Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by welcome.
She Aptars group 2021st quarter Conference call at this time all participants are in listen only mode. Later, we will conduct a question and answer session. Introducing today's conference call is Mr., Matt Dolan reopened senior Vice President Investor Relations and Communications. Please go ahead Sir.
Thank you and welcome everyone participating on the call today.
Fontana, President and Chief Executive Officer, and Bob Carey Executive Vice President Chief Financial Officer and Secretary.
You could find a copy of our press release as well, it's a slide presentation. It summarizes our results on the website.
If you're following along on our website you could advance the slides are holding over the poster presentation screen and clicking on the airlines.
We'll also post the replay on this conference call on our website.
Today's call include some forward looking statements. Please refer to our FCC filings Trueview factors that could cause actual results to differ materially from those projected well contained in the forward looking statements.
After undertakes no obligation to update the forward looking information contained therein.
I would now wait to turn the conference call over to sometimes.
Thanks, Matt and good morning, everyone. Thank you for joining us.
I'll start by expressing my hope that you weren't your families are doing well and those things see during this difficult part.
Before I comment on the results I would like to share some thoughts on the public 19 basis, starting in blight and slide three.
During this unprecedented time, we are guided by our values as we support can cure for each other and look forward to break into more.
I'm just like you see some of the many forms and stories about people rising to the challenge supporting customers consumers in patients.
Through our employees around the world listening in on this goal I want to see thank you for all of your efforts and convenient perseverance the liberal no promises.
We had great pride in what we do in our customers have expressed the remains gratitude for all of your efforts keep up the great work.
Turning now to slide four Oh facilities are open and operating albeit somewhat reduced capacity.
After is an essential supply chain Parton supporting industries, such as pharmaceuticals.
From a product prudent health care.
Oh industries identified is critical data U.S. department of Homeland security and by most other governments and the trendy countries in which we operate.
Almost all of our customers and suppliers continue to operate as well to date, we've experienced minimal supply chain disruptions and you have been able to maintain substantially all of the incoming supply flows from our primary vendors.
On slide right, you will see but a sample of our global solutions, which are critical to society. During this time, a drug delivery dispensing ceiling Americas packaging solutions can be from.
Number of Macy's Sanitizes cleaners.
In food and beverage products.
We have engaged very transparent discussions with our customers and suppliers about the state of the supply chain and our end markets.
We're working closely together to bring specific cobot 19 related solutions to market, including Sanitizers, which are now being made by some of our fragrance customers.
In some cases, we have repurchased food and beverage closures for sanitizer dispensing and ramp up certain production where needed.
Turning to slide six health and safety of our people continues to be our first priority.
Our current 19 global action team meat daily to identify and mitigate potential risks and the current 19 exposure control plane has been implemented at each of them a patient earlier on.
We maintain a proper balance of remote workers in onsite there in order to support our ongoing production efforts.
We are restricting all visitors to only those essentially for business continuity and has escalated our cleaning incentivizing procedures.
We continue to encourage everyone to practice, good hygiene and social distancing and we're distributing Matt as he has become available.
We also reporting and monitoring cobalt 19 instances in real time, and we're keeping our people informed where frequent virtual town hall meetings.
Moving to slide seven I would like to recognize.
Just a few ways in which we are supporting the communities, where we live and work.
Some of the many contributions include donating mess guns and protected glasses to local hospitals.
Threed printing mask holders in face yields that are donated to local healthcare workers.
Partnering with the re purpose theory to produce impact its gel sometimes it for children's hospital.
And raising money to support other local hospitals.
These are just a few of the many examples of selfless acts of kindness for where people around the world.
Turning to slide eight I would like to offer a few comments in the quarter.
Our afirma business delivered another strong performance, even when comparing to an outstanding first quarter last year.
Core sales grew across each end market. It was particularly strong growth in our injectables and active packaging businesses.
The farmer team has identified over 150 potential project as a result of to covert 19 that makes it continues to receive inquiries from the healthcare industry and then almost daily basis.
Now turning to recent product introduction, our purity on respiratory device was chosen by Blair exploratory.
Well, the new breed free essentially brand.
Puerile device dispense the finest moisturizing ceiling and natural essential oils.
Unlike traditional nebulizers the pure health system does not require batteries or the pre feeling of any reservoir and can be used armed to go.
Finally as previously among your also submitted an emergency use authorization requested the U.S. <unk> de <unk> in 95 respirator decontamination using after its active shield materials science technology.
The request is progressing within the FDA and final approval is still pending at this time.
Based on the strong data package, we have developed we continue to be excited about the potential of this highly relevant innovation, but becomes termination and disinfecting solutions.
Our beauty and home segment was negatively impacted by the closing of the travel retail sector during the quarter and the closing of traditional beauty retail settings during March.
Reduced demand for hair care and sunscreen products also impacted our results well increased demand for our dispensing solutions for saying dies and then clean as it was not enough to offset the declines.
I would like to highlight the hours free actuators featured on license Nutria, disinfecting spray and our post consumer recycled resins closures in spray pumps are featured on the light.
Your products from the any Brent why Walsh.
Turning now to food and beverage sales were negatively impacted by sharp decrease in on the go beverage closer to sales and lower foodservice sales due to the covert 19 crisis Israel is the passing on of lower resin costs.
However in the quarter, we also supported Coca Cola with expanding its power eat product line for the first time in several years, but the new zero sugar beverage that features our sports closure.
Turning to slide nine we're continuing to execute our strategic priorities in parallel with our near term actions related to covert 19.
To advance our capabilities and reach in Asia, We have completed our strategic equity investments in Btwob bye.
Leading manufacturer of metal and decorative accessories for the beauty market.
As previously announced we entered into a partnership with digital platform provider Some mall.
Bring to market new connected platforms for respiratory related therapies.
We also completed the acquisition of fusion PK G, adding adjunct concept to launch in Turkey capabilities put in North American beauty market.
Well, we miss with a long term in high growth areas of our beauty business, we remain committed to bring our transformation diminish initiatives over the finish line with our goal to reach our long term EBITDA margin target range.
We also continue to work towards is certainly calling me, where most packaging is reuse and recycled.
Furthermore, we are exploring opportunities for sustainable resins, and collaborating with customers on refillable products.
All these efforts position as well to help our customers achieve their objectives, many of which are to achieve packaging that it's 100% recyclable reusable at 2025.
In addition, we continue to seek new applications for our materials science active packaging solutions and have invested in growing our service platforms.
With that I will now turn it over to bump was going to provide additional comments on our results.
Thank you Stephen and good morning, everyone.
I'll walk through some of the details concerning our first quarter results and the impact of the cobot 19 pandemic, starting with slide number 10.
For the first quarter 2020 reported sales declined 3% and were negatively impacted by changes in currency rates, the timing of passing on lower resin cost to customers and cobot 19 related impacts.
Core sales excluding currency in acquisition effects declined 2%.
Taking a look at our segment performance.
We saw strong performance by our pharma segment, which achieved core sales growth of 7% and an adjusted EBITDA margin of 37% compared to a very strong first quarter a year ago.
Core sales to the prescription market increased 2%.
Growth in sales of our nasal pump delivery systems used on allergic rhinitis products.
Core sales to the consumer health care market increased 2%.
Due to increased demand for our products used with nasal decongestant and I care treat.
Core sales to the Injectables market increased 21% due to increased demand across a variety of components.
Core sales to the active packaging market increased 26%, primarily due to the new HIV preventative drug launch there was approved with our active blister technology that provides impacting stability to the oral solid dose of the medicine.
Turning to our beauty and home segment.
Core sales decreased 9% due to the negative impact of covert 19.
Sales to the beauty market decline due to the effects of reduced travel in the closing of retail stores that began towards the end of the quarter.
Certain categories within personal care, such as sunscreen and hair care. We're also negatively impacted.
You didn't homes adjusted EBITDA margin was 11% in the quarter was negatively impacted by the sales declined in the quarter, which led to under absorbed fixed costs and the first quarter expense related to the onetime cash. Thank you award to employees.
Looking into sales growth by market on a core basis.
Our sales to the beauty market decreased 13%.
As beauty sales in Europe, and Latin America were negatively impacted by the closing of retail shop, selling beauty related products.
And Additionally, our sales in Europe were also impacted by lower sales of beauty products in the travel retail channel from the reduction in international travel.
Core sales to the personal care market decreased 5%, primarily due to the previously mentioned softness in Sun care and hair care products. There was partially offset by an increase in demand for dispensing solutions for Sanitizers and lotion moisturizers.
Core sales to the home care market decreased 6% also due to decreases across a variety of categories, including insect repellents.
Looking at our food and beverage segment core sales decreased 2% in the quarter, primarily due to the passing through of lower resin prices to our customers, which accounted for approximately 5% of negative growth on the topline.
Certain products were also negatively impacted by cobot 19 restrictions mainly related to undergo beverages.
Food and beverages, adjusted EBITDA margin was 15%.
It is negatively impacted by the reduced volumes in our beverage closure business.
Looking at each market core sales to the food market increased 2%.
Due to increased sales of our products used on dairy and spreads.
Core sales to the beverage market decreased 13% due to the decline in sales of our undergo functional drink products, which were significantly impacted by cobot 19 restrictions.
Turning to slide 11.
First quarter adjusted earnings per share totaled 93 cents.
Prior year comparable earnings per share totaled one dollar five cents.
Slide 12 is meant to give a high level view of how we see the scale of impact from the current economic conditions. According to the major markets we serve.
No surprises here that the beauty market is the most affected similar to what happened in 2009.
With retail beauty stores closing and international travel grinding to a halt.
This has a significant impact on our customers businesses.
Beverages. We have discussed is also affected as the majority of our beverage business is single serve which is highly linked to the on the go lifestyles and purchasing habits.
Moving up the scale, we can see that our pharma business in all of the different end categories is the least affected.
People have access to their medicines delivery of prescription and over the counter treatments continue continues with limited interruption.
Moving to slide 13.
We're taking several cost containment actions across the company due to the continuing impact of covert 19.
We are reducing temporary labor head count.
Pulling in subcontracted work and modifying our production schedules.
In our businesses, where we faced market softness we have undergone regional insights specific furloughs and requested that some employees use their vacation time during this period.
We are following country travel guidelines and have eliminated all business travel.
And reduced all nonessential spending.
We're also passing through price adjustments to our customers.
Slide 14 refers to our liquidity.
As of March 30, Onest 2020, after had available cash on hand of approximately $411 million with the ability to borrow under existing revolving credit facilities up to an additional $265 million.
Aptars total debt.
Was approximately $1.4 billion at the end of the first quarter.
With the $56 million maturing in 2020.
Relating to our outstanding term loan.
Our leverage ratio was approximately two times after the funding of the fusion PK GE acquisition.
Slide 15 outlines our outlook for the second quarter.
We expect the near term effects related to the cobot 19 pandemic to continue through the second quarter and anticipate that they will be more pronounced than we experienced in the first quarter.
We are diligently managing our cost structure, while we balance the need to keep the engines idling as we expect Q2 to be the low point.
With the gradual recovery in the second half of the year.
Results of our beauty and home segment are expected to be significantly impacted by continued weakness across each end market primarily related to the effects of covert 19.
Our food and beverage segment, which had very strong growth in the prior year second quarter is expected to see continued weakness in the beverage market primarily related to cobot 19, any impact from passing on lower resin costs.
Our pharma segment is facing difficult comparisons compared to the prior years exceptional growth.
Especially within its prescription division.
We're also expecting lower sales inactive packaging for the second quarter.
Our second quarter results will include approximately $3.6 million of pre tax expense related to the thank you award being given to employees, who have made it possible for us to continue to supply critical infrastructure industries during the cobot 19 crisis.
I will share a few more details are under financial results and then turn the call over just the fun for closing remarks.
In the quarter reported cash flow from operations with strong and totaled approximately $85 million.
Capital expenditures were approximately $62 million.
And as shown on slide 16, our free cash flow was $23 million compared to $26 million in the prior year.
We continue to have a strong balance sheets and on a gross basis that the capital was approximately 46%.
On a net basis it was approximately 37%.
The current dividend policy is intact.
And we will temporarily pause or share repurchasing program as it precautionary measure given the near term uncertainties.
In addition, we continue to evaluate and challenger capital expenditure needs and are forecasting a range of $220 million to $240 million.
At this time Stephane will provide a few comments before we move to Q anyway.
Thank you Bob.
Let me cover a few key takeaways to close out on slide 17 on behalf.
Oh my after our colleagues around the world. We are proud to live up to our purpose and responsibility to the society.
Most of the product and solutions, we make it after play an important role in everyday life, maybe now more than ever.
We all have these product in our homes dispensing the Mets in retake the food, we consume and the beauty and personal care and household products, we count on to get us through today.
I am confident we will emerge from this difficult time with fresh perspectives, the new ideas.
When I look to the courage performance and dedication of our incredible people I have no doubt about several become an even stronger organization with deeper connections to our partners.
I continue to have confidence in our opportunities for growth.
And long term value creation.
We have a broad portfolio of innovative and differentiated solutions that serve diverse and attractive end markets regions and customers.
We have weathered severe recession in the past and be real navigate the current challenging conditions with our strong balance sheet cash flow generation ability cost containment focus and commitments to our customers.
We are making a difference in our local communities and in the World and we will continue to rise to the challenge.
With that I would like to open it up for your questions.
Ladies and gentlemen to ask a question. During this time simply press star and the number one on your telephone keypad to withdraw your question has the county in the interest of time in fairness to all participants please limit yourself to two questions and one follow on question then come back into the queue. If you have more quest.
And as time follows.
Your first question comes from Ghansham Punjabi with Baird. Your line is open.
Hey, guys. Good morning football, if you're doing well.
Hi, I'm juggling thats him.
Yes, just good.
Context of yes, obviously pantry loading of the consumer level across many categories.
Just curious as to whether you think pharma benefited in any way in the first quarter from any sort of pull forward I didn't seem like it in terms of LTC and prescription versus injectables, but maybe can you can you just start up there and then also give us a sense as to how April sales that performed across each of your three SEC.
The first one of them in a big the second so the the one area, where we might have seen a pull forward is really in the active packaging area.
Where in the reserve to diabetes market.
There are people want to make sure that the supply chain is is well field.
In addition of course, we had this active blister.
Launch, but for the rest of the portfolio I don't really see there.
And regarding the the April patterns in trends that we're seeing.
As you can appreciate you know we can take a step back in March and it wasn't until midway through the month of March when we really started to see.
A significant impact from no customer shutdowns in the sell through at home.
Restrictions that were out there. So here we are in April and as you might expect we're getting the full impact on the month of April So I would say that like now.
April is trending where we expected it to be when we.
When we started looking at the pandemic so.
Clearly worse than we actually saw.
For the full month to month.
Okay, and then in terms of the pipeline of activity within the pharma segment I mean, how do you think the the card dynamic of limited mobility lab access et cetera.
The impact that segment as we kind of thing through the rest of this stuff that here and then related to that you talk stuff on about 150, some odd projects that you pharma team has identified specific to covert 19.
What exactly did that entail.
Sure so.
On the project activity actually when you think about early stage pipeline development, there's really no no impact we have over the switch to retro collaboration with customers and that is actually going surprisingly well, we all find that oh things can be done remotely.
Where we used to have face to face meetings to the pipeline fill is continuing well and no doubt that there will be instances of there are instances, where some clinical trials are delayed because of a priority is going to fighting the academic and.
In some cases, where an onsite audit is needed for getting things.
Approved for launch there is some delay no.
If you're getting back to quote the new normal some finding the second half I think you will not be able to find this effect and long term as we know pharma pipelines are.
Project sake, five to 10 years, and there will be an opportunity to catch up at all received as went on for years than we would have an impact.
On the second question, let me qualify the Ami 50 number a little bit. So of course, there are many hundreds maybe if housing projects out there.
Farming industry targeting Toby.
19, the hundred Fiftys really projects that are irrelevant to us the capabilities that we bring in inhaler alert nasal injectables space and so we are working goes through and.
Probably a third of those we work actively on.
To advance.
In projects in the company.
Oh I realized that we have a large pipeline with.
Few thousand project at any one time, but it is a notable upped uptick of course for.
Cobiz 19 now the majority of that is as you would expect injectable related but some of them also in the inhaler space and in the nasal sprays.
Okay. Thanks, a lot that but I'll turn it over <unk>.
<unk>, maybe the one I would of course also remind people on is the.
Emergency use authorization.
Effort, they become going on with the FDA for decontamination and 95 masks.
Certainly project grows a proud of.
Thank you.
Your next question comes from Adam Josephson with Keybanc. Your line is open.
[noise] Stefan buyback good morning, I Hope you and your families are well unhealthy.
Thank you good morning.
Bob just morning, Matt <unk>, Bob just following up on gone Tim's question about April this isn't specific April but just in terms of your QQ guidance can you help us at all with roughly what magnitude of course sales declines you're expecting either in total or by segment and then also.
What you obviously some of the company's I I follow have declined to provide second quarter got interest given that the very substantial uncertainties that you referenced so what went into new years your decision actually give Q2 guidance.
So I mean.
We're not typically giving.
Forward looking sales guidance in any of our.
In any of our projections and the past, but I mean at what I can tell you is qualitatively.
And that kind of mentioned vast sums response.
We're going to see a much more pronounced impact in Q2.
Because we really in the western part of our business really only saw.
You know it said thoughts.
One month impacts.
In some slightly less than that and now as we head into the second quarter.
With the exception of China.
Going back to more normal activity.
Most of our businesses now kind of right throws of yeah.
Of the pandemic and so I would you know I would say that you can take a look at what our Q1 [noise] performances, certainly didnt norm and kind of project forward, what with Q2 might look like.
And then in terms of what went into our Q2 guidance and wide good Q2 guidance.
[music].
You know we I.
I think we have a pretty good.
No.
Close to the market and wanted to put some some some I guess goal posts around where we think some of the.
Some of the activity go.
Realizing that it is a very uncertain market, but taking its really just the culmination of a lot of a lot of work on the ground with no customer by customer.
Called and research and things.
Obviously, we opened up the range a little bit from what we traditionally given but we feel that that should fall somewhere in the them.
Thanks, Bob one more on on just for modeling purposes normally I look back at the last several years normally earnings were down sequentially Twoq to Threeq, you and I don't know how much seasonality. There is in your business to get into Twoq to Threeq, you, but I'm just wondering to the extent that activity gradually picks up.
From two Q on word I'm, just wondering to what extent that may be offset by just the normal seasonal declines in sales and earnings from Twoq through the balance of the or can you. Just help me just think about the seasonality of your business and why earnings in recent years had been higher QQ versus the rest of the year.
Sure So you're right on the seasonality part I mean, we have been tracking Q2 as is.
Typically more of a stronger quarters, and typically slightly higher than in Q3, a lot of that is due to the summer season condiments sales strong beverage sales.
That nature also gearing up for.
Ended the year beauty launches those typically get started mr. customized project. So traditionally we do see higher activity in Q2, but I think the pandemic is going to Trump really any seasonality that we have right and I think if you looked at that one slide in the presentation.
Two right now as we see it.
Is projected to be the low point, new year, and so I would think that.
Do you start to gradually pull out of it towards the back half of of the second quarter I don't think seasonality is going away negative on that.
The thing I see the.
The the pulling out being more of a positive again I think the pandemic that far outweighs any seasonality in our business.
Yeah, Thanks, and just on that.
Yeah, I just want to do that there's no no no question that with the balance of our business.
The we have upside on the other end of this low point, if you want and that there is pent up demand I mean people want to get back to the salone if people want to get back out there and clearly some.
The demand is lost but there will be significant pent up demand to be caught up with.
And whether that falls not exactly in Q3 or Q3 in Q4, let's see but as Bob said, the moving seasonality for this particular, a year will be a big factor here.
No assurance to it just one last one on the tax rate should we think of the two Q level of 32 is elevated relative to what normal would be or I mean, I know theres a lot that abnormal.
Right now, but any thoughts on the tax rate in the sustained sustainability of what you're guiding to for Twoq you.
Sure so as we touched on that and previous quarters, one of the more significant positive impacts to our effective tax rate or lowering your effective tax rate comes from the gain we get on the delta on the.
Stock option exercises sort of adult between the actual in the money versus the both expense so.
No that accounting change started several years ago in this environment, obviously, we're not forecasting <unk>.
Perfect and amount of option exercise in some very conservative on that estimate and then the other thing I would point out is that as where we're expecting to kind of hit the low point in Q2, we are forecasting that we have some losses in some of our countries and due to the uncertainty going forward.
Sales and not the tax effect from of of loss carry forwards. So in essence, you're pulling down your pre tax income without any corresponding asset on the books for the loss carry forwards. So those two things are are negatively increasing I would say our tax rate in Q2 versus what we traditionally.
Yes.
Thanks, so much crop.
Question comes from Neel Kumar with Morgan Stanley. Your line is open.
Hi, Good morning, Thanks for taking my question question.
You have been pretty strong first quarter growth for farm out any injectables and that the packaging businesses.
Let me mix perspective, given either lower marketing areas, what contributed to pharma keeping margins above the high end get target range.
And generally what are your outlook on margins for pharma going forward can the tougher comps in the higher margin disruption does it.
[noise], probably want to take that.
Sure So Neil you're right I mean, it's traditionally the injectable in the axis accessing face we've mentioned in the past traditionally had slightly lower margin, but you know in fact, the strength was so strong in both of those divisions both up 20%.
We did see some incremental move on the overall margin. So in fact, we didnt see the degradation that.
You know that you would normally that's how I would say normal growth pattern and both prescription and NCTC both were up a couple of percent each so.
That's that's that's what kind of boosted that.
That's the first quarter margin in pharma I think looking forward again, I I think our guidance is that it's going to its really going to depend very much on on the mix going forward and what we're going to see in Q2. So.
Certainly for us.
I'd cards, and and if you added a Q2 last year was was really strong quarter four so we're up against some very very difficult.
We're not we're not forecasting that said that that margin that we hit in one is going to be sustainable going forward with lots of love to see how the ultimate mix and final sales coming division by Division.
Okay Thats helpful contracts, and then I noticed you lowered capex guidance for full year by $5 million at the midpoint.
Just talking about where there's opportunity for further reduction that's something that we can modeling purposes.
And you also mentioned as they don't focus on working capital management, how should we think about potential benefits of these initiatives.
Well the capital side, you know all are divisions, our axis is challenging the project is that we have in the pipeline and.
And as you can imagine the is the world is kind of been turned upside down.
Acid increases and thought we needed.
A few months ago are no longer needed. Some of those projects may have been started already is take many months in some cases to build the molds and the a and assembly machines necessary. So we're looking at those to see which ones delayed stuff.
If they haven't started sort of.
Put on hold but in other areas, where we're seeing growth.
And we mentioned on the calling a hand sanitizers motion. Once rises we are seeing some capacity constraints. So we're trying to balance and actively looked at that I think.
I think we'll have to see.
How that that progressivism go through but we know we're going to continue to challenge what that is.
And if you don't see continued improvement I would imagine that further pull back some of those some of those investments that we do run this business for for the long term many of the investments that we've started already our long term in nature there their capacity there efficiency enhancements in our facilities, sometimes it's an interesting.
All of these in certain cases, they did your facility. So we're going to continue to make those long term investments as we feel really this while this is.
Tragic situation. This is it is transitory and will come out on the other ansys and want to be prepared.
For us the funds said, you know that tends up demand to be able to meet that demand on the working capital side, we continue to make progress on on the payables fronts inventory again is challenging because on one hand, you want to make sure that you don't have supply disruptions, but at same time with the decrease.
It's in demand you don't want to be carrying too much. So we're going to continue to work in that area.
There's no one quite honestly that we have keep the strongest ion.
As customers, who maybe a not essential business and have shut down some of the facilities.
We need to make sure that.
We maintain our current payment terms, meaning diligence on collections and things. So I do think theres, a little bit more that we can extract.
We're all on working capital, but it's going to be synergies, it's going to take a concerted effort across all three of those love us.
And then images build on this a bit more.
This.
Ill turn prices or whatever you want to call. It is unique I mean, we are looking for.
Sure.
[noise] do though.
[noise] 911.
First what have you, but this is really different.
Our business, and though especially as our consumer facing businesses are resilient.
Imec, both recessionary benign so even as.
The world going [noise].
Kind of product.
That's context now right no demand is artificially.
[noise] with the.
Confinement.
Procedures in the orders.
No that people are able to go back to more regular consumption. They will not go and buy that.
Shiny new car or a new house.
For the larger electronic but the basic.
You know consuming.
[noise] almost so we're really balancing.
Being ready for that uptake and thing these products.
And not the being.
Taking plants offline and and that kind of stuff.
Jim comes from Mark Wilde with bank of.
Much really open.
Okay.
Mark Wilde your line is open.
[noise] Mark Wilde Your line is open.
Your next question comes from George Staphos with Bank of America. Your line is open.
Hi, everyone. Good morning, Thanks for taking my question.
Thanks for all you're doing with coated and thanks for the details I guess I want to come back to the.
Coated question I Gotcha catered up to begin with.
If you can to some degree comment on what you're seeing now from your customers you mentioned the number product that you're working on but in terms of vaccine manufacturing capacity. Obviously those conversations have to start now ahead of any vaccine approval.
You know because hopefully if there isn't approval on one or two vaccines.
Production has to start right away.
Can you talk about what conversations you're having with your customer in terms of why they are lean towards your components, what they're asking view in terms of data.
You know anything that would help us.
Determine how much traction you would ultimately have.
Once again, hopefully there is a vaccine approved and remedies are being produced.
Yeah, we cannot really comment on individual project as you can appreciate but we are sure.
Part of some clinical trials of vaccines and a after the of course discussions around the scale up required a is that particular vaccine would be successful.
And Ah.
We certainly have to capacity to meet demand as needed.
I think that's probably as far as I can go.
Stefan I would imagine that the number of trials are on is less than the I think 150 covert related project you talked about is there way that you can size the number of trials that you're on.
Oh no it's it's a.
But it's a.
Not insignificant.
<unk> there.
Okay.
I appreciate that I wanted to switch a little bit too.
Trends, you're seeing in food and beverage.
And we recognize obviously that beyond the go beverage piece of the business was impacted.
Impacted by shelter in place can you comment at all in terms of how are the.
Colleges.
I have been ameliorated or not in Asian beverage that that issue that's been lingering for the last couple of years has largely run its course with the customers seeking a second supply and on the food side.
You know, we've seen pantry loading driving volume for some of the other companies in our space, where you pleased with the volume growth you saw for food or would you expect in more pantry loading effect.
Well, it's obviously different by geography. So those are so let's start in China.
Actually our particular beverages, mainly consumed by the kids and young adults.
Who go to school, so while China has been a as an economy.
And that whereas in the back much earlier than in the West a return to school is only happening now so that certainly weve a significant part of that beverage shortfall is in Asia, a because of that particularly.
On the other than the infant nutrition, you're coming back to your pantry loading is up significantly up.
In China, and we benefit from that.
Would I love to see more condiments sales in the right yes.
And for Us, it's a little bit hard to call it.
Where's the foodservice decline.
What is pantry loading and the net balance for us is positive, but certainly the foodservice decline.
Has an impact also on condiments.
Okay, and my last one I'll turn it over the past Aptar has gotten a record to benefit from having.
Three segments, the developing of R&D and innovation in one segment that can be used to feed into the other segments and leverage.
Can you remind us why you like that portfolio.
With obviously the challenges that you still are gone through beauty and home and obviously to have it is a one off hopefully event. That's hurting results there, but you know it it stands in stark.
Contrasts with pharma, which is obviously doing quite well and then obviously would have a higher multiple.
Independently so what's what's as you see it the benefit of having that portfolio and a good luck in the quarter. Thanks for the thanks for any insights.
Well.
If I maybe.
Excuse me the is the.
The.
Axis shield.
Application of it just makes to the FDA that it came out of a.
Food safety application.
That we use that technology for.
Food safety and quick service restaurants, and we know pool to theme a technology into pharma, if you want into a form application.
Of course, the larger question behind a your question.
We.
Addressed frequently.
The core technology of dispensing in the core manufacturing operations are the thing.
Injection precision injection molding, followed by high speed Assembly in form of course, we do it inside the clean room, but also for example, the infant nutrition, we weren't popery insight clean rooms.
So there's a lot of leverage there.
And.
Especially in these times.
People do appreciate also some degree of diversification of course, we all understand the pure play advantages in the short term.
But in the long term certain balances also beneficial.
Let me stop there.
Okay. Thank you Stephanie good luck in the quarter. Thank you guys.
Jim comes from Guede had to deal with.
But he asked securities your line is open.
Thank you on Matt for Nexstar is doing.
Okay curious maybe Bob if you can comment at all in regards to maybe under absorbed fixed overhead most specifically im interested in beauty and home.
And then I guess on the heels of.
I guess, we have a vaccine and on life was back normal in 2021.
Would you see this current downturn as maybe a trigger for transformation 2.0.
So on the hundreds of fixed.
Overhead I mean, it's hard to generalize on on an overall segment.
Worldwide basis.
Because obviously you know readers regional effects, but as you know we're organized for manufacturing perspective by technology. So in some of our plants that were supplying lotion pumps for moisturizers in hand Sanitizers.
We were putting up some pretty strong numbers in terms of productivity coming out of those facilities.
In contrast that with let's say of a plant that focuses on fragrance pumps or skincare pumps towards beauty was negatively impacted and as I talked about.
It's it's you can't just turn off the lights and cuts on all the fixed cost I mean, you need that needs to.
Run at that well idle speed for our customers because not all of them are shut down. So you can appreciate you got a pretty heavy infrastructure and some of the so it's a it's a mixed bag by you know by technology and within those regions on that so, but where where you've got significant shortfalls and by.
I am it hurts, a pretty bad and then on me I'm wondering getting good throughput. Your traditionally also spending a little bit on on overtime and things like that just to get the capacity out so.
The net negative overall, because the way to the beauty business on our overall in home.
Yeah, maybe let me address the second part of the question.
We are still executing on the transformation, what the transformation as broad as.
Different a level of operating intensity and operating capability.
On the front end commercial side of the business.
And just the effective I can rattle off everything that's in the farmer pipeline are good.
It is one result of having a much more well defined the front end.
Execution capability and tracking capability the same for some of our continuous improvement activities in the plants are one side effect a even at this time, especially at this time.
Some of our plants actually run at record levels in terms of efficiency at low levels with low overhead absorption, but a much better execution capability. So a transformation to weren't we certainly don't have to do that again.
Having said that of course all of us real.
Try to assess what does that mean normally mean in terms of consumer behavior, the kind of products or that there will be needed that will be popular will be successful the channels. They will be bought through and a with our broad set of capabilities. We will look to find solutions. So.
Services or maybe had certain you more services to the mix.
And then that may lead to okay, I need a little bit more this footprint rather than that footprint.
You can call the transformation 2.0, or you can just call. It continues evolution of the company.
We will never stop evolving that one of a key strengths is that we.
Face reality in the depth to the reality and that will also mean a lot of opportunity in the quote the new normal.
Thank you for that.
I was curious also if you can give us any insight I guess is China begins to emerge from a thought what you're seeing in terms of customer dialogue.
You know I guess sell through activity.
In that region.
During which region.
In China specifically.
Yeah. So.
Yeah, what we've seen in China is Uh huh.
It pretty rapid.
Snapped back off of the life for the new daily life, because many of US who traveled to Asia.
Relates they've already been used to wearing masks a ever since sars and that isn't a continuing in the office context.
The eating out after after work is not as a pronounced as it used to be so there's more to in home consumption E. Commerce is even more off the charts of its already been.
So.
The other part though to realize the impact of the crisis in China has been much much lower than it is in the west the I mean, Roombas basically one was in the province around who and were shut down.
For an extended period of time.
Factories were shut down maybe an extra week after Chinese new year holiday.
And Ah people went back to work within a few weeks after that in the offices.
That's by far not as extensive as we had to do in the west for a number of reasons.
But.
We certainly expect more E commerce, maybe significantly more E commerce going forward in the West certainly expect continued focus on cleaning sanitizing disinfecting I'm.
Just to mention if you.
But it's really too early to tell where what the new normal looks like.
Question comes from Debbie Jones with Deutsche Bank. Your line is open.
Hi, good morning, I wanted to them.
Hi, I wouldn't I think you could talk about about your exposure and Brazil from other companies have had a hard in time in that region with the impact of Kevin 19, just kind of get a sense of how that's been progressing for you on the impact.
Yeah. Thanks, Debbie Brazil, certainly is a topic and in terms of evolution of depend then make it it's much later or later than.
The West resuming started was the China Asia than.
Europe the U.S. in Brazil is now probably were Spain, and Italy were a month ago. So still in the way up and beauty is an important.
Part of our business in Brazil, So it has an impact.
But it is different for different companies those companies, who are very well geared towards E. Commerce are actually doing quite well, others, who more geared towards the retail environment or fearing poor so.
Uh huh.
It is a topic, but as that a as it's a mixed impact, but clearly a part of our outlook for Q2.
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Hi, Thanks, and I realize that it's difficult to talk about the the vaccine possibility and to try to ask anyway, because it and the way I think about this there would be it almost impossible to not have apcar part of this process along with a lot of the major drug delivery suppliers, just given the need for globally.
But is there anything around your portfolio in terms of drug delivery that.
For vaccines in general that would make you more unique.
Well I mean are victims of think we're well positioned oh supplied to all the majors has a second suppliers, sometimes it's the first supplier. So a fully agree with your statement of course the.
Breakout demand they would be if a vaccine could be delivering the right nasal delivery, but that destroyed speculation.
Where we would have a particularly strong position, but we know participated in this one way or another.
Okay. Thank you I'll turn it over.
Comes from Courtney Olin's with William Blair. Your line is open.
Hi, guys good morning.
Good morning first question.
Can you talk a little bit about the split of the beauty slow down between travel retail is additional retail folgers I realize it's probably pretty hard to quantify but part of that slowdown has been more impactful to your book of business and I guess as region continue to hopefully.
Or start to rather hopefully lifts kind of some of the closer than some of the social thing measures. How do you got to think about of returning to normalcy in each of those different pockets that being the travel retail in the traditional retail.
Thank you.
Yeah, I'm not sure that we can break it out this read the one thing I can say is what we observe from our European beauty clients is that those.
In American or those who have a significant Asian portion where much quicker to come back because they want to participate in the rebound in Asia in particular, China, and those who are pure let's say Europeans suppliers I've been much slower on on come.
Going back.
And the second one not surprisingly, those who or more apt and savvy in E commerce fared better than those who are more into traditional retail stores clearly travel was shut down first already in the February period, whereas the traditional retail only what.
Really shut down into western let's see beginning middle of March so there there's a sequencing effect.
Got it thanks guys.
Comes from Adam Josephson with Keybanc. Your line is open.
Thanks for taking my follow ons, Stefan or Bob.
How would you.
Would you try parallels.
Between this situation and Oh wait on nine <unk>, we've had some other companies that have done that and.
They said look or whatever we're down this year, we fully expect to get back next year and obviously you know nine you guys were down I think your core sales were down seven and then the next year. They were up I think 14 and your your sales for right back to await levels.
Today's intended do you see similarities differences this time around.
Well ill, let me the team up number.
I mean, yes of course there similarities.
But it's also very unique I mean.
To do have airline travel basically shut down to have People's thing their homes in Oh western economies for two months.
That is very different I mean, even in many luverne restarted the traveling back after week, we started travel again or do you see was up and running and it became a national.
Duty to go out in consumer <unk> and that it's different here.
2008, 2009 of course, what's the same is that you know we have a strong balance sheet and ER that Oh.
We can continue to run the company in the take advantage of to rebound I think.
We will have more pent up demand here.
As people were hold up but.
It's a beautiful speculation <unk> books.
Yeah, Yeah, I'd, just add that all eight or nine.
The funds.
100% right I mean, you know under discretion reduction in discretionary spend.
We've seen in beauty that those those trends are similar but you know we don't I mean, obviously with the financial crisis and people people cut back companies cut back because they weren't sure you know where the liquidity was going to be in the market into the did have accessed the borrowings and things like that this one's going to be entirely dependent.
On the confidence of the consumer even with the lifting of the.
Well the restriction state by state it can be a question of how comfortable people are going to be going back to the movie theaters, how comfortable are going to be going into shopping malls, and small stores and things like that and and that that will have to see and I think thats why the big push for.
Either antiviral drugs, what people feel said, hey, even if I get it may not die from it now because there is medication for it but ultimately the vaccine that will probably put people in needs and to go back and same thing with the travel side right. I mean, we said before it's it's a different it's going to be different.
Experience coming out so I think we're gonna have to really watch the confidence and what happens with the virus up until we get a a vaccine.
Yep, No I understood and Bob just one on the balance sheet. So indeed, you maintain a a good balance sheet for precisely times like this and kudos to you guys for having such a good balance sheet and I understand why you'd suspended share repurchase many companies have done the same and everyone's batting <unk> baton and gotten hatches it at some plan.
I know you need the mark the U.S. markets come Roaring back from below so it's not as have the market is that dislocated anymore and I don't know what it's like on the private side, but.
Is there a point, which you would say you know what there's we've seen this sudden dislocation. We know times are very uncertain, but we've got this great balance sheet reason why don't we use it Matt how are you thinking about when to use this really good balance sheet of yours.
Well I I think you know what we're looking at is obviously, we're looking for some more clarity on.
On the Horizon first and foremost and secondly, I think like we saw Aneel weighed on nine crisis, you know while there were there there's winners at the end of the day. There. There's also losers along the way.
So we have to keep a close eye on on our supply chain competition technologies that are in the market and you got a lot of.
But were up has been successful I would say on the M&A front is acquiring smaller technology rich companies with no how and capabilities. Those are the companies right now the that are struggling what's happening in the venture capital market. There's there's still a lot of great ideas that all the market in the anything one of the things that.
That I think we would love to use the balance sheet or as an opportunity.
You know maybe to to acquire some someone who may be.
Unable to get their technology across the finish line something that we could leverage and that certainly would be a preference and in our mind in terms of utilizing that strong balance sheet Arnaud stuff on if you have any other thoughts on that.
No I think that's the them throughout said.
The the larger point is a we are not the suspending of course, our strategic development of the group of the company.
And that the.
Virtual strategy session earlier this year like we do every year so.
There will be new opportunities through act on and certainly we will do that responsibly.
Thanks, so much and best of luck and stay safe.
Thanks.
There are no further questions queued up at this time I will now turn the call back over to Mr. stuff on today for closing remarks.
Alright. Thank you all for joining us in these interesting times.
Look forward to some virtual a road shows.
To elaborate more and everybody police they say thank you.
Conference call you may now disconnect.
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