipeline. The last quarter or two, if I recollect, tooling sales have been down quite a bit. Traditionally, we've thought of tooling sales as sort of a good leading indicator into what growth looks like going forward. But it seems like your growth in food and bev has been pretty good. Is that isolated any particular area within there first? And then, second, is it perhaps that customers are pooling stock product as opposed to stuff with their names on it or things of that nature?

Chris, let me touch a little bit on the tooling. We did see a bit of a decrease in the first quarter, but second quarter and third quarter on a consolidated global basis were relatively flat on a reported basis. What you've got is you've got a mix between the segments. So, even though it was negatively impacting food and beverage, which was down in the quarter in tooling sales, it was a slight positive in the other two.

So it's difficult to predict what's going to happen quarter to quarter, and it will vary from segment to segment. But customers are always going to have an option between using a stock-based product and a custom tooling product.

So, I wouldn't look so much into that in terms of forecasting different growth volumes or anything for any one of the segments.

Okay, that's good color. With respect to the other regions, I think you gave us what volumes were like in Europe. Do you have a -- sometimes you give us a read on Latin America; Asia-Pacific as well. Given the weak macro environments there, I was just curious to see what your year-over-year volumes were like.

Absolutely. I can give that to you, Chris. As I mentioned, for the quarter, Europe was up 5% on a core basis. The US was up 2% in the third quarter. Latin America on a core basis was down 6%, but almost all of that, or entirely all of that, was due to the decrease in the tooling, primarily in the food-and-beverage market. And Asia for us was up 1% in the quarter.

Okay. That's helpful. One question for Steve, if I can tuck one in here. As you look at acquisition opportunities, how are you feeling about the market today? Are you finding any sort of other tangential niches that look Aptar-like for you with return characteristics, or is it more kind of stay the course with repurchase and dividend hikes?

No, I think we'll -- I think I mentioned a little bit earlier in the call that I think the M&A opportunities that Aptar is seeing is probably as positive as we've seen over the last year or so. So, again, from ours, we're going to continue to look at the capital allocations side. If an acquisition makes sense for us strategically, it's certainly something that we've got the balance sheet to be able to do. So I think there is good opportunities. There's good opportunities that fit within Aptar's niche as we want to go forward, and those are things we'll see as we go into late 2015 into 2016.

Okay. Thanks, guys.

Jason Rodgers, Great Lakes Review.

All my questions are asked. Thanks.

Jon Andersen, William Blair.

Just a couple of quick ones. I think Bob, you mentioned that resin took about a 1% off sales growth in the quarter based on the pass-through. If you can, can you comment on how resin impacted your earnings in the quarter? And then as we look to Q4, how should we think about the resin dynamic, both in terms of impacting sales and earnings as well? Thanks.

Sure. It had a slight positive on the bottom line, slightly more than it was in the second quarter. It was around $1 million, primarily split between Beauty + Home and Food + Beverage markets.

Looking forward to the fourth, again, we're going to be comparing fourth to fourth here, so I would expect that there will still be an impact on resin pass-throughs when we talk about fourth-quarter 2015 compared to 2014.

It's still too early to tell exactly which way or if we're going to see any additional swings, but certainly we are seeing Europe trending a little bit downward compared to what we've had in the third quarter. So we could see some additional pass-throughs depending on when that hits and depending on the customers' terms with us.

Excellent. Thanks. One more bigger-picture question, I guess, on Beauty + Home. It's been at least a couple of years now, I guess, since the Beauty + Home business has grown on a core basis in line with your longer-term target of 4% to 7%. I'm just wondering, is that a function of the end-market demand or value-added dispensing solutions are further penetrated? Are further along the adoption curve, if you will? Is there a competitive dynamic at work here? Do you feel like you are holding or gaining share or --. Just trying to get a little bit more color on structurally what's going on there and maybe how quickly you think you might return to more of a profile growth of 4% to 7% there. Thanks.

It's a good question, John, and it's one that we continue to take a look at. So you are right. Last year, we were slightly below our -- if I look at 2014, we were about 3% growth last year. We are a bit lower than that.

Our view, frankly, is that there is still a lot of opportunities in terms of conversion opportunities. And one of the areas we continue to look at is our home-care market, which is a relatively small market for us as, we think, pretty good growth opportunity base.

So when you start to look at some of the issues that are affecting us, particularly in 2015, in our view a lot of those really macro issues are reflecting issues around our customers. So, for example, we are a major supplier to Procter & Gamble in their fragrance business. They are down significantly when you just take a look at their operating results. So the good news is we are a major supplier. The bad news is when they are down, we're going to be down.

So on a macro basis, we've seen some softness. And, again, we've talked some of the economics. But, again, from our perspective, that 4% to 6%, 7% growth is still something that we are long-term encouraged we are going to be able to achieve.

And from a competitive standpoint, anything -- any kind of a sea change there? Do you feel you are holding share broadly in the space?

Yes. I think -- and when we take a look at it, certainly we are not winning everything that we are going to compete on, but we're also the majority player in a lot of the markets. And from our -- when we're taking a look at the market, we still feel we are at the same market share or even in some cases above from where we were in the past.

Thanks a lot, guys. Congrats on a great quarter.

(Operator Instructions) George Staphos, Bank of America.

Two quick ones. Steve and Bob, if you can, talk again about tooling sales and how it relates to your product activity. Our intuition would be that if you are seeing a very good new-product pipeline that more of those products would tend to be custom and therefore more likely to have custom tooling. Is that a correct assumption or not? And how does it reconcile with, again, in particular in food and beverage, the decline that we saw in the third order?

And then maybe to flog M&A one last time, when you look at the environment, are you seeing a greater number of larger assets available? Not talking about valuation, whether it's attractive or not. But are you seeing a greater number of larger targets available relative to what would have been the case a year ago? And how would you frame the valuation quotient versus a year ago? Thanks, and good luck on the quarter.

George, I'll take the tooling question that you had. Specifically addressing the food and beverage decrease in the quarter, if you remember, last year we talked about a new Gatorade project that was launched in Mexico. That had some pretty significant tooling sales last year in the third quarter. So that is more of a comparable issue with what we had there.

It's really going to depend on whether the customer wants a very unique shape, design or something unique that we can only sell to them. If these custom tooling projects are successful in the market, then we could also see follow-on increases in capacity and the like. Steve had mentioned the Nu Skin project. That was one that had some tooling in the positive for Beauty + Home this year.

So we need to have some time before we can see what the follow-on is and if it's a trend to more customized projects. But to answer your question, yes, when there's tooling sales, they typically lead to custom-type product sales in the future.

I'll try to touch on the M&A. But, again, on the tooling, I think, George, the other side is if you go back three to four years, our tooling sales have been relatively consistent from a year-to-year basis. So it's not like we are seeing appreciable declines or, frankly, increases. And it has to be a little bit on a style based on where people go.

When you asked about M&A in terms of what we are seeing, are there bigger deals that are out there, I think it's really a combination of larger and smaller transactions that are out. I think still the challenge comes back in terms of valuation. If you look at multiples that are in our sector, there's certainly a good half-turn to a turn higher than they were probably a year ago. So, good companies that are being sold are not inexpensive to buy. But there are opportunities and, again, they may fit well with Aptar as we go forward.

Thank you very much.

Mark Wilde, BMO.

I've got two of them. One, Steve, I'm just curious about how much is left in the tank in terms of margin improvement from cost savings.

Well, you know what, we are going to continue to look at that. I think it's going to be very dependent on the sector -- or, excuse me, on the business segment. I think if you come back, we are -- we aggressively look at cost in terms of new equipment, how we get more efficient. So I always think there's more improvement in productivity. The bigger challenge to that is can we make sure we keep that to ourselves, or how much do we have to share that with customers through the pricing side. Because it's a competitive marketplace.

But I wouldn't come back and see -- I wouldn't tell you we are at the top of where we are at margin-wise. So we always take a look at opportunities in that side.

Sure. Part of this is just the ongoing nature of any business. The other question I had, Steve, you have kind of called out this customer inventory reduction as we near year-end. Are you seeing anything unusual this year in the -- just your order flow as you've come through October that makes you feel like it's going to be a bigger issue in 2015 than it was in 2014? Or are you just calling it out so that people are aware that this is a normal seasonal issue?

I think it's certainly more to the second side. We're not seeing broad-based. And, again, I think the challenge I mentioned a bit earlier in the call, it's tough for us to take a look at December to figure out where customers' orders are at. So we'll get some customers going, we like product shipped the first week in January because they are dressing up the balance sheet.

So -- but in terms of how we are looking or how our customers are looking, it's -- there's nothing out there that is a broad base. Everybody is taking out inventory. It tends to be more business as usual and hard to predict.

Okay, all right. Fair enough. Good luck in the fourth quarter. Good luck next year.

And I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Hagge. You may begin -- you may continue.

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

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect. Have a wonderful day.