Aptargroup Inc (ATR) 2016 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2016 fourth-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 Stephen Tanda, President and Chief Executive Officer, Steve Hagge, former President and Chief Executive Officer; Bob Kuhn, Executive Vice President, Chief Financial Officer, and Secretary.

Stephan will begin the call with a brief introduction. Next, Steve will provide an overview of our quarterly performance. Following Steve, Bob will discuss a few financial details, and then 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 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 no obligation to update the related forward-looking information.

I would now like to turn the call over to Stephan.

Thank you, Matt, and good morning, everyone. I'm very pleased to join Aptar and to have the opportunity to speak with all of you today.

First I would like to thank Steve for his tremendous leadership over the past 35 years with Aptar. He's leaving the Company in excellent shape. I'm very fortunate to benefit from his guidance and support during the transition.

To gain a deeper understanding of our products, operations, and our people, I have started to travel to several facilities in the US and will visit Aptar locations and customers around the world in the weeks ahead. Aptar has a tremendous history, highly competent people, strong technology, great values, and deep convictions about leadership. We will continue to build on these pillars of strength.

My background in plastics engineering, my passion for sales, marketing, and business development, and my prior experience working in many of the same markets with many of the same customers will certainly be beneficial. Engaging with all our stakeholders, I will be spending time to gain a better understanding of the challenges and opportunities we are facing and to add my prior experience working in other successful companies to the great executive teams of Aptar. Our passionate people will of course continue to use our technology expertise and consumer insights to create solutions for customers around the world.

It is truly a great honor to work with a strong team to continue the remarkable journey and to help write the next few chapters of Aptar's global growth story. Today, Steve and Bob will be fielding your questions about Aptar's recent performance. I look forward to doing the same on our first-quarter conference call.

Now I would like to turn the call over to Steve.

Thanks, Stephan, and good morning, everyone. As this will be my last earnings call before retirement, I wanted to take a moment to say that it is been my great honor and privilege to get to know all of you.

I am proud to be retiring from a company with such tremendous history, values, and people. Aptar's long-term strategy positions us for continued growth, and the Company will benefit from Stephan's leadership and the continued guidance of our senior management team.

Now turning to our financial results, yesterday Aptar reported record fourth-quarter and annual earnings. Two of our three business segments reported core sales growth, and we did an excellent job of maintaining or growing adjusted EBITDA margins across our business segments.

Now looking at each of our segments. First, beauty and home during the quarter continued to face difficulties in each market served. Our base business continues to be impacted by in consumer weakness in certain categories. And some of our -- and several of our customers' brands are challenged to find growth.

But despite these challenges, our dialogue with customers is good and future projects look very encouraging. We continue to develop new innovative technologies, such as our flexible pouch dispenser, which was recently featured on a shampoo and body wash in Europe. In the home care market, our Pour Spout and SimpliSqueeze valve technology was used on a new Woolite pet stain remover in North America.

We continue to expand into the makeup area and are featured on a new Estee Lauder liquid makeup product. Our spray pump is featured on the Yves Saint Laurent Black Opium Floral Shock perfume, which was launched worldwide. And finally, our Airless system is found on a new lines of men's facial care products for L'Oreal in China.

Our pharma segment had another good quarter, with increase sales. And we continued to see strong demand for our delivery solutions in the consumer healthcare and injectables market. In the prescription market, certain customers chose to tightly manage inventory levels towards the end of the year, but that is now past us. Our unit dose spray device is featured on a new lower-dose version of the NARCAN nasal spray for the treatment of opioid overdoses.

There soon will be a new line extension of the successful Flonase over-the-counter product in the US under the brand name Flonase Sensimist, which uses our nasal spray technology. In addition, the FDA has approved several generic allergy treatment molecules for the treatment of allergic rhinitis that will be available with a prescription also using our spray devices.

Our ophthalmic multidose preservative-free dispenser technology continues to see much success, with over 100 product references in the market. Most recently, Allergan received FDA approval for a line extension of their leading eye care drug Restasis using our novel patented ophthalmic device.

Our food and beverage segment reported good growth, with increased sales to the food market. Increased product demand from the beverage market was offset by lower tooling sales. Now in the tooling market or in the food market, our spray pump is now featured on a vitamin supplement in Europe and we are growing in the infant nutrition category.

We continue to see success with our closures, featuring the SimpliSqueeze valve for inverted packaging. And we recently helped launch several new ketchup and condiment products in Latin America.

In the coffee creamer market, our team worked with International Delight for over a year bringing to market a new pressurized frothing system with an aerosol valve and a patented actuator which turns your coffee into a latte. In addition, our beverage closures with SimpliSqueeze valve technology are featured on new milk and water enhances in Europe, and our sports closures are found on new bottled water products in Latin America.

Now looking back on 2016, we began the year by acquiring Mega Airless. This transaction was a key element of our strategy to expand our portfolio and accelerate growth in the airless systems markets.

Looking at our financials overall, we delivered another strong performance in 2016. Despite challenging market and macroeconomic conditions and foreign currency headwinds, we grew reported sales by 1%.

We also achieved an adjustment EBITDA margin of over 20% and reported record net income and earnings per share. Aptar is well positioned to grow over the long term in the different markets we serve as we continue to leverage our technologies and processes across our three business segments.

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

Thank you, Steve, and good morning, everyone. I will cover a few details about our quarterly performance and give a few guidance details, and then we will turn it over for questions. Regarding our fourth-quarter earnings, in addition to some positive tax items, we also faced foreign currency headwinds of $0.03 per share when comparing to our previous guidance.

Turning to our business segments, I will begin with comments on beauty and home. Reported sales decreased 4%. This included a negative impact from foreign currency translation of approximately 2%, and the positive contribution from the Mega Airless acquisition of approximately 5%.

Therefore, core sales decreased 7%, primarily due to weak demand across each end market and lower custom tooling sales compared to the prior year. It was a difficult quarter across each market served by this segment.

When we look at profitability, despite the challenges to top-line growth, our beauty and home segment achieved a strong EBITDA margin of approximately 15% in the quarter. And this was an improvement over the prior year due in part to the contribution of Mega Airless as well as our continued focus on cost containment.

Looking at sales growth by market on a constant currency basis, sales to the beauty market decreased 4%, partly due to certain customers reducing inventory levels towards the end of the year as well as lower custom tooling sales. Sales to the personal care market increased 1%, mainly due to the contribution from Mega Airless. Sales to the home care market decreased 5% due to lower custom tooling sales that offset increases in product sales to the automotive and paint categories.

Our pharma segment reported sales growth of 1% due to increases in sales to the consumer healthcare and injectables markets, offsetting a decline in sales to the prescription market. Mega Airless contributed 2% of the sales growth, but this was offset by a negative 3% impact from currency translation effects. Therefore, the core sales growth was 2%. Segment EBITDA margin expanded to 35% compared to 34% in the prior year.

Looking at sales growth by market on a constant currency basis, sales to the prescription market decreased 3%, partly due to lower demand for our pumps for allergy treatments and metered dose valves for asthma treatments, as certain customers tightly managed year-end inventory balances.

Sales to the consumer healthcare market increased 13% and this is due to the inclusion of Mega Airless and increased sales related to cough, cold, and decongestant products as well as increase sales to the eye care category. Lastly, sales to the injectables market increased 10%.

Our food and beverage segment reported sales growth of 5%, mainly due to growth in the food market. Increased product sales to the beverage market were more than offset by a decrease in custom tooling sales. Changes in currency translation rates had a negative impact of 2%. Therefore, core sales increased 7%. This segment achieved the EBITDA margin of 15% compared to 16% in the prior year.

Looking at each market on a constant currency basis, sales to the food market increased 14% on increased custom tooling sales and increased sales to the infant nutrition, non-beverage dairy, and condiment application fields. Sales to the beverage market decreased 4% as lower custom tooling sales more than offset increased product sales to the functional beverage and bottled water categories.

I would like to give you a few additional details before we get to your questions. Our free cash flow in the quarter was approximately $88 million compared to $50 million in the prior year. For the year, we generated record annual free cash flow of $200 million, which is an increase of approximately $25 million over the prior year.

Capital expenditures were approximately $37 million in the quarter and $129 million for the year. Looking to 2017, we currently expect capital expenditures as well as depreciation and amortization to be approximately $160 million each. Looking at our balance sheet capitalization at the end of the year, on a gross basis, debt to capital was approximately 45%, while on a net basis, it was approximately 29%.

Regarding our outlook, we use the foreign currency spot rates at the end of December to develop our earnings-per-share estimates. For example, the euro rate we used in our guidance was 1.05. Also, we are excluding any potential impacts of the timing of costs incurred and any related insurance reimbursements related to our previously discussed facility fire and any potential tax impact from our anticipated adoption of the new accounting standard for share-based compensation, which becomes effective in the first quarter.

We are expecting our effective tax rate before the impact from the new share-based accounting impact to be in the range of 28.5% to 29.5% for the coming quarter.

With those assumptions, we expect our first-quarter earnings per share to be in the range of $0.72 to $0.77. We reported $0.67 per share in the prior year, and comparable earnings per share for the prior year were approximately $0.74.

I would like to point out that starting in 2017, we will no longer plan to call out discrete tax items. Instead, we would describe any material variances in the effective tax rates.

At this time, we would be happy to answer any of your questions.

(Operator Instructions) George Staphos, BofA Merrill Lynch.

Thanks for the details. Stephan, welcome. We look forward to working with you. And Steve, as always, congratulations again to you on the next chapter. And we really appreciate working with you over the last couple decades. Thank you very much. And good luck to the Cardinals, too.

I guess first question I had -- well, not too much luck, but we will get into that later. Let's talk about beauty and home. And clearly congratulations, at lease from our vantage point, in terms of the margin and your efforts to offset what has been obviously a difficult volume environment.

But I feel like collectively we have been asked this question for a while. When do you expect the demand should improve in beauty and home? The consumer seems to be doing better: wages are up, job growth has been better. What is the missing element in terms of why we're not seeing a better volume trend?

And relatedly, do you think there is a greater level of competitive activity in this category over the last couple of years that is causing it? And then related to that, what are your thoughts on the recent transaction involving one of your peers and whether that business -- which is obviously a good competitor anyway -- may even become more competitive and more effective? Thanks.

Well, going back, beauty and home, certainly it was challenged in the quarter. I think from what we've seen -- and again, it goes back to our customers. I've looked at some of the Unilever announcements and the Procter & Gamble, and they've seen not great growth.

They have been certainly conscious of trying to bring down inventories. That being said, I think, again, we are seeing pockets, at least as we start the year and we looked at our plans for 2017, seeing growth in the market.

Now, as we've started the year, that seems to be reasonably positive. But we are still pretty early in the quarter to kind of definitively say where that is going to end up. But we are seeing positive momentum in the projects we're getting and some of the projects we are winning.

Now when you look at competition, you are right, George. I think the markets have gotten more competitive over the last couple years. So it's more enhancing our new product capability and our new technologies. So I think those add to us, but it has gotten to be a more competitive marketplace.

Okay.

Lastly, on the acquisition side, certainly when you looked at I think the competitor that was acquired is a -- was a good competitor of ours. We have a lot of respect for the company that acquired that company. But as of today, we really don't see a major change in our strategy with that going forward, and we're still comfortable with the position we have.

Okay. Two quick ones and I will turn it over. One, it seems like it's probably been a little bit stronger flu season, at least judging from our office workspace. Are you seeing any kind of pickup in demand from that and related to cold season in the pharma business that you could point to?

And then any early thoughts on what border deductibility might mean for your supply chain and for that matter your customers' supply chain? Thank you, guys.

Again, if you looked at the flu season, I think you got a couple things that are positively impacting us. Certainly -- and you saw this a little bit even in the fourth quarter, our consumer healthcare, which deals in the decongestant area, is doing well and had double-digit sales growth on a product basis.

We are also seeing -- and I think this is going back to I mentioned this in my prepared remarks. Going into the Flonase Sensimist is also a recognition by our customers that help both allergies but actually also help to the flu side. It's actually coming back and treating both areas. So we're seeing positive signs of that going into the year.

The other question you had was --

I can take that. It was on the border deductibility, George. So as you know, George, our strategy has always been to manufacture as much locally as possible that we sell locally in the regions. As we said before, it's not humanly feasible to manufacture every one -- every product in every region.

But having said that, taking a brief look at the US market, we are a net exporter out of the US in total. So we are in the process of looking at what those impacts are, what are components, what are finished goods, and what may have an impact on the customers. But for right now, I don't see a significant impact on us in the US from the border deductibility perspective.

Okay, I will turn it over. I had a follow-on on that, but I will turn it over until later. Thank you.

Ghansham Panjabi, Baird.

And I'll just echo George's comments to you, Steve, and also Stephan. Welcome. Look forward to working with you as well. I guess going back to core sales growth, obviously very choppy on a consolidated basis for the past few quarters.

I know you only guide on EPS one quarter out, but what do you think is realistic for core sales growth by segment specific to 2017, given all the oscillated destocking that we've seen across your three segments? Thanks.

Well, again, as I -- we're not going to be able to give you that going out for the full year. But I think again, overall, if I looked at our planning for 2017, we continue to be cautiously optimistic about that across all of our segments. And we have started out pretty well in terms of the quarters, but again, it is very early in the year. So I -- that's best color I can give to that, Ghansham.

Okay. And then Stephan, maybe -- can you give us a sense as it relates to your skill set in the context of the franchises that Aptar obviously commands right now. What attracted you to the Company? What do you see future growth opportunities, general view on capital allocation specific to acquisitions? I know it is very early, but just -- in your tenure, but just any high-level thoughts would be helpful. Thanks so much.

Sure. As you know, I've been -- for about 13 years in DuPont, 10 years in DSM, and in between 3 years with Freudenberg. In all of those roles, I have operated in global specialty-differentiated businesses that serve in a business-to-business capacity, but with a value chain approach making sure that you understand where the decision-maker is and then getting your products preferentially pulled through.

Most of that period, particularly the last 10 years, I have operated in the same markets that Aptar is in: food and beverage, beauty and home, personal care, pharma, cosmetics. As you know, I also sit on the Board of Patheon in the US. So very familiar with the end-use markets and with all of the customers.

And I have to say what attracted me, to your second question, is really those markets compared to maybe some industrial markets are really -- have long-term good growth prospects just driven by the macro trends by demographics, rising standard of living, urbanization, all the things that you know well. So you deal with a set of very attractive markets.

And on a global basis, Aptar has really strong capability to serve those markets. And there will be, with the strong management team in place, there will be opportunities to go after.

Clearly, the Company has been very, very well managed. Very professional. I was really impressed also with the selection process, and that speaks also to the strong balance sheet. When you look into my background over the last 10 years, roughly half the growth came from organic growth. The other half came from acquisitions. So I think that will not be a bad guide -- our approach to this going forward

Okay, thanks so much.

Mark Wilde, BMO Capital Markets.

Good morning. And Steve, congratulations on your retirement. And Stephan, welcome. I wondered, Steve, if you could talk a little bit about the food and beverage business. We had strong volumes, but lower margins, and I recall back in the third quarter, you were talking about the potential loss of some business over in Asia. So maybe you can tie those things together for us.

Yes, let me first come back and deal with the Asian customer. What we saw coming back in the quarter was frankly a stronger quarter in terms of that Asian customer than we had originally anticipated.

So we do think that business is very hard to predict, and going into the first quarter, the visibility is still hard to come back and pin down. But we had a strong fourth quarter with them and we are again cautiously optimistic as we go forward into the year.

When you looked at the margins in the food and beverage side, and as you pointed out, we had good growth across each of the segments in terms of product sales. The margins got negatively impacted, and this is probably one that will come up again, is on the resin side.

So we were down about a percent, as Bob mentioned in his comments, in terms of the operating margin. Most of that is coming out of resin. So resins went up both in Europe and the US, and actually all over the world, in the fourth quarter and we got hurt by about that 1% in terms of the pass-through.

We will catch up to that a bit with those pass-throughs in the first. But again, we are probably now seeing a resin environment that is going to increase in the first, so that is going to also have an impact on our first quarter.

Okay. And then, Steve, also, just to -- staying on food and beverage for a minute, the overall volume for the full-year 2016 was well below what you have targeted in that business over the longer term. Can you give us some thoughts there?

Well, again, part of that decrease that you're seeing -- again, related to actually one -- to the customer we had in Asia. But then we had some tooling issues around that, too, so that had some negative side.

So outside of that, we're dealing with market conditions in each of the market. Again, we still would hold to the long-term targets that we have given you for where we think the long-term growth will be.

Okay. All right, and then finally, this tooling issue has come up it sounded like in almost all of the segments. And I just wondered to what extent is lower tooling sales a read for where your volumes are going to be over the next year or two. Does it say that the pipeline is shrinking at all?

No, I would come back and say we have had volatility in tooling all over our recent history anyhow. And again, it depends on what the customers want. We have certain standardized products that they can get for us without coming back and customizing. And that is going to -- that trend tends to vary year to year, and then also a difference between segment to segment.

So when we have a major introduction -- the Allergan launch for us, by the way, there is a significant amount of capital that Allergan is investing with us. So those will impact those projects, so we tend not to look at that as necessarily a strong leading indicator. So it's hard to come back and gauge exactly where that's going to lead to in future sales.

Okay, all right. And then just one last one. You had called out in prescription the destocking by customers in the fourth quarter. Have you seen that come back in January and early February?

Yes. In fact, a couple of the customers we had in the pharma area were very public announcing that they were reducing inventories. Those programs for the most part have ended as of end of the year and we are seeing business get back to a normal consumption base.

Okay, that's great. Thanks, Steve, and enjoy the retirement.

Jason Rodgers, Greater Lakes Review (sic - Great Lakes).

Just had a question about how sales trended during the quarter and if the results in January -- how those went?

Jason, I can't comment on inter-quarter for January, but I can tell you that our trend throughout the quarter followed trends in the past. December is typically our weakest month, but October and November were pretty equal to each other. But that's not a surprise. Typically, we see sales drop off at the end of the year as customers want to -- tend to window dress the balance sheet a little bit.

And the new elastomer plan, is that still on track to come online in the first half of this year?

Well, you've got two things going on in that, Jason. One is the elastomer plant we have in France. That, we completed during 2016 and that is now up and running, and we are starting to ship product out of that starting in the fourth quarter. Our plan in Congers, New York, is completing construction and we should be starting to ship out of that as we get into the second and third and fourth quarter of 2017.

And just a higher-level question, just looking at your core sales growth, how much of the probability do you think you could achieve your long-term core sales growth in 2017? Just looking at any of the positives you see out there with customer activity and so forth balancing that against the negative?

Well, again, subject to any macroeconomics issues, we continue to be pretty optimistic as we going to 2017. But again, it's pretty early in the year to come back and start to make full definitive statements about where our growth will end up.

And any particular activity going on in M&A?

Again, I think the M&A market, as you've seen at least in the sector, has been reasonably active. We continue to evaluate opportunities and we're going to continue to do that going forward with Stephan in the CEO role.

Okay, thank you.

Adam Josephson, KeyBanc Capital.

Thanks, and Steve, my best to you as well. I think the Cubs have had their day in the sun, so I think it's about time.

God, I can't agree with you more, Adam.

Not to harp on this core sales question, but in 2016, it was flat. 2015, it was up 1. Obviously both years were dramatically below your historical levels and dramatically below your long-term targets. If we assume global economic conditions remain roughly similar, why should one expect you to get anywhere close to that long-term target in the foreseeable future?

Well, I think some of that goes back to the niches we are playing in, because it is a worldwide market. And while today we are seeing consumer growth, consumer has been pretty stagnant I think in Europe and the US over the last year to two years. So what we have seen is, again talking to customers, there is a regeneration of new projects. We are seeing more activity in that area.

Again, across each of the segments, we have specific projects that we are looking at. The ophthalmic area for us, for example, to bring up consumer healthcare. That is a growing market that we had been relatively small in, and frankly Allergan coming out with Restasis is a major win for us in a key growing market around the world. So if I take all of that together, that gives us a lot of optimism to be able to achieve the long-term growth rates.

Got it, Steve. And just one on your margins. I think in 2016, your EBITDA margin was about 20.5%. Your recently revised long-term target is basically 21%, so you are already there. Do you have any reason to think -- to expect yet more margin expansion, given how high you are relative to your history and how high you are relative to your target?

I would tell you we're not changing the long-term target. We are really very proud of where we're at on the margins. If you take a look at some of the challenges even on volume growth, we've really done a good job of controlling costs and being -- expanding the margins across all of our business segments. So rather than -- right now, I think we are comfortable with the long-term targets we have in place.

Sure, Steve. And you mentioned resin earlier having gone up in 4Q and expecting more of the same. Do you have any expectations beyond the first quarter in either the US or European polypropylene markets?

Actually, frankly, coming back into the quarter, I would have told you how we thought the first quarter was going to be relatively flat. It's gone up over 10% or so in the States and also up in Europe. Expectation is it will be somewhat flatter as we get into the second and third quarter, but that is today. So that is really much more volatile market and tough for us to project that far out.

Sure. And I guess the same would apply to the other raw materials that you buy. I'm just remembering in 2015, the prices of many of those materials came down significantly. And now it seems like we are seeing somewhat of the opposite happening.

Yes, we did. We had a negative on all our other raws, excluding resin. In the year, we -- for the year, it was about up $3.6 million compared to 2015. And again, the most significant after resin for us would be aluminum.

And rough order of magnitude, Bob?

Order of magnitude? It was about $3.6 million for the nonresin increases in 2016 over 2015.

Got it, thank you.

Philip Ng, Jefferies.

Congrats, Stephan and Steve. It has been a pleasure working with you. First question, I guess bigger picture: beauty and home still a bit choppy. But Steve, it sounds like your tone is a bit more constructive and your visibility seems to have improved. Is that a fair comment since your last call? Just curious to get any color on any change in customer behavior.

Well, again, I think we -- as I said, we were seeing some improvement, but it's still pretty early in the year to come [definitive to that]. So overall, the tone is positive for us, but it's still early.

Okay. And from a -- just want to get your thoughts on the M&A pipeline. And do you anticipate any -- if there's any changes on tax more broadly or estate tax in particular, would that create an opportunity to accelerate deal flow?

It's going to be very dependent on the company that would be for sale. So certainly if there is a state tax changes or taxes for families, that may be a driver to either do something shorter term, accelerate a process, or differ it, depending on where those tax goes.

So I think for us, that's why I think it has always been key to view M&A from a strategic -- we try to develop relationships across a broad number of companies that we are looking to acquire. And then we will try to see how they will individually play out where the tax laws go here in the States as well as across the rest of the world.

Okay. Very helpful. And just one last question for me. Question for Bob. You talked about the potential impact from any accounting changes on share-based comp. Can you provide a little more color to how the mechanics work? Would it be a positive tone on a lower tax rate or potentially actually bump it up? Thanks.

Well, I mean, it can theoretically go either way. But historically, over the past three or four years, it has been a positive to us. Somewhere between $0.10 to $0.12 a share. But it is highly dependent on option exercises, share price, and the delta between the exercise price and the Black Scholes calculation. So it's a bit complicated, but it has been positive for us in the past.

Okay. But you would guide going forward with that impact, right? In terms of your modeling, right?

It's impossible to try to model that or to try to guide that. Because again, it is completely dependent on options that are exercised in that quarter. And that is going to be obviously dependent upon individuals' needs as well as the share price.

Okay, got it.

Chip Dillon, Vertical Research.

Thanks and good morning. And again congratulations, Steve. Great working with you, and look forward to working with Stephan.

First question is just in -- as you look at your exposure to the emerging markets, and I'm thinking Brazil in particular, which has had a rough go of it. At least as you look at your business down there, are there any signs to suggest that either it is continuing to decline, maybe stabilizing, or even turning up?

Actually, for us, Latin America -- and when I take South America as a whole, we had a pretty good year this year in terms of Latin America. So that was coming off a 2015 year that was a bit soft. So yes, there's certain challenges down there.

The advantage we are seeing is the breadth of Aptar's product line. We are seeing good growth in our food and beverage market from a relatively small base and we're seeing pretty good growth in terms of customers like Natura and O Boticario.

So I would say it's more stabilized. There's certainly economic challenges down in Brazil and Argentina, but it seems to be more stabilized at this point than it was a year ago.

And I think you can also add that you are seeing of all the major currencies that we deal with, the Brazilian real is starting to see a nice rebound so -- compared to where it was. There was pretty significant devaluation in the past and now you are starting to see that as well as the Colombian peso start to strengthen.

Okay. And then not to ask for an accounting lesson, but on this options change, just a question. Bob, you mentioned that a lot of what will be involved is the activity of exercising. Can you just tell us what that means in terms of if there is more exercises, does that tend to dampen the EPS or is it the other way around? If there are more exercises, it would raise it. I just wanted to know which way to think about that.

As long as the share price and the exercise price remains above where the book accounting is from the Black Scholes calculation, the more options that get exercise, the more positive it becomes. So previously, that had been run through the equity section of the balance sheet, but now due to the change in accounting rules, that needs to be run through the P&L.

So in essence, that's like you are selling stock at some kind of a premium to what the Black Scholes says, so that counts as income. Is that sort of what you are saying?

No, it just means, and easiest way, is we're getting a higher tax deduction compared to where the book expense was. So it's more like a permanent deduction that typically gets run through P&L.

Okay, I understand. Thank you.

Debbie Jones, Deutsche Bank.

Congratulations, Steve. It was a pleasure getting to know you, and Stephan, I look forward to meeting you. My first question is on CapEx. For Bob, I was wondering if you could remind us why did it get ratcheted down continuously throughout the year? I think it started at $160 million at the beginning of the year, and I think you said it was $129 million for the full year? Is some of that moving into 2017?

Yes, some of it will, Debbie. And again, when we guided to $160 million, we were anticipating -- we didn't really know what the Mega needs were going to be because we had just completed the transaction in February, so we were probably a little bit conservative on that front. And I think as we got into it and what we saw, we didn't need as much and we could cut back on some of our own investments due to the capacity that Mega had.

There is some -- there will be some carryover. As you know, a lot of our projects from the time we commit and to the time that the equipment is actually completed can span over several quarters. So there will be some carryover effect in that.

Okay, thanks. And then my second question, just on pharma overall. The business has changed for you a lot over the last five years and that now you have three different -- or actually much more than three -- but kind of the legacy Aptar pharma. Now you have injectable exposure, you have dermal drug delivery.

Are you happy with that product portfolio or do you need to increase that overall in maybe something like patches? Can you just describe what the -- how the trends are in drug delivery and how that impacts your strategy going forward?

I think we are comfortable with what we have, but certainly we always going to be looking for new dispensing activities in the pharma space. The other area that is coming back that is becoming a major element for us is how we may be able to connect our devices either to the Internet or working with our customers to go through that. That is a changing -- is not only across pharma, but across all the markets, but it's a specific pharma need that we are looking at.

So there is -- anything that would be in the dispensing side we're going to continue to look at. So your patch idea, those are areas that we're going to continue to evaluate to see if it adds value to the portfolio. We are not saying that what we have today is all we're going to have. We want to continue to grow that if we can.

Okay, thanks. I will turn it over.

Chris Manuel, Wells Fargo Securities.

Welcome, Stephan, and congratulations, Steve, on future endeavors. And I guess a hello as well to Matt and that other guy you've got sitting there. (laughter) I'm just kidding.

Anyway, I did have a question for you. So -- two questions, actually. One, it sounds like all qualification and work has been done now over both -- in your New York facility and your one in France, such that you talked about shipments commencing later in the year out of the Congers facility.

Has that given you the ability now to accelerate selling efforts? I know up 10% was pretty strong for the injectables piece, but is that -- being able to go back out and actively sell and have it qualified now, is that helping you as you go forward continue to drive 10%-plus perhaps out of that business?

Well, I think you had a couple of things, Chris. Number one, I think we are actually -- we haven't gone through all the qualification in Congers. That construction is just now completing, and we're just starting the qualification process.

In France, we are farther along to that, but again, that is also customer dependent. So several of our customers have qualified and that's going to be an ongoing process.

That being said, we do see the -- having now the capacity to accelerate the growth if we have those opportunities. The other thing we have talked about on other calls is we continue to upgrade our capability in that area, adding more specialized coating to our elastomer products, which is also going to be enhancing future sales growth.

All right, that's helpful. One last question on the inflation side. How does this -- we are seeing quite a bit of inflation through the system. And I think Bob mentioned it was about 3% to 4% for last year.

As we look forward, do you have any thoughts as to how you might want to or do you think you need to perhaps sell through different channels or sell differently as you work through to your end markets? Or perhaps to the extent you have any insight, any thoughts as to how your customers might be selling to their customers, particularly in consumer markets, any differently, given what we are seeing with dramatic inflation.

I don't know if we've seen really any impacts from how our customers and what they are doing, how they are selling through. Typically in the past, we've seen smaller volume in packages being sold at the same retail price to fool the consumer into believing that prices aren't increasing.

On our side, we're going to continue to evaluate on a SKU-by-SKU basis, customer-by-customer basis, and push through the raw materials to the best of our ability as we encounter them. And then we're going to continue to, as we usually do every year, have pretty significant gains in productivity and cost savings on our own as well.

The other thing I want to add to that, Chris, too, is that you kind of touched on two areas. One of the things that is impacting almost all of our customers across all the markets is how products being distributed, whether that is through the Internet or whether that is through the retailer channels.

That is actually opening up opportunities for us because packaging shipped through the Internet is an area that everyone is taking a look at to make sure there is not leaking, and actually changes some of the customers. Amazon for us was a distributor of our customers' products four years ago is becoming a bigger customer to us as we go forward. So those are I think more opportunities for us rather than even challenges.

Okay, that's helpful. And good luck, guys, as you go forward. Thank you.

Brian Rafn.

Hey, Steve. I appreciate -- it's been 23 years. I met you on a rainy afternoon in April of 1994. And I barely remember you not captaining the helm on the Enterprise. So Steve has got big shoes to fill, or Stephan does. So thanks again for everything you've done.

Give me a sense from the standpoint of the beauty and home. Any pockets of strength by maybe end market -- end-user product categories or geography?

I think that probably for us going into, what we are doing is seeing opportunities to get more into the home care market, which has been a relatively small base for us. So we are doing more concentration in that area.

Since we have been small in that market, we are able to potentially grow that quicker than some of the other areas just as we explore new opportunities. Outside of that, I think it's more business as usual. I don't think there's any one category -- I take that back a bit, because we're looking at cosmetics, facial care.

Those are double-digit growing markets for us. Now, it's coming off a small base, but those tend to be probably faster-growing than what we have seen in the general perfume category, for example, in beauty.

Okay. If you look at some of your new projects, are you seeing fewer projects, but larger size? Is there any way to delineate size or scope or timing or regional launches versus international?

It probably continues to be a mix. I talked about a fragrance launch for -- in my prepared comments. That was a worldwide launch that Yves Saint Laurent did. But we also see, depending on what -- and again, it will be very much dependent on the market.

If I get outside of beauty and home, there is much more regional launches in terms of food and beverage. But again, I think it's more of a split on that. There isn't just one -- I don't think there is one trend that is going on today.

Can you just give us a quick recap of maybe the Christmas season as it applied to maybe cosmetics and perfume? And then maybe any comment prestige versus value brands?

I think that overall, the Christmas season was okay. I don't know it was a spectacular sight. We tend to monitor that when we start looking at our customers' public disclosure. So I think it was an okay season.

And I think between prestige and mass-market, again, we're seeing about equivalent growth size on both. Again, when we put prestige, that would be on the fragrance market. What we are seeing, though, is skincare, which tends to be up a little bit higher level to that. That is growing faster than the overall market.

Okay. You also talked a little bit about the Amazon and the distribution and obviously having things that are shift in boxes not leaking. Is that characteristic relative to anti-leakage? Is that a something that is explosive growth for you guys, or are you just kind of scaling into that?

I think right now, it's a concern for our customers, because if it does leak, frankly Amazon won't ship them. So we look at it as an opportunity. Explosive growth, I would be cautionary. I think it is good growth and it is an alternative way that our customers are selling product.

So we have to take a look at in terms of how it's packaged and making sure -- what's nice is we are able to take our learnings from beauty and home to pharma to food and beverage. And I think definitely bring our customers what's happening in each of those markets to be able to protect the product.

Okay. And just one final one on -- on Mega Airless, as you got in the airless spring, did that give you a venue into new customers? And are there maybe cross-selling applications that you can do from beauty and home to pharmaceuticals or other areas? And as you look at how well you have done with the injectables on Stelmi, what is your sense of the trajectory with Mega Airless?

Well, I think first of all on Mega, what you brought up is exactly the reason we bought them. We did see good growth, and it was -- to me, this was a win-win on both sides of that acquisition. Mega had certain accounts that they were growing at that we had been trying to get in, so it accelerated our growth. And then we had a strong Airless product line, and we were actually able to now incorporate Mega and grow that faster.

So we have been able to achieve all of the financial targets we had with Mega through the first year. And the integration -- I think the Company has done an outstanding job of integrating.

In terms of the injectable side, we still see good growth with that. We think that is a 7% -- 6% to 10% growing market. And we are still enthusiastic about it, particularly given the capacities now that we're going to have placed in North America and Europe.

All right, Steve. Best of luck in your future endeavors, buddy.

(Operator Instructions) George Staphos.

Steve, I just want to come back to border deductibility. How would product like the elastomer you are producing in Europe then being shipped to Congers for final conversion coating be treated? Do you think that would be looked at favorably, or do you think there might be some issues that you would have to manage through in the supply chain?

And similarly, a lot of your customers obviously fill in Europe and then ship here. Could that present an issue? Or given what your contacts have said, because there had been products whether they are drug products or perfumes that had been traditionally made in these markets, they would not be, if you will, under the sites of any border deductibility, tariff, call it what you will.

I think it's a little -- from what -- again, everything is so broad-based to what's out there, you can read 20 different ways that this may be applied. I think -- what we've seen at least, some of the discussion would be what is going to be your net position imports and exports.

Because if you try to just do all the imports, you're going to end up killing a lot of businesses on export side. And again, as Bob said, we tend to be a net exporter out of the States on overall Aptar.

Our customers on the other side coming in, I think if you are shipping in full product and you are not manufacturing here, it's going to be hard to make -- to say you can't do that anymore. You have to set up manufacturing. So we will have to see how that plays out. It is certainly early in the process.

Okay. Thanks for that, Steve. The other question related to pharma, and it comes up again periodically from quarter to quarter. Just wanted to see what views you or maybe Stephan would have on -- the commentary out of Washington about pharmaceutical margins, recognizing your product is infinitesimal, so to speak, in terms of the overall value of that product and shouldn't be necessarily impacted.

Are your customers at all beginning to talk about this as a pressure for them? And ways that they may be looking to offset it through the supply chain.

Customers absolutely are talking about it. There is a paradigm change in terms of how our customers are being pressured by not only the US, but almost every government that's out there.

I also think, though, that what they are looking at is some of the things we treat actually take costs out of the whole healthcare system. So if you are treating certain things, that's a positive.

So yes, what we're trying to do is make sure we are very conscious of being cost effective to the product side and making sure we can help our customers grow with new drugs. But make no mistake: 2016, 2017, they are very conscious of cost and we are working very closely with them. The advantage we have is that certainly our products are very critical to the performance of the drugs.

Fair enough. Last one for me. If we go back to the Asian beverage market, should we read at all from the commentary today that perhaps the customer in question here or customers in question, after they perhaps use some alternative supply along with Aptar determine that they weren't as comfortable with that alternative supply? And that was one of the reasons why your volumes were a bit better in the quarter?

And then looking out to first quarter, I know, Steve, you said it's hard to pin down. I'm not trying to do that to too great a degree here. But would it be safe to say that you've seen that business continue to be positive now into first-quarter? Thank you.

I think, George, again, this tends to be our view, because it's difficult to actually have the customer. We are very positive about the product we deliver, the quality, and the service we have. And I think it's always difficult if you have someone else coming back into that. So we do think maybe that is -- just looking at it from Aptar that that was an impact on the fourth quarter.

It is just -- what I want to be cautionary on the first. While we are doing well, it's hard to come back and pin this customer down in terms of what the growth will be in the first quarter.

Okay, understand. Thank you. Good luck in the quarter, we'll see you guys in April. And Steve, again, best of luck. Thanks for everything.

Thank you. I'm showing no additional questions in the queue at this time. I would like to attend the conference back over to Mr. Hagge for any closing remarks.

I will actually do that. And let me again thanks Steve for the tremendous service to the Company and handing over the Aptar ship in great shape with a record year in 2016. Thanks to everybody for joining us on the call, and I look forward to meet with each of you in the near future.

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