Aptargroup Inc (ATR) 2016 Q1 法說會逐字稿

Welcome to AptarGroup's 2016 first-quarter conference call. (Operator instructions)

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

Thank you, Howard, 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 a brief overview of our quarterly performance. Bob will then discuss a few financial details and we will open it up for questions.

Information that will be discussed on today's call include some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to our 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 call over to Steve.

Thanks, Matt. And good morning, everyone. Yesterday, we reported first-quarter core sales and earnings-per-share growth on a comparable basis. We were able to grow our core sales despite some ongoing headwinds, including lower custom tooling sales, passing through lower resin costs, and softness in certain markets.

We helped our customers bring new products to the market across each segment, and we performed well operationally. Adjusted earnings per share increased over the 2015 level and we expanded our adjusted EBITDA margin over the prior year.

During the quarter, we also completed the acquisition of Mega Airless, which adds complementary products and market coverage to our existing diversified portfolio of business. I am very pleased with the integration progress and Mega is performing well, as we expected.

Our beauty and home segment continues to see softness in the personal care market, but as we saw in the fourth quarter, sales grew in the beauty market. In home care, we saw signs of improvement at the end of the quarter, particularly due to the volume of insect repellent orders for the Zika virus.

We remain focused on consumer -- on customer growth initiatives and new product discussions, including in emerging markets. We participated in several product introductions in the quarter, including a new global perfume launched by Christian Dior, featuring our new long-lasting fine spray actuator. Our pumps are also featured on several new haircare products from L'Oreal in Europe, ranging from conditioners to hair mousse.

In India, two new spray deodorant project products featuring our twist-to-lock closure technology were introduced. Finally, our dispensing closure was selected by Fruit of the Earth for their dish soap product in North America. Now looking ahead, I am encouraged that our beauty and home segment is expected to grow on a core sales basis in the upcoming quarter before any positive impact from the Mega business.

Our pharma segment had another good quarter. We continue to see strong demand for our [are] devices, particularly those used with allergy and central nervous system medications, and our components sold to the injectables market. Our pharma segment participated in several new launches, which confirmed our active project pipeline.

In the consumer healthcare market, the Clear Eyes brand has introduced a preservative-free drop solution that utilizes our ophthalmic squeeze dispenser. This is the first multidose preservative-free eye care product in the US.

Our nasal pumps continue to see much success and are featured on two new over-the-counter allergy products, including ClariSpray, the nasal version of Claritin, and private-label brands of the generic version of Flonase. Our nasal spray pump is also featured on the first prescription generic version of Nasonex in the US.

Now turning to our food and beverage segment, it also had another good quarter. Our food division saw growth in all regions. Our beverage division is experiencing normal recovery after a seasonally soft winter, although our core growth was negatively impacted by a decrease in custom tooling sales.

We participated in several new water and juice introductions globally. Heinz Kraft launched several new condiments, including ranch dressing, new mustard flavors, and new barbecue sauces, featuring our snap-top closures with our SimpliSqueeze valve for inverted packaging.

In the UK, we provided a resealable hinge plastic lid for Nestle's restaged Nescafe range of coffees. Also in the food market, our closure is featured on a new infant formula launched in China.

Now looking ahead, I am optimistic that we will be able to continue to grow our business on a core basis. Our dialogue with customers is confirming their interest in innovation as a means to grow market share. We anticipate core sales growth in each segment over the prior year, excluding what we have will be the positive impact from Mega Airless. We will continue the good progress we have made on the integration of Mega and remain focused on cost containment across all of our business segments as we invest in growth opportunities for the future.

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

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

As Steve mentioned, we completed the Mega Airless acquisition at the end of February, and therefore, one month of Mega Airless's activity is included in our first-quarter reported results. And their opening balance sheet is included in our March 31 balance sheet.

In looking at how our business segments performed in the quarter, I will start with our beauty and home segment. As you saw in our press release, core sales before including Mega Airless, and keeping currencies constant, decreased 1%, primarily due to the pass-through of lower resin costs as the growth in the beauty market was offset by continued softness in both the personal care and home care markets. Mega Airless added approximately 2% to beauty and home's reported sales in the quarter.

When we look at profitability, I am going to be speaking about EBITDA margins. And in the quarter, our beauty and home segment achieved an EBITDA margin of 14%, which does not include the impact of the writing up to fair value of inventory that was sold in the quarter, which is approximately $2.2 million. This margin was an improvement over the prior-year margin of 13% due to our focus on cost containment over the past year and in part the increase in the beauty business. Mega Airless's results, excluding the one-time inventory item, had a small positive impact on the EBITDA margin.

Looking at sales growth by market on a constant currency basis, we are encouraged that the growth we saw in the beauty market in the fourth quarter continued into the first quarter. And sales were up 6% over the prior year. This was in part due to the inclusion of Mega Airless for one month, but also due to growth in the beauty markets in both Latin America and Europe. Sales to the personal care market decreased 5% and sales to the home care market decreased 1% from the prior year.

Our pharma segment had another excellent quarter, achieving an EBITDA margin of 34%, equal with the prior year on core sales growth of 5%. Mega Airless's business did not have a significant impact on our pharma results in the quarter.

Core sales to the prescription market increased 9%, primarily driven by increases in demand for our delivery devices for allergy, asthma, and pain treatments. Core sales to the consumer healthcare market decreased 1% and this is mostly due to lower tooling sales and continued weakness in Eastern Europe compared to the prior year. And core sales to the injection market increased 4% on broad-based global demand.

It was also another good quarter for our food and beverage segment. Despite headwinds from passing through lower resin costs and decreased tooling sales compared to the prior year, core sales increased 7%. Excluding those headwinds, core product sales actually increased approximately 13%. We also expanded our EBITDA margins to 18% from 17% a year ago [based on product launch throughputs] and continued cost containment efforts.

Moving to the [food segment] increased 7%, primarily on growth in salad dressing and granular food categories. Core sales to the beverage market increased 8%, but lower tooling was a headwind of approximately 7%. Thus core product sales in beverage actually increased 15%, driven by strong demand towards the end of the quarter across a variety of categories, including bottled water, juices, and isotonic drinks. This indicated an end to the seasonally soft demand of the winter months.

I would like to take a few minutes to walk through the unusual items that hit the quarter. Our reported quarterly results included the cost to complete the Mega Airless transaction, and that was approximately $0.06 per share or $5.6 million on a pre-tax basis. These costs are included in our corporate and other subtotal and are not reflected in any of the segment's operating results.

Our reported results also included a negative $0.02 per share from Mega Airless's operating results that included the impact of the one-time inventory valuation item. Going forward, we anticipate that Mega Airless will contribute approximately $0.02 to our earnings per share each quarter.

We also benefited by a few unusual tax items, primarily a projected French tax refund. And these items had a positive impact of approximately $0.04 on our quarterly EPS. Our first-quarter guidance did not include any impacts related to the Mega Airless or the tax benefit amount recognized in the quarter. So on a comparable basis after excluding the foregoing items and after adjusting to achieve constant currencies, our adjusted EPS of $0.71 compares to $0.69 in the prior year.

Capital expenditures were approximately $24 million in the quarter and our free cash flow was a negative of approximately $12 million compared to a positive of $12 million a year ago. The primary reason for the decrease in free cash flow relates to changes in working capital as a result of the strong level of business at the end of the first quarter this year.

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 29%. And we were over 1 times levered compared to our trailing 12-months adjusted EBITDA.

We were updating our previously disclosed projections regarding depreciation and amortization and capital expenditures to include the Mega Airless business. For the full year 2016, we now expect depreciation and amortization to be approximately $165 million and that our capital expenditures will be approximately equal to that amount. Lastly, we expect our effective tax rate for the remainder of the year to be in the range of 31% to 32%.

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

(Operator Instructions) Ghansham Panjabi, Baird.

First off, on the pharmaceutical business and the strong sales growth, was there anything on the mix that kept margins from expanding even further? It seems like operating leverage should have been higher, given the healthy top-line growth, particularly in the prescription side of that business.

I think when we have looked at it, we are still considered -- we are actually a little bit above the top end of the range we've given for margins. And one of the things in this business is there continues to be a lot of R&D spending on our side to make sure we are ahead of where we -- ahead of new products and where we need to go.

So on the other side, we saw pretty good growth on our injectable business, which has a bit lower margin profile in the quarter. So I think that is really a combination of those. We were actually very pleased on the pharma side of the business.

You also have a slight negative on the Mega Airless business that is included in the pharma results, due primarily to that inventory write-up to fair value that is also impacting the operating results.

Okay. That is what I was trying to get at. And then my second question -- I guess on your commentary on beauty and home and expectation for core sales growth in 2Q, apart from just easier comparisons, what are you seeing in that market that gives you confidence on the growth? And can you break out what you are seeing on a global basis -- Europe, US, Brazil, and Asia? Thanks.

Again, what we have seen is we have seen some momentum coming in the beauty market from the fourth to the first. And we think that will continue as we get into the second quarter.

In that market, that is pretty broad-based for us. North America has been our weakest market for beauty, but Europe is growing. And frankly, we are seeing excellent growth right now in Latin America over what was a relatively weak 2015. And Asia continues to see some growth, but not -- it is a relatively small number for us.

The other side for us, again, I talked a little bit about on the household market, we saw some expansion in terms of what we categorize insect repellents in our home care market. And we are seeing, with the Zika virus, product that our customers are shipping to Latin America and for the upcoming mosquito season here in North America and Europe, an increasing amount of insecticide.

And finally, we are also hoping for a small recovery in the personal care market going into the second quarter off what has been a relatively weak market for us, both in Europe and the US.

Okay. Terrific. Thank you.

Mark Wilde, BMO Capital Markets.

First question I had, Steve. I wondered if you could give us a little more color on the decline in tooling sales. And whether we should read too much into that as an indicator for volume growth 12 to 24 months out.

No. I think, again, historically, that has been really choppy for us, Mark, in terms of what we have had. We have got still several projects that we are working on with customers, and we actually expect to see an increase on a comparable basis in tooling as we get into the second, third, and fourth quarter.

So some of this is also a timing of where customers will want to differentiate their own products versus buying more of a standard product from us. So we are seeing a little bit of that. But from ours, we actually make as good a margin on our standard products as we will with any products that we see coming with a custom tooling side.

Okay. That's helpful. And then just for my follow-on, I wondered if you could update us on the Stelmi expansion. I think last quarter, you said that the real impact of that was going to be in the second half of this year. But if you can just update us on that situation and how much of a kick Stelmi could provide when we get out in the third and fourth quarters.

Yes. I think the good news is we are still on both budget for cost standpoint and also in terms of getting the equipment in. So the majority of the equipment in France has been installed. Our buildings have basically been completed to handle that.

What we are going through now is a -- and we will be going through through the second quarter -- is qualification of the new equipment internally. And then we will be starting the qualification with customers. So we will begin to see a ramp-up in the second half of this year for sales, but the largest impact will be probably more towards late fourth quarter and then getting into next year. So I don't expect to see a material impact from the Stelmi expansion really until we get into 2017 of any substance.

Okay, that's helpful. Thanks. Good luck in the quarter.

George Staphos, Bank of America Merrill Lynch.

Thanks for all the color so far. I wanted to pick up a little bit on the beverage trends that you are seeing. And recognizing there is disparity between different types of packaging across the beverage market.

It looks like the market has been a bit stronger. What are your customers saying in terms of what has been driving renewed growth? We have seen, in particular, some pickup in the closures business for isotonics, so the fact that you are seeing that now in your business isn't surprising. But in particular there, what is driving the rebound, if you would put it that way? And then a couple follow-ons.

I think if you looked at food and beverage -- and I think you are right. I mean overall, the food and beverage, if I take out tooling and resin, we were up about 13%. So almost 15% in the beverage alone on core product sales.

What we are seeing -- first of all, I think we have to -- in all honesty, it is still a smaller part of our business. So percentages can be a bit misleading. But we are seeing good activity with our customers in the beverage market in Latin America, where we have had a relatively small portion. And again, we tend to be more of a niche player in the beverage markets in Europe and also in Asia. And both of those, with the customers we have got, are growing.

Isotonic for us is doing well. We are on the Gatorade project in both Mexico and now into Latin America. So those products are relatively new for us and expanding in volume. And then again, the niche products that we have in North America with smartwater and some of those continue to expand. So the good news for us: it is pretty broad-based, George.

Okay. Appreciate that. Now what gives you comfort -- I think you said you expect to see some core growth in personal care this year after obviously what has been a pretty soft year, at least. And then I had a follow-on on -- in beauty and home overall.

Again, I think on personal care, the comps, frankly, become a bit easier as we go forward. And I wouldn't call it robust growth. What we have been doing is seeing a decline. I think we are going to start to see that abate and we are going to see some upward movement, particularly in North America and in Europe. So I don't think there is, again, not one project to deal with that.

Okay. Then particularly within Brazil, I am assuming that there has been a rebound there in beauty because you called out Latin America in total for beauty. But could you provide a bit more color in terms of what kind of growth you are seeing or what the financial implication would be as we look out the rest of the year? Thank you.

Actually, George, we were up all together in Latin America -- again, the biggest piece of that being beauty and home -- about 24% in the quarter. Now about half of that is going to be volume growth and about half of that is going to be pricing increases that we implemented throughout 2015 and continuing into 2016. But even at half, 12% volume growth is very strong growth for us in that region.

And just implication, beauty has picked up in Brazil. Would that be fair?

Yes. Most of that is going to be beauty in Brazil.

Chip Dillon, Vertical Research Partners.

Yes. A couple questions and good morning. First is on the Latin American experience. Could you talk a little bit about how -- where you are seeing the strength in light of the challenges that they are having socially and economically? It is terrific that you guys are seeing some improvement. And some comments on that would be helpful.

And then secondly, could you tell us how you think FX is going to hit you? I am not asking you to predict the exchange rates, but let's say we froze them where we they are here. I would imagine that by the third quarter, they may actually become a tailwind. Not so sure with the Brazil piece, but do you start to see that by then become maybe even a tailwind by then for you?

Okay. Chip, on the Latin American growth that we have seen, first of all, we have got a particular customer down there that is doing very well, for one. So we are benefiting from their growth.

But also, I think our investment in the past year and a half into Colombia, into more local production, is also helping quite a bit. So while we are not sourcing 100% of the components in Latin America, we are viewed as a very local Latin American producer. So I think that is a benefit. We have seen some nice growth in our Colombian operation as well.

On the FX side, while we are seeing some strengthening of the euro, if you take a look at where the spot rate is today compared to where the average was in the second quarter last year, it is actually being more than offset by the comparative weakness in the Latin American currencies compared to last year. We saw some pretty significant devaluations at the back end of 2015.

So comparing where we are forecasting second quarter to be versus where it was, the weakening of those Latin American currencies is actually more than offsetting the strength we have coming from the euro.

Got you. And then just as a quick follow-up, I know you just closed the Mega acquisition, but how does the environment look for you? And would you be surprised -- should we be surprised that there is another -- maybe not transformative, but significant bolt-on this year? Or is that less likely?

First of all, I think in terms of -- let me deal with two parts to that. I think in terms of your second part of the question, certainly Aptar's balance sheet today has enough strength to be doing these bolt-on acquisitions. So if a strategic transaction comes forward, I would not be surprised, certainly, to see us doing another transaction with that. Financially, we have got the capabilities. And certainly within the people we have, we would be able to integrate another company the size of Mega.

But again, I want to come back and touch on Mega. Because the nice thing is as we have started the integration, while it has only been for one month, we have been very pleased with the success we have on continuing to potentially grow this business, which is reason we bought it, out as we get into the second half of 2016 into 2017 and 2018.

Just to come back and give you some numbers, before, when we'd looked at Mega, we thought we would be getting, before any of these write-ups for the amortization, about $0.20 per share in terms of what we had looked at Mega. Our initial thought is these non-cash write-ups for the accounting would be in the area of $0.10, giving us an annual run rate of about $0.10 a share.

The accounting adjustments -- or the non-cash write up, actually, came to be a little bit more to being $0.12 a share, getting us down to an annual run rate of about $0.08 a share. But I think it is really important from us that the sales growth -- we are still achieving those and the margins that we had with the business we are still achieving before we get into the accounting machinations.

And just to clarify -- I know I am done here, but -- so that means that the cash -- the earnings accretion is $0.08. But the cash earnings accretion arguably is $0.20 if you spend what the underlying depreciation was.

That is correct. So again, I think -- so again, that is the $0.20, by the way, also includes some Mega depreciation. So that was more of them standalone. But because of the way the accounting works on the write-up, there is a $0.12 non-cash hit. So again, we are extremely pleased with what we think we will be able to generate cash flow-wise out of the transaction.

Adam Josephson, KeyBanc Capital Markets.

Steve, congratulations on the Blues' big victory over the Blackhawks recently.

You know, that is painful. I am just going to ignore that, Adam. So just let's move on.

Come on. Say something. (laughter) Bob, forgive me if I missed this on the raw material side. Did you quantify the benefit in the quarter and what you are expecting in the second quarter, just based on wherever polypropylene and your other raw materials are at the moment?

Actually, Adam, I did not. But on the operating income side, in the first quarter, it really wasn't significant to our operating results. And going forward, it is difficult to project, but we are looking at a potential slight positive.

Okay. Steve, a couple for you. One: you mentioned the allergy and central nervous system side were particularly strong in pharma. Can you just elaborate on what you are seeing there?

Well, first, let's break them apart here. On the allergy side, we are seeing a lot of new applications come over the counter. ClariSpray, which is a major brand with Claritin, has now been introduced. If you go to CVS and Walgreens -- in fact, if you just pick up or watch TV in the US, you have seen all kinds of advertising for Flonase as well as now if you go into CVS and Walgreens, the store brands are actually being promoted. And that is in addition to both prescription and generic prescription. So those have continued, and that continues a trend that we saw through most of 2015.

On the central nervous system, again, we talked a little bit about this on the other call like going back a quarter. We have seen products coming back for opiate overdoses, our product called Narcan, which is now being sold over the counter to prevent death from heroin overdoses, et cetera.

We are also seeing pain medication, which is a bit tied to central nervous system. But again, those being dispensed nasally, where we are working with a company on the name of INSYS, which has been very successful in their launches of these products.

So again, we continue to have a very good pipeline going forward and we are optimistic about those two. But again, I also mentioned the ophthalmic side, which I think also offers a significant opportunity with our first preservative-free, multidose nasal product entered here in the US. So we are optimistic about the future of the product lines.

Thanks, Steve. And just one last one about the macro. I don't remember there being much in the way of macro comments in your press release or earlier on the call. Were conditions about as you expected them to be in the quarter? Just given the volatility in the global economy, I would be somewhat surprised if everything progressed exactly as you expected.

I think when you take a look at on whole, the macro side certainly from our customers isn't robust. They are, I would say, relatively cautious. We think that that actually is a benefit for us because in slow growth markets, innovation becomes more critical for our customers.

What was a bit of a surprise for us was, frankly, the strength we saw in Latin America. When we went into the market, again, economically, there is challenges down there, but our customers have had a relatively weak 2015 and are trying to be pushing their products harder in 2016. So overall, I would say wouldn't say fundamental changes in the macro, but certainly it is not a robust market in any of the markets we see around the world.

Thanks. And just related to that, why would beauty demand have picked up, just, again, given everything that is going on there? Perhaps it is a silly question, but I don't quite understand what would have precipitated that.

Again, part of it has to go -- remember, we were down in sales -- it is on an easier comp for us. But we were down in sales. And again, our customers are trying to promote more aggressively.

So if you looked at -- and we are selling to very strong regional customers in that market versus import. So it is local currency to local currency on what they are selling to. So again, I wouldn't tell you the economy is robust, but we have got customers in that market that are pretty aggressively trying to push their product.

Jon Andersen, William Blair & Company.

I wanted to ask a little bit more about Mega Airless. If possible, if you could give us a little more color around the composition of that company's revenues. I know it straddles in some extent I think beauty and pharma.

And then secondly, if you could talk about where you see the most encouraging growth opportunities for the product line. And also whether there are capacity investments or other investments that need to be made. I'm thinking about some of the investments you have made in Stelmi to expand capacity since that acquisition.

Jon, okay. Let me try to go through a little bit with it. On Mega, right now and when we have looked at it and classified as Aptar -- we make our classification between the various markets -- it is about an 85% beauty sales, about 15% pharma. Some of what they had considered pharma, we probably have more in beauty, personal care type markets for us. So let's call it 85%/15%.

The fastest-growing part of Mega has been the pharma part and we actually think we will be able to continue with our regulatory experience to grow that increasingly as we go over the next couple years.

When you also look at opportunities for us, Mega was primarily a European company with a smaller business here in the US. With our capabilities in Latin America and in Asia, we think we'll be able to accelerate that. For us, when you talk capital, that will only mean maybe some assembly machines, molds, but it is not going to be new bricks-and-mortar.

So again, while we are looking at the synergies to be able to grow it, beauty, it fits very well. We are doing much more on our Airless. Our legacy airless on prestige; Mega fits mass. So again, what we are seeing is be able to go to our customers and offer a broader range of products. So we are optimistic about the future of where the product line is going to go.

Really helpful. My follow-up is on commodities and pass-through pricing. Not sure if you quantified the impacts on the Company as a whole in the first quarter of pass-through pricing, specifically.

And then if you could do that, that will be helpful. And then how you're thinking about that, both commodities and the pass-through price dynamic, for the subsequent three quarters this year.

I can tell you that on the top line, it negatively impacted the comparative sales results by about 1%. Slightly more in food and beverage than in beauty and home. But as I mentioned earlier, a nonsignificant impact on the bottom line.

Looking out, it is really difficult for us to project certainly for the next three quarters. I mentioned we are expecting a slight positive on the bottom line in Q2, but I really couldn't give you anything more than that on a top line or even further out into Q3 and Q4.

Okay. That's helpful. Appreciate it, guys.

Chris Manuel, Wells Fargo Security (sic).

Just a couple small questions here for you. First, I would like to go back to Mega for one second. I know it has only been two months or so that you have actually owned the assets, but early days of getting folks now being able to talk to each other, have you unearthed any either revenue or product synergies with the existing portfolio?

I know that is something you guys had hoped to do through time, but I don't know if there are any kind of quick hits that you guys found getting the people all talking together at this point.

I think if you look at that, certainly what we have done -- the integration process is going extremely well. I think the people at Mega and the people from our legacy business are working very well together.

We have got small hits that we've been able to make. There is some savings in terms of supplies, et cetera, but not on a material basis we would be calling out. What we are seeing is Mega being a smaller business, we are able to get them into some more significant customers. And so from a project basis, we are encouraged of where that is going to go.

So I would be -- I am looking -- I think we are not as much trying to push short-term synergies, but make sure it is a longer-term view. And making sure we can establish the product line within Aptar's broad range of products today.

Okay. That's helpful. And then I think earlier, you mentioned that you were starting to see Heinz back in the market with some new product development. I think the condiments or something.

As you sit today, I know they have been, having gone through their own merger and their own work there, have kind of been out of the market for a little bit and stuff. Have you seen activity with them pick up? Is it kind of broad or is it limited to certain areas? Can you maybe comment a little bit on new product development?

Again, I think I -- what I would try to do is give you a little color on -- for how we see the Heinz Kraft deal. Because I think there is a difference between what was the Kraft business and what was the Heinz business.

On the former Heinz business, you're exactly right. We are seeing projects coming in with -- there is new barbecue sauce; there is new mayonnaise; there is mustards. And we are seeing that both in Latin America and here in North America as well as in Europe.

So what we are getting the impression is that a lot of their cost -- initial cost cutting is kind of still going on, but it is now going -- they need growth in the product. So we are seeing that move. It is a bit different on the Kraft side, where they are still going through the integration and there is not probably as much growth there. But we are not seeing any significant loss of any business.

That's very helpful. Just one little clarification on that. Is it mostly restagings or re-introductions in different sizes, shapes, contortions? Or are you actually seeing some new development different products to the extent you're [seeing them]?

I think it is a little bit of both. But we are seeing -- for example, mayonnaise. I can't tell you if Heinz had mayonnaise in the past, but I know that is a new product that we are on. So I think it is -- if they've had them, they have not been pushing those products from ours. They are going to use the package to really reinforce the product image going forward and I think that is something we really do well.

Okay. That's helpful. Thank you.

Kyle White, Deutsche Bank.

Thanks for taking my question. I am actually filling in for Debbie Jones, who is out traveling. I wanted to go back to Mega. You said 85% was beauty and home related. And I'm just curious how that business in Mega compares margin-wise and the [broader] profile there to your legacy beauty and home segment?

Well, I think, again, you would have to come back and Mega, what I would be looking at is the product type. So again, they are selling what we refer to as an airless pump. Their margin profile for those products and our margin profile have been similar. So they are not fundamentally different.

So again, that margin profile is a bit higher margin than on average, but it is not substantively different between legacy Aptar and what Mega had.

Okay. That's helpful. Then if I could follow up on Ghansham's question earlier with pharma margins. It seems like something that we talk about just about every quarter with the pharma margins supposed to come down, but yet they stay at these higher levels. Is that something that we should expect more once injectables gets ramped up with Stelmi or how should we think about that?

I think you have got two issues and one of those is, you hit on it. Ghansham had asked the question: why didn't margins expand. Because we are seeing growth in the injectables side.

And we also expect to see more growth in the consumer healthcare side, which is a bit faster growing and has a smaller margin profile than our traditional RX. So again, we would be very -- our goal is not to try to reduce the margins, but to try to grow that as much as we can. But anything we can get at a 23%, 25%, 26% margin, we are certainly aggressively going to pursue.

Okay. That is helpful.

Brian Rafn, Morgan Dempsey.

Steve, your comments, I'd say, ex-Heinz and Kraft. You guys really kind of invented and innovated that whole inverted packaging gravity-fed with SimpliSqueeze. Ex-Heinz and Kraft, are you still seeing organic development in penetration or maybe conversion of packaging to inversion in SimpliSqueeze in that whole condiment area? Or would you say that is a highly mature area?

No. In fact, I think what we are doing is we have been encouraged, Brian, over the last year or so. We talked about this on a couple calls ago. Sour cream, which I guess you can consider a condiment, they have now, with Daisy, which is the leading brand, I think, here in the United States, they have moved to an inverted dispensing side.

So what we are finding is that if people are seeing that convenience -- and certainly with the products -- we are seeing more and more categories looking to go inverted than even what we had before.

Okay. No, that is awesome. We have kind of beat this Mega Airless thing to death. I will ask beyond the cost containment, supply chain, and some of the logistics, your ability to take and cross-market technology of Mega Airless from, say, the beauty and home to another area. Is there an ability to find other technology applications that historically Mega Airless has not been in versus just the geography-type introduction?

No. In fact, it is a good question because we are -- what we are looking to do -- and, again, when we looked at Mega, I think we mentioned this on the call when we talked about the acquisition. It actually is going to come back for Aptar legacy. We are going to be investing, particularly in the pharma area and capacity. Mega has that.

So we are looking to expand their business with our regulatory. And taking their products now to -- again, we talked regionally. But I think in different categories, they have got different categories that we have been in and I think it gives us the ability to expand not only their products, but other Aptar products back in through these different vehicles. So we see a lot of synergies on terms of growth going forward.

Okay. And then just in the perfume cosmetic, Steve, if you guys could just give us a little -- how do you see the dynamic of the cosmetic and perfume business, say, mass-market versus the high-end luxury area for 2016?

Probably on an overall basis, prestige is probably doing a bit better today than the mass-market. You have seen some of the challenges that Avon have had and if you looked at Coty.

That being said, for us, within that perfume, it is probably more stable for us. What we are seeing is skincare, color cosmetics is more of the growth vehicles as well as some of the smaller packaging, whether it be samples in North America or smaller packaging used in other areas. So it is for us -- again, it is the breadth of the products we have in that market that I think enables us to continue to grow the business.

And then just one final strategic one, Steve. You guys had such a robust year last year. You really did such a solid job. As you look at 2016, same guarded caution in your markets, are comparisons fairly difficult relative to 2015? And has there been any easing in that guarding and caution, say, from 2015 to 2016 as you look across global markets with global customers?

I think if you look at it, certainly the -- we had a very strong 2015, particularly if I look at food and beverage. And if I look at our pharma business had good growth years and excellent margin. And beauty and home had excellent margin.

So the comparisons will be challenging going forward. That is why I think if you take a look at what we see going into the second quarter, we are actually pretty positive about the growth that we see in our earnings-per-share growth over what was a very strong second quarter for us.

Jason Rodgers, Great Lakes Review.

Just a question on resin costs. If we were to assume resin costs continue to increase, how much of a headwind might that be to your results in the second half of the year?

It is really a tough question to answer because each customer has different pass-through delays on there and depending on when it comes. I mean, we have seen volatility in the month of August when volumes are low, so it doesn't have as much of an impact. It is really -- there is so many different factors, I couldn't even begin to give you an estimate on that.

Okay. And then looking at the pharma side, you talked about increasing R&D there. As a percent of total revenue, do you still expect R&D to be around 3% or could you see that starting to move up?

I think at this point, we would still see the overall average for Aptar being 3%. Pharma runs around 5%, so pharma as a whole runs a little -- has higher R&D spend than the rest of Aptar. But again, the blend, we are estimating at least from a budget perspective will be in that 3% category -- percent of sales.

And any change in competition on the beauty side from competitors in Asia or otherwise?

No. Not on a fundamental basis. So I think if you looked at the competitors we have today, we have strong competitors across all of our markets, frankly. But in terms of beauty by itself, there is not any brand-new competitor that has come back into the market.

(Operator Instructions) George Staphos.

Three quickies maybe to finish up from where we sit. Number one: you mentioned lingering softness in personal care. So could you cover which of those markets in personal care -- or beauty home, I should say, have been weakest for you into 2Q early in the quarter?

Secondly, suncare, as I recall, was a little bit less positive for you last year. My sense is there was some pipeline fill after what had been a number of very good years, given some of the innovation you had there. Can you update us on what the outlook is for this year, recognizing a lot of it is weather driven, but what your customers are saying there? And that is it for me. Thanks very much. Good luck in the quarter.

Thanks a lot, George. On the personal care side, again, you hit on probably the two areas, I think. Haircare has been a bit soft for us last year in terms of where hairstyles are going. We are hoping to see that pick back up. I mentioned L'Oreal had come back with some new conditioners, shampoos, and hair mousse. So we are anticipating that stabilizing to going up.

Suncare has not been an issue for us. Last year going into this year, we have actually lost a little business in that side. So on a price basis, came back in. We felt we could not compete on that, so we have lost a little business from there, but the business that we have again is being pretty much offset by some of the household side on Zika. So on the mosquito repellent part of the business. But that would probably be the overall look at it.

Just on Zika, is there a way to quantify what that is adding to your numbers so far this year?

You know, right now, it didn't add a lot in terms of the first quarter. It is going to add more in the second and we saw it starting to come back into February.

The nice thing about it, at least our customers think that, given some of the concerns on the use of mosquito repellents that this may be more of a long-term trend that people will be using more of it rather than less. The one thing I would caution with is like Latin America, we are seeing quite a bit going in there. Travel may have an impact, where people may not be going as much. So I don't know if that has a negative side to that.

But it is hard right now for us to come back. I know we are frankly almost sold out on most of the products we have got for insect repellents here in the United States.

(Operator Instructions) Showing no additional questions, I would like to turn the call back over to management for any closing remarks.

Thanks a lot, Howard. This concludes our call today. And I would like to thank everyone for joining us. And have a good day. Thank you.

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