Aptargroup Inc (ATR) 2018 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2018 Second Quarter Conference Call. (Operator Instructions) Introducing today's conference call is Mr. Matt DellaMaria, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Howard, and welcome, everyone. Participating on today's call will be Stephan Tanda, President and Chief Executive Officer; Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Stephan will begin our call with a brief overview of the CSP transaction and our second quarter performance. Bob will then discuss a few financial details and turn it back over to Stephan before we open it up for questions.

Information that will be discussed on today's call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to Aptar'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 Aptar undertakes no obligation to update the forward-looking information contained therein.

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

Thank you, Matt, and good morning, everyone. Thank you for joining us today. If you are following along with the accompanying presentation posted on our website, Slide 3 shows the agenda for the call. I will start with an overview of CSP Technologies, followed by comments on the second quarter, then I will turn it over to Bob.

Moving on to Slide 4, as announced yesterday, we have signed a binding agreement to acquire CSP Technologies, the leader in active packaging technology based on proprietary material science expertise. CSP Technologies has over 30 years of experience and holds a strong position in attractive markets for Aptar, including pharma and food safety, with potential opportunities across many of the markets we serve already. CSP Technologies has solid margins and growth fundamentals, similar core operating competencies, along with similar cultures and core values.

Finally, the CSP team has a strong focus on intellectual property and the transaction meets Aptar's disciplined approach for acquisitions. We announced a slightly less than 13x last 12 months trailing multiple, and we expect a multiple between 11 and 12x 2019 EBITDA.

Turning to Slide 5. I will share a few highlights on the business. CSP Technologies' current business is roughly 75% in the pharma market and 25% in the food safety market. So think about desiccant properties for vials and containers where it's critical to preserve a dry atmosphere. Vials for insulin test strips is one leading example where CSP is the market leader. The test strips need to be kept dry via the desiccant properties of the 3-phase polymer sleeve and the tight seal on the container.

In the food safety market, think about food service trades with superior moisture-absorbent capacity or antimicrobial properties for prepared sliced vegetables that can be kept fresh and safe for longer periods of time. This is a highly profitable, well-managed company with manufacturing facilities in the United States and Europe, and they are looking to expand across Asia and other high-growth economies where Aptar is already present.

Also, as we grow CSP's existing business together in the pharma and foodservice markets, we expect to leverage CSP's material science know-how to explore new active packaging opportunities in the end markets that we already know well across beauty, personal care, food and beverage applications.

Turning now to Slide 6. The company is the leader in material science. They have unique know-how around the 3-phase polymer technology and other solutions that can be tailored to either absorb or release specific molecules upon activation. On this slide, you'll see some examples, including active vials, antimicrobial and absorbent trays, active film materials and then a septic dairy sampling kit. The CSP team is also highly experienced in navigating the relevant regulatory environments.

Slide 7 shows an illustration of the active polymer technology provided by CSP. The desiccant sleeve, combined with CSP Technologies' active polymer bottle, essentially trap moisture before it can even enter the headspace of the bottle. Therefore, the medication in the bottle sees virtually no moisture.

Moving on to Slide 8. The purchase will be funded with available cash on hand, and we expect to close in the fourth quarter of the year, if not earlier.

Slide 9 shows sales by segment for Aptar in 2017 on a pro forma pie chart, including CSP Technologies. You will see that Pharma and Food + Beverage segment sales will increase.

Now turning to our quarter 2 financial results. As you saw yesterday, we reported strong second quarter operating results. Sales growth was robust across each business segment and market and geography.

Next, I will just touch on a few product launches, underscoring again our innovative dispensing solutions for each segment, and then I will turn it over to Bob.

In Beauty, we provided LVMH with a fully custom dispensing solution for double serum facial skin care product in Europe for their Guerlain brand. We're also featured in L'Oréal's new Seed Phytonutrients line where our dispensing solution -- where our dispensing lotion pumps are featured on a more sustainable paper-based bottle for their hair, face and body collection. In personal care, we designed a custom pump for Johnson & Johnson's major global relaunch of their iconic baby care line, ranging from shampoo to bubble bath to lotion. Also, AVON is promoting their successful insect repellent line, Skin So Soft, which features a variety of Aptar products.

In home care, our Fine Mist pump with prolonged spray technology is featured on a room refresher spray by J.R. Watkins.

In our Pharma segment, our preservative-free, multi-dose Ophthalmic Squeeze Dispenser was announced as the approved delivery device for Bausch+ Lomb's prescription Levofree Multidose in France. Bausch+ Lomb's Levofree marks the first prescription drug approval by the French National Agency for Medicines and Health Products Safety for Aptar's Ophthalmic Squeeze Dispenser.

In consumer health care, our Advanced Preservative Free Plus pump for eye care is found on a new dry eye mist by Similasan in the CVS store brand in the U.S. In the injectables market, our stoppers are found on a muscle relaxer in Mexico and on a pain reliever and aesthetic products in North America.

Finally, in our Food + Beverage segment, our custom closure with our Flow Control silicone valve was chosen by Chobani for their first-ever inverted squeezable yogurt pouch. Also, Daisy continues to grow with their inverted Squeeze Sour Cream product and recently introduced a new light version using our custom dispensing closure with valve technology.

In India, our Bag-On-Valve spray technology is found in a new line of cooking sprays by Ray. We continue to grow in the beverage market and you will find our sports cap now on FIJI Water in North America and on Gatorade G Active water in Latin America.

In closing, we look forward to welcoming the CSP team to Aptar and bringing this active packaging technology to our customers. Our near-term outlook is good. The transformation of our Beauty + Home segment and the support functions are on track. We have also announced an increased dividend. Our dedicated and smart people continue to partner with customers to win with a strong portfolio of differentiating innovative products that improve the daily lives of people around the world. We will remain committed to executing our growth strategy in order to create long-term value for all our stakeholders.

With that, I will now turn it over to Bob.

Thank you, Stephan, and good morning, everyone. I'll start by sharing some of the details around our second quarter results. If you are following the slides that accompany our remarks, you can refer to Slide 10.

As you saw in yesterday's press release, we reported strong sales growth of 15% that was comprised of solid core growth of 11% and positive currency effects of 4%. As you saw in our press release, Beauty + Home core sales, keeping currencies constant, increased 10%. Sales increased in all regions and all markets compared to the prior year.

When we look at profitability, our Beauty + Home segment's adjusted EBITDA margin was 12%. Profitability was negatively impacted by approximately $6 million, which included, amongst other things, the timing of passing through higher raw material costs, severance costs and start-up delays at our anodizing facility. Offsetting that was approximately $2 million of improvement in our decorative facility in France. In addition, custom tooling sales increased in the quarter, which carries a lower margin.

Looking at sales growth by market on a constant currency basis. Core sales to the beauty market increased 6%, primarily driven by broad-based demand, including a robust travel retail quarter and increased demand for facial skin care products. Core sales to the personal care market increased 16%, primarily due to increased sales of our body care products and increased tooling sales. Core sales to the home care market increased 6% due to strong growth across a variety of applications.

Our Pharma segment achieved a core sales growth of 14%. All 3 markets reported increased core sales over the prior year. Our Pharma segment also grew to adjusted EBITDA margin to 36%.

Core sales of the prescription market increased 16%, which is driven by increased demand for our innovative nasal drug delivery systems for central nervous system and allergic rhinitis treatments, along with increased custom tooling sales. Core sales to the consumer health care market increased 20% due to strong demand for our nasal saline, nasal decongestant and ophthalmic-related products.

Lastly, core sales to the injectables market increased 2% primarily due to increased demand for components used in the administration of vaccine products to customers in Europe and Northeast Asia.

Our Food + Beverage segment's core sales increased 5%, helped by an increase in custom tooling sales and increased demand for our innovative dispensing and sealing systems. This segment reported an adjusted EBITDA margin of 18%. Margins were negatively impacted by the mix of products sold and an increase in custom tooling sales.

Looking at each market. Core sales to the food market increased 4% where strong sales of our infant nutrition products offset softness in the sauces and condiments market. Core sales to the beverage market increased 7% due to strong sales of our closures for bottled water and juice.

Comparable adjusted earnings per share, which excludes acquisition and restructuring expenses in the current period, totaled $1.09, and this compares to $1.01 reported in the prior year and to the currency adjusted $1.05 in the prior year. I'd like to remind everyone that the prior year currency-adjusted earnings per share would have been approximately $0.10 lower had our current tax rate been applied versus the 18% effective tax rate reported.

On Slide 12, we can see that our adjusted EBITDA for the second quarter rose 14%, and this is driven by the strong performance of our Pharma segment and in spite of some of the headwinds that I outlined earlier that affected our Beauty + Home segment.

Turning to Slide 13 and our outlook. We are expecting earnings per share for the third quarter to be in the range of $0.90 to $0.95 per share using an expected tax rate range of 29% to 31%. Our guidance compares to prior year earnings per share of $0.83 and prior year currency-adjusted earnings per share of $0.82.

Prior year's reported effective tax rate was approximately 23%. Had prior year's results been tax affected at our current guidance effective tax rate range, prior year earnings per share would have been lower by approximately $0.09.

I have a few other details to share, and then I will hand it back to Stephan. Cash flow from operations in the quarter was approximately $104 million, capital expenditures were approximately $52 million and our free cash flow was approximately $52 million compared to the $79 million a year ago.

Looking at our balance sheet capitalization. On a gross basis, debt to capital was approximately 48%. While on a net basis, it was approximately 29% and we remained slightly over 1x levered at the end of June compared to our trailing 12-month's adjusted EBITDA.

Looking at a pro forma balance sheet post the acquisition, our leverage ratio would be slightly less than 2 post-closing of the transaction.

At this time, Stephan will summarize the key takeaways from our remarks today.

Thank you, Bob. In closing and as noted on Slide 14, let me sum up our key takeaways as follows: Our people have delivered a strong first half of the year with sales growth across all segments, markets and region. Each segment has achieved core sales growth within the long-term target range.

We are executing on our balanced capital allocation strategy and returning value to shareholders. We were pleased to have announced the binding offer to acquire CSP Technologies, a leader in the active packaging technology.

Also, we previously announced that we have increased the quarterly cash dividend by 6% to $0.34 a share, and this year will mark our 25th consecutive year of paying a higher annual dividend that was paid in the previous year. We continue to have a very solid balance sheet with plenty of flexibility to execute our strategy, and our outlook for the third quarter is positive.

With that, I'd like to open it up for your questions.

(Operator Instructions) Our first question or comment comes from the line of George Staphos from Bank of America Merrill Lynch.

My 2-plus follow-on are this. First, with CSP, congratulations on the news there. Can you state what the growth rate has been for the business, Stephan, in the last few years? And the multiple moving from just under 13x to, I think, you said 11 or 12x on '19, is that from growth in the business? Or is that from synergies? If you can provide a bit of color there, and I had a quick follow-on or 2.

Sure. The business is a growth business and has grown well in the past years, well in line with our target range and how Aptar is growing. So it's a growth business and it has a good profitability. It is predominantly in pharma. So that is really the kind of business we are buying. In terms of synergies, the synergies will be a few million dollars. So most of that multiple, on a forward-looking basis, is also due to growth in the business we are acquiring.

Okay. As I said, I'll have others on that and I'll come back in queue. One, the margins in Food + Beverage and Beauty + Home were somewhat weaker than we would have expected given the revenue growth. And you went through a lot of the things that were affecting them, including the tooling sales, which obviously had an effect on margin. Bob, I don't know if it's possible, but if you adjusted for tooling, how much more would the margins have been in the quarter for both of those segments? And is there any lingering effect from this beverage closure issue in Asia? And then last, the tax rate was a little bit lower than we were expecting. What was driving that?

Sure. So on the tooling, tooling accounted for about 2% of Food + Beverage core sales growth. So I would have to go back and look at the exact margins on prior year tooling. It's -- I can't give you an exact number on the margin. On your point on the China beverage, yes, there are some still lingering effects of that. That's a little bit of the mix issue that we're facing. And then in looking at the tax rate, as we had said earlier in the year, we had talked about -- the transition tax on the repatriation amount is still to be determined. And so the Treasury Department came out in the second quarter with some additional guidance on how to calculate that. And so that accounts for about 4% of our rate reduction. And then we've got about another 1% or 2% relating to -- 1% relating to higher share-based compensation. And then also 1% on our recalculation of the 2018 GILTI and BEAT taxes.

Our next question or comment comes from the line of Ghansham Panjabi from Baird.

I guess, first off, on CSP. Just for context, is this an asset that you've had your eye on over time, including when it's transacted back in 2014? Are these capabilities that you -- what your customers have been asking for more recently? And also, just to clarify, can you just give us a sense as to how much of the active bill-of-material gets sold externally versus being converted into specific products, such as what you have on Slide 6?

Ghansham, I can talk about -- have we had an interest in it previously? The answer to that question is yes. So when the asset became available for sale, we walked Stephan through our logic back in 2014 and our continued interest in the asset today, obviously. In terms of does the material gets sent out? The answer to that is no. The material gets used in the products that CSP manufactures and then ultimately gets sold to customers.

Okay. And just as a follow-up to that. In terms of the margin progression, you had answered George's question in terms of the top line growth. But what about the margins? How have those evolved over the last 3, 4 years? And also, how are the contracts structured with raw materials? And also, what are the constituents of the raw material cost basket?

So the margins have stayed very stable since we last looked at them in 2014. So we were comfortable that this is very stable. In terms of the raw materials, it's generally smaller SKUs in terms of polypropylene. So we do think that there's some slight synergies there that we can do, and then there's some additional compounds that go into the formulation process as well.

And contracts in terms of pricing with customers?

We're evaluating that and we've evaluated that rather in our diligence. Some of them have pass-throughs of raw material increases, others do not. But it's not unlike some of the contracts that we would see in Aptar. So we're comfortable with the existing contract base.

Let me add to that. When you look at the main customers of CSP, those are the very large pharma customers that we are also dealing with and very familiar with and very long-standing relationships. And there are high differentiation and switching barriers given their integrated quality systems. So I think they pride themselves never having lost a customer.

Our next question or comment comes from the line of Edlain Rodriguez from UBS.

Just one quick one on CSP again. In terms of like when you look at the product slate, like are they in many markets that you weren't involved in? And after this deal, like are there many other holes in your portfolio that you would like to eventually address?

When you think about it, what they really bring to us is, one is much broader access to the giant diabetes category. We are in that peripherally, but CSP is really in there with both feet. They bring to us, for sure, the food safety segment, which predominantly goes into foodservice. And if you think about it, foodservice is actually larger, slightly larger than the food segment, particularly in this country. And with the trend towards fresh food and freshly prepared food, food safety concerns are paramount. Thousands of people die every year in this country from food safety issues. So this is a great new market that becomes accessible to Aptar. At the same time, we believe that there are multiple opportunities across our existing custom universe around shelf life, stability extension that we have not even started to explore.

Okay. And one quick one related to that in terms of the leverage. I mean, now you're going to be close to 2x, which I think is like the highest it's ever been. Like are you willing to stay at that level? Or is there a plan to get back to the more comfortable 1x like you've always been at?

So we've stated before that we're comfortable anywhere in that 1 to 3x leverage ratio. So I'm going to think this gives us still ample dry powder should another exciting opportunity present itself. I think with the strength and the profitability of this asset and our core business, we would be able to delever relatively quickly should we move up higher in that. But no, 1 to 3x is where we're comfortable being.

And one last one, just for the company as a whole. Core sales growth was extremely high. Like how much of that was volume and how much was pricing?

It's difficult to say exactly on pricing. We can't say that about 2% of the 11% core was coming from tooling. If I look at just the pass-through side of the resin, it probably accounts for about 0.5% on a consolidated basis. We might have some other pass-throughs in Latin America, but it's difficult really for us to segregate that in its entirety. So I would say 2% tooling and 0.5% to 1% on pricing in general.

Our next question or comment comes from the line of Adam Josephson from KeyBanc.

Stephan or Bob, just one -- I think, George was asking this about Beauty + Home margins. They were down about 80 bps year-over-year and I think, Bob said you weren't sure how much of that was related to tooling. Were the margins in that segment as you expected or lower than you expected? And can you just help me understand what exactly transpired there?

Yes. Thanks, Adam, let me address that. First of all, the transformation is well on track. We are fully committed to the targets we've published. For the transformation, of course, our EBITDA improvement targets. There are a lot of good things going on, but with all the good things going on, we clearly saw some temporary friction losses in Q2 that added up to about 150 basis points in margin in Beauty + Home. And Bob walked through both. Those were adding up to about $6 million. So that's really -- things like severance and start-up costs are certainly something that we expected or -- even if we don't know in the initial guidance.

So the margins were about as you expected them to be?

Well, I would say they weren't because of those items we mentioned, right? When we did our guidance, we were not aware of those and they were not baked into our guidance. So I would say that as we got further into the quarter, we obviously became aware of those. But initially no, we were expecting a higher margin.

Okay, got it. And Bob, the CapEx guidance increase, what exactly is that related to? Forgive me if I missed it. And is that -- is the CapEx to what you're guiding fairly representative of normalized CapEx at this point?

Sure. So the increase, I mean, we've had -- as you've seen, we've had a fairly robust first half of the year. And so when reevaluating our capacity planning in some of our key areas and looking out at some of the customer projects that we're working on, we felt that we needed to make -- start to make some investments this year rather than wait into 2019 to get some of that capacity improvement or increases online sooner. The other small part of that increase is coming from our valuation of the transformation projects. So we see some opportunities to accelerate some of our initiatives. Some of those do require some additional CapEx and again, we've had a chance to look at some of the return profiles on those, and we felt it was also doable and important for us to try to accelerate that as much as we could. So it's a combination of additional capacity increase, along with accelerating some transformation initiatives that we had originally scheduled for later this year and early into next year.

Just one last one, Stephan, on the guidance. You mentioned you expect broad based trying to continue in the quarter across geographies, across the segments though at varying degrees. Can you just help me, give me a little more detail as to what you meant by the varying degrees piece of that comment?

Well, we really don't give guidance by segment. And I would say, we certainly expect the growth to continue, and for our segments to be solidly within their long-term guidance range. And as you know, that range differs by segment, but let me leave it at that.

Yes. Maybe it'll help, I can maybe give you the Q2 growth rate by region and it will kind of show you a little bit of -- some of that dispersion. So on an overall consolidated basis, the U.S. grew 9%, Europe was up 10%, Latin America was up 22%. About 2/3 of that was volume, 1/3 pricing. Asia was up 14% and the weighted of all those gets you to 11%.

Our next question or comment comes from the line of Debbie Jones from Deutsche Bank.

I just wanted to start with Beauty + Home. You mentioned the specific growth rates by each category. One in travel, you said it was a robust quarter, still a little confusing to me as to what was driving that and whether or not it's sustainable? And then you did say you're still confident in your long-term growth targets. But could give us a sense of between beauty, personal care and home, how much of the growth that you saw in the quarter is sustainable or that you're optimistic about?

So let me start off with the travel and then maybe Bob can add some color. Look, we have -- we are benefiting clearly from global synchronized growth. Consumers are doing well, feeling well and in particular, the Chinese luxury consumer is feeling well, spending and traveling. So that's what's really driving growth in travel retail, and all of our luxury customers report significant growth in Asia. I would say that's the biggest driver.

And then as far as some of the drivers, we said, Beauty was up 6%. And we said facial skin care as well as travel retail was driving part of that growth. It's hard for us to say what travel retail is going to do going forward. I mean, some people are saying that cost of flights is going to start increasing here soon. And if that happens, you may see less people traveling, do tariffs and international travel have an impact on that. There's -- it's impossible for us to kind of gauge what that's going to do and whether that's sustainable going forward. Personal care market in the quarter was up 16%. And as Stephan mentioned, some of the few key projects that we've launched in the quarter, like Johnson & Johnson's relaunch of their iconic baby care line. So I mean, some of that probably is a little bit of pipeline fill to get the product into the market. I certainly wouldn't expect personal care on a go-forward basis to grow in that 16% range. And then home care market, obviously, is much smaller for us, and that was up 6%. So I don't see that as a problem for that going forward.

Okay. And I want to touch on the acquisition. Are you planning or could you just help us understand the level of integration that you're expecting between the acquired asset and your existing Pharma business? Do you plan to run a more decentralized model or centralize things? And then if we look to the SG&A comment you made, is this really the couple million dollars you called out? Is that from procurement or SG&A -- I'm sorry, the synergy comment you made, is that from procurement or SG&A? And is there any way you can give us a sense of whether or not you see more? Or what you could be optimistic about going forward once you kind of get in there?

Okay, a couple of comments. I mean, one is the technology that CSP brings is really applicability across all of our segments. And therefore, it's important that we interface with all of the segments. We are very excited that, one, CSP has a strong management team and all of the management team are coming with the deal and will continue to drive progress of the business. When we talk about synergies, it's really indeed back office, SG&A, purchasing, some productivity improvements in the plants. When you look at unit operations, the unit operations of CSP and our unit operations are almost identical when you think about injection molding, vial injection molding, quality systems, so there will be some productivity opportunities. In addition to that, of course, they have extrusion compound and compounding capabilities as well as their molecular expertise. So they bring some additional technology to us. But we will look for the CSP team to work closely with all the 3 segments. Of course, initially, it will be predominantly a Pharma and Food activity.

Okay. Just last one for me, you mentioned some opportunities in Asia. I'm assuming that's pharma related. But I just wanted to get a better sense of that.

Yes. I mean, the -- put quite simply, they are actively looking for expansion opportunities in China, which is going to start up a plant in Guangzhou at the end of this year. So it will be an easy thing just to open up a bay and help them accelerate progress.

Our next question or comment comes from the line of Chip Dillon from Vertical Research.

This is Salvator Tiano filling in for Chip. So my first question, very short. So far this year, while we've seen the tax rate is -- it's been quite below the, I think, midpoint 30% that you expect under the new construct. And you did mention some issues affecting this quarter. But overall, is there any indication that the new long-term tax rate is coming below what you disclosed in Q1?

It's very [difficult]. It's a challenging tax environment that we're in. There still is a fair amount of uncertainty that's out there with the way the tax laws are written today. If you listen to other companies that talk about it, everyone is scrambling right now to find ways to lessen some of the unintended consequences of the way the tax law was written. So it to be prudent for us today and sit here and say we think we can get it lower until we really have had a chance to understand and also, when the government is finally finished giving its interpretative guidance on some of the specific clauses. And the other thing I want to mention is that there's always in the tax world one-off type items that are impossible to predict, both positive and negative, whether it's a tax audit or whether it's a tax refund that have been applied for in some cases many, many years ago. So what we try to do is give you a steady-state guidance of 29% to 31%, knowing that in any one quarter, it could be lower and it could also be slightly higher. But we feel it's our best estimate of steady-state going forward.

Sure. Perfect. And my other question, just on Pharma, the core sales growth, 14%, was exceptionally strong. I think we haven't seen that for at least 6, 7, 8 years. And I was wondering were there any specific one-offs besides some tooling sales you mentioned this quarter where, for example, the nasal decongestant sales above what you're seeing normally in 2Q and something that may not return for the rest of the year?

So I can touch on the tooling part of it, just so we can isolate that. So tooling added about 3% to Pharma's top line, and then Stephan can take some of the more application field comment.

Yes. I mean, it's hard to quantify that. But certainly, as you know, we had a strong flu season. There might be some replenishment of that strong uptake that has occurred into the supply chain. In addition to that, we see just a broadening of distribution, you see more and more of these products show up in club stores in 3 packs and 5 packs. You also see more moving online, and these distribution channels are harder to track for us.

Our next question or comment comes from the line of Mark Wilde from Bank of Montreal.

Stephan, I wanted to just come back for a minute to kind of the growth rate historically, and I'm kind of going forward for CSP. I see that Wendel has a release out and they're pointing to $103 million in sales in 2014 and $136 million in '17, but they also note there was an acquisition there in the middle of it. So I wondered if you could just help us a little more with kind of what you think the organic growth rate has been in recent years? And then talk about sort of what your strategy is to extend this franchise over the next 3 to 5 years and what that might imply in terms of growth rate.

So Mark, you're right. The acquisition that they did in the middle of 2016 tends to distort a little bit the numbers there that you read. But as we said, for trailing 12 months, it's about $140 million for us. Probably, we'll end the year around $143 million. So if you take that with the 2017 figure that they disclosed, that would give you really an apples-to-apples growth rate for the CSP combined business with -- because they would have had the acquisition for a full year in 2017.

Again, I would say, the kind of growth rate that we look at for Aptar and we look at Pharma in the 6% to 10% and for the company as a total in the 4% to 7%, I think CSP will be well within those ranges. Now on the plans going forward, the CSP team has developed a very robust pipeline. We, of course, will continue to support them to develop that pipeline and also bring new opportunities to them. When you think about it, we have a much broader customer access and a much broader customer universe. And what the CSP team is really good at is solving customer problems that are around stability, product stability, shelf life extension. And particularly, as our customers look to be responsive to millennial consumers, take preservatives out, have more natural ingredients, product stability and shelf life are topics that are a concern to our customers. And of course, not everywhere, but we fully expect that there will be opportunities where we can bring additional things into the pipeline. Now bear in mind, in the Pharma pipeline, anything that you start today, you will not see in the P&L until many years later. But certainly, in the food safety pipeline and maybe in the cosmetics, we might be able to get one or the other projects going. But clearly, on the one hand, we look to support the CSP team to continue to grow with what they have and help them with the internationalization and the international footprint and at the same time, hopefully, add additional projects to the pipeline based on our broad-based customer access.

Okay. Well, it's a really interesting acquisition, I'm just kind of curious, as a follow-on, historically, the company has kind of sold itself as a producer of dispensing technologies. This is a little bit different. How would you have us think about sort of Aptar's kind of franchise as we go forward here?

I just want to jump in here for a second. So I mean, if you looked at the diabetes test strip vials, in fact, that is a vial with a hinged closure, with a tight seal on it, with a lot of technology around it, including the desiccant properties. So we would consider that really a closure-type product. But if you look at some of the other acquisitions we've done from a technology base and quite honestly, the ones we've been more successful with, whether it was the welding Bag-On-Valve line that we bought many years ago as an accessory to our existing Aerosol Valve line or if it was the silicone valve technology, which is an element, an additive component to our closure product line. It's a little bit how we look at the material science expertise that they possess. How can we incorporate some of that into our existing product lines, whether that is Beauty + Home skincare type products for cosmetic creams, whether it is oxygen scavenging type properties for beverage-related products. So the reality is we're excited about getting our business development people in to understand the technology and really, hopefully, we can get some really interesting projects that resonate once they, our people, become up to speed with what are the possibilities that CSP can bring.

Our next question or comment comes from the line of Gabe Hajde from Wells Fargo.

I guess, to keep on the CSP topic, can you talk about -- I think, Stephan, you mentioned a new facility that they were already underway and constructing, and it sounds like you're just going to kind of accelerate that. Is there a potential for you guys to colocate some manufacturing, it sounds like, with similar type processes?

Yes, thanks for the question. It helps me to clarify it, what I was referring to, they were looking for a site in China to build and make some of their diabetes products in China. Now if you -- with all respect to CSP, if you are a medium or small size company, opening up in China is quite a hurdle. We at Aptar are in the finalization of construction a new facility in Guangzhou. So it will be easy for us to offer some space there or at our existing facility in Suzhou, accelerating the process of getting capacity in China, that's what I was referring to.

Okay. And then, I guess, can you talk to a little bit, maybe Bob, the capital intensity of this business relative to maybe Aptar or how it's looked over the past couple of years? I mean, having 3 production facilities seems like it should be pretty low. But that obviously sounds like it could be evolving too as you guys look to get into faster-growing markets?

Yes, it's the good problem to have, right? With the opportunities that they have on the table and the growth projections, I mean, it -- we're expecting, based on the diligence that we did, about $20 million a year of capital for them, which is going to be slightly higher if you look at it as a percent of sales in our businesses. But again, we would view this much like a start-up growth type of business, and $20 million, I would say, for us would be a normal expectation to fuel some of that growth.

Our next question or comment comes from the line of Daniel Rizzo from Jefferies.

I'm sorry if you touched on this before, but I was wondering what's the effect of the change in beverage design that they're talking about in Europe and just the move away from single-use plastic, if that has any positive or negative benefit for you guys.

Well, let me zoom out and then zoom back in to your question. One is, I mean, we see this whole waking up to sustainability of our markets really as a positive and as an innovation opportunity. We pride ourselves about where we are in terms of sustainability both in how we operate our facilities. And if you haven't, please take a good read of our sustainability report. It's one of the most extensive in the industry. And secondly, also with our product solutions that we have for clients to help along with that. And now specifically, on your question around bottled water, I think one of the scourges of bottled water is the flat cap that you screw off and then throw away and that ends up somewhere halfway around the world in the ocean. We certainly have solutions for one -- for the cap to stay with the bottle or even more to have kind of more sophisticated flip-lid type hinged closures that will ensure that the cap goes with the bottle to the recycling. And in general, I think we have to transition to a more circular economy where most of the things are being recycled, and we certainly have solutions on the shelf to work with customers. And clearly, the interest is going up.

Okay. And then, you called out raw material cost as a headwind in Beauty. I was wondering specifically what raw materials you were referring to and what the outlook is for the back half of the year?

So the raw materials, for instance, is always going to be primarily resin, but there were also some other additional input cost that increased so that was about $1 million, $1.5 million roughly for Beauty + Home. Looking forward sequentially, going from Q2 to Q3, we expect that resin prices in the U.S. to go up mid-single digits and they will be relatively flat Q2 to Q3 in Europe. However, if I look at it compared to last year in the third quarter, both the U.S. and Europe will be up over the prior year levels.

Our next question or comment comes from the line of David Stratton from Great Lakes Review.

Just have one since everything has been pretty much answered. And given the margin detail you've highlighted around CSP, which was very helpful, and then a previous question regarding the integration effects, can you give us any timeline as far as when you see the accretion taking place once you finally close on the deal? Will this be something that's accretive immediately? Or will integration costs push that out a little bit?

Okay. David, I'll take that one and I'll try not to get too far in the weeds on that, right? So we're expecting a Q4 close. With that, we're -- we will start immediately the valuation of the accounting treatment for the acquisition. One of the biggest things that typically come in these valuations is a write-up of the existing inventory to really resale value or sales value. So it could be 1 quarter or 2 before that bleeds off. So essentially, you will have product sales for 1 quarter or 2 with no margin until you can bleed that out of our your stock. We would -- we were going to, as we have historically in the past, called that out and non-GAAPed that as an adjustment-type item. So the remaining valuation items, which should be assignment of purchase price to amortizable intangibles and fixed assets and things, those have all been factored into our $0.10 estimate of accretion on an annualized basis. So that's about as good as I can give you at this point because there's too many other factors, timing and final valuation results for the opening -- or the closing balance sheet rather, for me to get into.

(Operator Instructions) We have a follow-up question from Mr. George Staphos from Bank of America Merrill Lynch.

Yes, 3 quick ones. First of all, I think the question was asked earlier on how the views on plastics is changing, the demand outlook there and what it means for your business. From your perch, obviously, you sell dispensing systems into pretty much any substrate in numerous markets, are you currently seeing any shifts from your customers away from plastic or towards plastic for that matter versus the other substrates that's significant and worthy discussing today? That's question number one. Question number two, in terms of CSP, are there any peers that are -- yes, I wouldn't expect you to mention them here, but are catching up on what that business does? Or do you think you have a really well-defined moat that can last for a number of years with the business? And then lastly, not that it's huge, but I noted with injectables, the growth rate was a little bit lower than what we've seen in past years going back, I guess, to '14. Anything there that we should be aware of? Or is it just kind of a timing issue?

Thanks, George. Let me take those and maybe Bob, you can build on it. One is we really do not see a shift away from plastic, but of course, you do see is a banning of throwaway items like cutlery and straws and throwaway cups. We're obviously not on those. From a sustainability point of view, as I mentioned, what we do see is a lot more interest in solutions that can be more easily recycled, particularly in the beverage area and in general, a higher interest in sustainability topics, scrutinizing suppliers, do they have their act together on sustainability and where do they stand on things like the circle economy and those topics. I think we score very well there and favorably and certainly can improve our customers' environmental footprint by sourcing from us. So net-net, I see that as a positive. And if you do life cycle analysis, I mean, going to glass or aluminum, it's not going to help your footprint.

Yes. One other thing I wanted to add to that, George, and -- we are such a small, small player in that bottled water market and juice market, on dispensing closures compared to the broader overall market. There are far many more screw-top caps that don't have our hinge device on it. So we've been talking about this internally for a very long time. And overall, even the bottled water market could decrease. But what you see is that trend for convenience and on-the-go and people being more active in their daily life, wanting some convenience in their sports bottle application of premium waters and those things. So that's the dynamics that we're dealing with quite honestly as we're just such a small part of that broader segment. But the part we participate in, we see the dynamics increasing with enhanced water flavors and things.

Yes. Bob, I was asking the question less from the water side, but I -- and more so even on food. But I figured you guys would be able to -- certain trends, given where you sit, given again convenience -- demand for convenience is continuing. But I'm sorry, keep going.

Right. On the moat for CSP, CSP has a very unique technology. And while there are, of course, functional competitors here and there, there's no in-kind competitor of any size that we are aware of. It's really their unique ability to tailor their molecular sieve and then create this 3-phase polymer solution for different applications, whether it's for the release of molecules or the absorption of molecules. And that, in combination with their highly automated both visual and functional quality inspection with 100% inspection rate, it gives them a very broad moat in terms of differentiation.

Yes. I mean, I would also add, I mean, if you look at their main product line, the diabetes test strip vials, those are test strips which are very, very critical to an exactness of a glucose reading, right? It's really critical for a diabetic to get an accurate reading, whether they have high blood sugar or low blood sugar and how best to treat that. So any moisture on those test strips significantly skews the results of that. So I would say that the technology that we -- they have compared to what we've seen in the industry, it gives it a different level of precision. And along with those quality systems that Stephan said, really gives those pharma customers the comfort that those diabetes test strips and to diabetes patients that they can be very well assured that those test strips are going to be accurate and give them the readings they need to manage their health accordingly.

And on your last question on the injector, I wouldn't read anything into it other than it's a quarterly aberration.

Next, we have a follow-up question from the line of Mark Wilde from Bank of Montreal.

Yes, just 2 quick ones. Bob, any impact from that trucker strike down in Brazil?

No. I mean, there's a little bit that's in there. But overall, I mean, we saw our Latin America operations perform quite well. As I mentioned, we were up 22%, and about 2/3 of that was volume related. So I think most of that is behind us, and I'm not hearing anything more about that.

There was an impact during the quarter, but we caught up by the end of the quarter.

Yes, okay. And then just on CSP, are there a lot of patents involved here or proprietary -- is it just proprietary technology?

Well, it's really a mixture of patents. But also, there's a lot of trade secrets and proprietary know-how that's very well protected. So it's really the combination that is important.

Our next question or comment is a follow-up from Ghansham Panjabi from Baird.

Just as a -- just to clarify...

Ghansham, we lost you.

(Operator Instructions)

Bob, just -- I was just trying to get a sense as to how you exactly get to the $0.10 earnings accretion. We can kind of back into the EBITDA number based on the multiple, et cetera. But what are some of the offsets there? And how much are you assuming for the inventories -- for the D&A step-up?

Well I mean again, the inventory step-up, we're taking outside of that accretion number because we're going to adjust that out as non-GAAP in our non-GAAP figures. The $0.10 accretion again, and I caution you, this is -- since we signed yesterday, it's very early in the process. So we're taking some very broad-based assumptions without not yet having done the accounting valuation work over how much we plan to put towards intangible assets, know-how, time periods, how much will go to goodwill, which is not amortized. So I think, we've been -- we've taken a fairly conservative approach to that $0.10, but again, realizing that we just signed on the deal yesterday. So we're trying -- we knew the question would come up. We're trying to do the best we can, but we really won't be able to fine-tune that officially until the final valuation report is complete.

I'm showing no additional audio questions in the queue at this time. I would like to turn the conference over to Mr. Tanda for any closing comments.

Very good. This really concludes our call today. Thanks, everyone, for joining us and see you at the third quarter.

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