Q2 2020 Aptargroup Inc Earnings Call
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Ladies and gentlemen, thank you for scanning die and welcome to Aptars 2022nd quarter Conference call. At this time, all participants are in listen only mode.
Peter We will conduct a question answer session introducing today's conference call Mr., Matt Dellamaria Senior Vice President Investor Relations and Communications. Please go ahead Sir.
Thank you and welcome everyone participating on our call today first upon Pandora, President and Chief Executive Officer, and barbecue and Executive Vice President Chief Financial Officer and Secretary.
You could find a copy of our press release as well as a slide presentation file that summarizes our results on our website.
If you're following along on the website you can advance the slides for hovering over the presentation screen and clicking on the arrows on the right in line.
We will also posted a replay of this conference call on our website.
Today's call include some forward looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from those projected are contained in the forward looking statements.
That's our undertakes no obligation to update the forward looking information contained therein.
I would now like turn the conference call over to Stefan.
Thanks, Matt and good morning, everyone. Thank you for joining us.
Let me start by expressing my hope you and your families are continuing to do well DC during this difficult time.
I would also like to take a moment do thing I'd workforce for the tremendous dedication and commitment we have shown throughout <unk> and then make.
I am extremely proud of how the entire organization has really through the challenge that we could maintain our production critical drug delivery and dispensing systems for patients and consumers around the world.
Before I comment on the results I would like to share if you updates related to Kobin 19, starting on slide three.
We are proud to live up to our purpose and responsibility to society and as previously shared we argued sanctioned supplier to several critical industries, including pharmaceuticals and consumer products.
Our teams are further motivated by the many expressions of gratitude by our customers for honoring our commitments to them.
Today, and we are constantly adapting our approach and we recently issued new remote inflexible worked guidelines to support our people and to ensure the minimum number of potential onset employees. During this time.
We also thinking of what's coming next than we had formed several work team.
Including the future customer engagement.
In the new normal of the post Cobiz 19 Euro.
Turning now to slide four you will see but a sample of our global solutions, which are critical to society today.
Our drug delivery dispensing ceiling and active packaging solutions can be found on a number of medicine.
Advertisers cleaners, food and beverage products.
Turning to slide five I would like to offer a few comments on the quarter.
Pharma business delivered another strong performance core sales grew in our Injectables consumer healthcare and active packaging businesses offsetting declines in prescription, which faced a challenging comparisons to the very strong quarter two of last year.
The pharma team continues to engage with customers and devalued potential to opportunities related to cope with 19.
The situation is very fluid and it is difficult to see which drugs will eventually be approved and win at the same time. It is very reasonable to expect.
We will benefit inline with our market share from the rising injectable business to be expected by the coming wave of Cobas 19 vaccines.
We expect to also benefit from increased demand for traditional vaccines and therapies that may have been delayed because of the initial crisis.
Our pharma segment is expected to remain reliably growing business. During this been dynamic as we are well diversified across different healthcare's therapies inpatient and uses that they're not covidien 18 related.
Now I would like to share a few reason you with FDA approvals featuring out technology.
Our active material Sciences technologies is featured on an implantable rechargeable device used to treat urinary involved this function by economics modulation technologies.
Our technology helps to protect key elements inside the device.
The second Dreesen USSD approval is for new drug application Giamatti.
Which features our multi dose nasal pump for the first and only nasally administered treatment for the relief of symptoms of acute and recurrent diabetic gastroparesis. This is another good example of a unique natal treatment option that unlike oral medications bypasses the disease gastrointestinal tract.
Allowing the drug to enter the blood stream directly.
Turning to recent eye care product introduction ophthalmic squeeze dispenser is featured on LNG.
Anti inflammatory and dry eye products from synthesis Proto Abbott in Latin America.
Now turning to beauty and home the beauty market continues to be quite challenging.
Even though our shipments increased in June relative to the first two months of the quarter.
Related to the Reopenings of several countries, including the U.S.
Demand for hand, Sanitizers and cleanses remained strong because of this we grew sales to the personal care market over the prior year.
I would also like to highlights of our spray pump is featured on a line of swap and send it ties the sprays a union lever. We also don't it 50000 of these pumps to support Union levers United for America campaign.
Our pumps enclosures are also featured on numerous hand sanitizer products around the world and we are investing in new tools molding equipment and machines to meet the demand for comes during this time.
Our closure and Simplisqueeze valve was chosen by dial for the innovative body wash them easy squeeze standup pouch.
Our technology provides controlled pre pre dispensing even when the Fliptop is open this product is available for purchase on the Amazon.
Continued flexibility is important to our customers and we are maintaining a state of readiness of for the upturn.
We have operating overhead cost that we must absorb while we are reducing some labor traveling other costs.
Turning now to food and beverage.
Sales were negatively impacted by a decline in undergo beverage closed sales due to the covert 19 crisis.
That's relative passing on of lower resin costs to customers and lower custom tooling sales.
Turning to product launches the flexible space continues to have good momentum.
I closure was simplisqueeze valve is providing clean and control dispensing for major peanut butter brand, which is just launched in innovative standup pouch.
Our dispensing solution also includes and easy to remove tempur evident pooling.
Our closure and Simplisqueeze valve for inverted packaging are also found on the launch of a new line of signature sauces, and condiments, particularly in the U.S.
In the beverage market our sport closure is found in the news sports drinks by Charlie younger in China.
Before I turn the call or with the Bob I would like to share a few additional highlights as shown on slide six.
Our fusion PK GE acquisition is off to a great start and be benefit from that tremendous agility.
Adept rapidly due to changing beauty demands as well as their sophisticated consumer insights and marketing approach.
Subsequent to the end of the quarter, we issued our 2019 sustainability report, which highlights our sustainability aspirations safety programs.
Societal impact of raw products and community outreach initiatives, we are very proud of our accomplishments and I encourage you to review that report that is available on our website.
We're also pleased to welcome Kimberly Cheney two after as the executive Vice President and Global General Counsel.
The breadth of experience across multiple industries as the lead attorney for global 100, and Fortune 500 companies for global mergers and acquisitions strategy innovation intellectual property and compliance will strengthen our leadership team and position us even better to achieve our strategic priorities.
With that I will now turn it over to bump was going to provide additional comments on our results.
Thank you just the fun and good morning, everyone.
I'll walk through some of the details concerning our second quarter results and the impact of the colder 19 pandemic starting with slide seven.
For the second quarter 2020 reported sales declined 6%.
And were negatively impacted by changes in currency exchange rates.
Timing of passing on lower resin costs customers and cold and 19 related impacts.
The positive contribution coming from recent acquisitions, how coming from the changes in currency rates.
And as a result core sales also declined 6%.
Taking a look at our segment performances.
Our pharma segment achieved core sales growth of 6%.
And then adjusted EBITDA margin of 35%.
Paired to a very strong second quarter a year ago.
Looking at sales growth by market on a core basis.
Core sales to the prescription market decreased 6%.
Due to the lower tooling sales and a difficult comparisons to prior year.
For sales to the consumer healthcare market increase 10%.
Strong demand for our products used on nasal decongestant, and cough and cold treatments with the reasons for the growth.
Core sales to the Injectables market increased 26%.
To increase demand across a variety of applications.
Finally core sales to the active packaging market increased 21%.
The two strong growth in our probiotics diabetes and active film products.
Turning to our beauty and home segment core sales decreased 13%.
Due to the negative impact of coated 19, and the effects of cobot 19, and the beauty market were partially offset by an increase in sales to the personal care market.
Median homes adjusted EBITDA margin and was negatively impacted by the sales declined in the quarter.
Looking at sales growth by market on a core basis.
Core sales to the beauty market decreased 33%.
Due to a significant reduction in orders from customers, providing both prestige and mass these beauty products, mainly in the travel retail in standard retail settings.
Many beauty stores closed throughout the quarter in response to government shelter in place regulations.
Core sales to the personal care market increased 11%.
As increased sales of our products used on personal cleansing products, mainly for hand sanitation products more than offset continued softness in our deodorant hair care and Sun care applications as consumers adhered to shelter in place orders.
Core sales to the home care market decreased 5%.
As higher demand for our household cleaner products was not enough to offset declines of launch.
Yes.
Turning to our food and beverage segment coarse sand in the quarter due to.
The passing on of lower resin cost so our customers.
Lower tooling sales.
And lower beverage closure sale.
The food and beverage segment achieved an adjusted EBITDA margin of 18%.
Looking at each market, while sales of our closures to the food market increased 3%.
Lower tooling led ultimately to us core sales decrease of 3% as we recognized several large tooling projects during the second quarter of the prior year.
Core sales to the beverage market decreased.
7% of which is due to lower tooling sales.
Demand for our closures for single serve bottled water and on the goal functional.
Drink products with significantly affected by cobot 19 impacts.
Turning to slide eight.
Second quarter adjusted earnings per share totaled 80 cents.
Prior year comparable earnings per share told a dollar and 14 cents.
Slide performance and show the 4% core sales decline and adjusted earnings per share.
1% from the prior year.
Slide 11 shows the sensitivity analysis that we showed in the first quarter and it is still relevant as we move forward.
Slide 12 outlined our outlook for the third quarter.
Correct.
The recent spike in Cobot 19 cases in many regions of the world.
Create economic uncertainty in some of our markets.
Our outlook is heavily.
The reopening of retail and keep in general consumer spending confidence.
And we expect.
The second half of the year.
Now I will share a few more details around our cash flow and capex.
Then turn the call over just the fun for.
Closing remarks.
In a quarter reported cash flow from operations was strong and totaled approximately $143 million.
Capital expenditures were approximately $61 million.
And as shown on slide 13, our free cash flow was $81 million compared to 70 million in the prior year.
We continue to have a strong balance sheet and on a gross basis debt to capital was approximately 44%.
While on a net basis it was approximately 39%.
In addition, we continue to evaluate in challenge, our capital expenditure needs and our forecasting a range of $230 million to $250 million.
At this time Stefan will provide a few comments before we move to QNX.
Thank you Bob.
To close I would like to cover a few key takeaways as can be seen on slide 14.
While there is uncertainty due to the effective go Weve 19, we continue to invest in our company for the long term.
Our cash generation remains strong and our product innovation serves degree good of society.
The initial reopenings resulted in improved demand for our some of our products, including beauty products towards the end of the second quarter.
We will continue to monitor the evolving status of the Pandemics as well as the trajectory of reopenings by country and by state.
As we manage our company for the long term, we will continue to focus on providing tangible value to patients consumers and our customers.
Made up of many of the world's leading brands.
Now I would like to open up the call for questions.
Ladies and gentlemen to ask a question. Please press Star then the number one on your telephone keypad to withdraw your question press the pound key in the interest of time in fairness to all participants. Please limit yourself to two question and one follow on question can come back into the queue. If you have more quest.
And as time allows.
Your first question comes from Ghansham Panjabi with Baird. Your line is open.
Hi, good morning, everybody.
Hi, good morning.
Morning, guys, yes, so step on maybe you could just expand on your comments related to the covered 19 vaccine and obviously in supply chain has to sort of vaccine. There's obviously a lot of people on the planet and Theres only so much supply. So how are your customers kind of managing the buildup of inventory is ahead of that.
And then just more broadly touch on calls.
Okay.
Sure. Thanks Ghansham.
No.
You're all aware there are many hundreds of projects.
Going on.
And we are following in all of them closely of course TCV the big ones in the headlines maternal Pfizer Semicon Sanofi just this morning.
But also in China, Sinovac cans I know many many more.
About a third of our corporate related projects, our vaccine related and two thirds or treatment related and then we have.
Additional project in.
Nasally modulation and amazing relation space as well as respiratory space.
So the activity is tremendous.
There is also displacement of traditional business like say that traditional flu vaccine assets are being re dedicated.
And then there you have to question of SK use or coated in uncoated.
Prefilled syringe sure vile.
So there are many moving parts or were in discussions with many of our clients on that.
We're not going to comment on any individual project, but as the.
Here is that we will benefit from the uplift in business.
Related to covert inline with our market share in injectable space.
And clearly to them active space and it very closely.
In terms of the beauty and home SEC and then I think you mentioned I think Bob.
Mentioned that duty was down 33%.
Core sales in the quarter.
Can you sort of break that out by month, and then related to that.
Just touch on the decremental margins in two key for that segment, because it looks pretty significant I assume some of that as inventory drawdown, but just.
Help us bridge, the two quarters year over year, maybe let me take the first part didnt than Bob covered the second part.
Clearly April was the low point some improvement in May and June was it was very good month.
As they're effective reopening.
Around the world, especially Europe and the U.S.
Immediate impact we also see continued.
Good momentum into July.
So.
What you really see fagundes and one Oh sorry.
I'll, let Bob address them.
Or so and then I think it's important to keep in mind that of the three segments.
Beauty and home has the than the widest in most diverse product offerings. So as a result is has has more facilities than than the other segment and when you have.
Particular parts of that market in this case the beauty market as you as you referenced on China being down.
From 33%.
You've got.
Big portions of dedicated factories, which are running you know clearly below a breakeven facilities that then contrast that with.
Personal care side, where we've got some some facilities which are running.
Now at record all time highs. So they Stephane mentioned you have a couple months there with its really low volumes coming out of that you know we've mentioned tokens before we can completely take them entirely offline you have to kind of run in the low idle mode. So once you once you have certain of.
Those factories, particularly in beauty side running at very low levels that really explain kind of that the decremental margin.
That youre referring to.
Thanks, so much.
[noise] comes from George Staphos with Bank of America Securities. Your line is open.
Hi, everyone. Good morning, Thanks for all the details if I was wondering if you could maybe dig a little bit deeper into.
Activity I think on the land.
Hang around 50 or so.
Serious projects, that's my phrasing, you might phrase a little bit differently and in more recent discussions you had.
As mentioned, yes, you're working on around 75 as a way that you can update us on where those projects stand currently are yet to 75 or a higher level unrelatedly.
From what you're seeing from customers do you think that dosage per packs will be low single digits or high single digit for pack just trying to get a size for market with covered one and ultimately occurs.
Sure I'll try to add a bit more color.
Sure.
Mentioned in response to gun transgression look of course, the numbers are trending up.
I think we said before they were hundreds of of course with related approaching an industry. Now this is probably about 2000.
The ones that are relevant for us certainly now so.
Oh, well above a couple of hundred and the reserve the 75% 75 numbers certainly has gone a bit higher let me not.
Getting too.
That and 75 from Robert approaching Triple digits in there in terms of your question around doses that is really differs by geography.
I think in.
It's likely that you get a multi dose vials and you know.
Don't pin me down.
Oh closer to 10.
But it will be multi dose myself.
In other geographies I'm Asia.
We believe there will be a significant part of that also in Prefilled syringes.
And.
In Europe, it's a mix of both so the other effect of course that I tried to hint that.
A lot of the traditional flu vaccine capacity is being re purpose the in the industry towards Corbett.
And you know a lot of that traditional flu vaccine capacity is P. Prefilled syringe and there is.
A realignment of the supply chain for traditional flu vaccine, which also provides opportunity space and.
We will put.
All right.
Thanks, if I so my related follow on and the other question I'll turn it over so if.
The supply chain on traditional flu vaccine.
And is being somewhat this place by the increase in Cove it infrastructure.
You mentioned gosh, I was talking to and that would suggest there's potentially a larger flu season for you.
We'd expect it anyway, just because what's been happening, but also given that you're producing things like flumist.
Dispensers, so would it be sensible to expect a stronger.
For the season for Apcar.
Given that context and my other question I know, you're not going to guide comment to margin by segment for any quarter I'm little on third quarter, but would it be fair to say, Bob given where we are right now no guarantees in life, obviously that.
We should be seeing some sequential improvement in margin across the businesses off of the lowest from twoq, particularly around beauty and home in food and beverage where im going thank you.
Yeah.
Look.
This is it.
Obviously, if there is a heavy flu.
Season that tends to be positive for us just because of the old decongestant, a nasal rins stealing rinse and so on Inc. and.
The more flu vaccination and probably there's a pent up demand for other vaccinations.
And that we suspect so yes. Unfortunately as you into pharma business. This is being done are going well.
In the flu season, that's good for for the pharma business.
I, let Bob address that margin question.
Sure so.
Thanks for the the follow on towards because I did want to mention that you know they need the the opposite of that that decremental comment that I made is that.
When it does come back.
Volume to I would say above that line I think what we've done is done a tremendous amount of cost savings throughout the transformation and I think we're we're better positioned today for when the market does come back and certainly we're starting to see that in China that.
In fact is resilient in once economy circling back and normal we do see that Didnt didn't starting back and as a reference point, if we look back to kind of on nine when we were down significantly in the first three quarters and then for the year finished down now.
9%.
On the topline the following year, we bounced back with an 18% core growth rate and 100% improvement on the EBITDA. So once you get above that you know that kind of breakeven point, then you start to see the opposite effect any incremental margin. So I think what were.
Seeing here George is as we've highlighted before and continue to believe then is it it's not going to be an immediate snapped back in the second half its anymore.
Well I don't think we'll see a dramatic improvement in the beauty and home margin, it's all really going to depend on.
And you know how quickly we can get back above kind of that the that breakeven point in some of those be factories, but once once we start moving further and beyond that then that's when I think we'll start to see some some significant margin improvement.
They are the other thing I would mention on the margin side of course all of this covert related activity also create some additional costs.
Some additional investment so.
We also passing on some of that with price increases in in the.
Injectable space and I think we did a few percentage in quarter two already.
Thank you guys.
Again to ask a question. Please press star one on your telephone Keypad. Your next question comes from Neil Tomorrow with Morgan Stanley. Your line is open.
Hi, Thanks for taking my question.
I'm just you talked about the majority of potential projects related to tell that are injectable applications omnicare ultimately chosen as a supplier.
You have available capacity to meet that demand I know you increase injectables capacity in France last year I, but I was wondering is there any plans to further capacity additions just given the growth potential there.
Yes, so I think again, it's safe to assume that we will increase our capacity in line with within our market share more or less.
Our capacity situation is really.
You need to look into the details of obviously the beginning is the whole elastomer formation.
Then the product formation stamping and so on a injection.
And then the finishing washing coding.
And then you overlaid on that and different product type stoppers needle shields.
Bonders and geography so.
And then you we have of course.
Discussions with each customer and supply in their supply chain, including the Cmos.
And we reserve certain capacities are coming through it and capacities.
In many cases this will be a dual sourced situation and nobody wants to rely on a single supplier.
When supply chain performance will be critical and Oh, Yeah, I think that's probably what I can say about that but clearly we will accelerate some of the investments in inline with our positioning industry.
Great. That's helpful color and you had a core growth decline in the prescription data, it's funny farmiga quarter, I know you've got some tough comps year over year, but were there any area that you called out or particularly weaker.
And then you also had some pretty strong growth in asset packaging I think you had previously expected growth moderate a bit for the quarter. Let me just talking about what drove the upside at Tunis expectations there.
He wants to buy can I can take according to build a fish.
Sure the prescription side, we saw a little bit of softness on the allergic rhinitis.
Which we had kind of indicated before that that kind of peak, we'll see.
Over the counter business and the volume growth there. It's also a little bit of softness on the CNS side.
As well.
There, that's partially due to difficult comps because we didn't have.
A couple of big launches last year in this space. So those were those are really kind of what we were referring to and what actually materialized on.
Subscription side.
As it relates to the active packaging. So I knew were a little bit cautious with the strong diabetes vial sales that we experienced in first quarter.
And had some doubt whether that was going to continue or whether that was going to kind of level off and in fact, we did see it continue.
At a very strong level in Q2 as well.
The other thing that we're seeing really exceptional growth in is the probiotics and you can see plenty of articles out there that.
The nutraceutical industry is doing quite well right. Now is people are are trying to lead a healthier lifestyle and then we're sending also to see some good traction on our active film.
Projects as well so.
Well, we'll see how the diabetes volume continues into the second half, but it did surprise us a little bit that it was continuing strong in Q2, so really our Q2 mirrored very closely with Q1 ones.
Again to ask a question. Please press star one and your telephone keypad.
And there are no further questions kept at this time I'll turn the call back over to Mr. Tenda for closing remarks.
Oh very good well overall I think we feel very good about a quarter and the performance we've put on the board at the bottom of the largest.
Economic pullback or.
In many generations are probably back to the great recession.
With Europe's GDP down, 40% and the U.S. closer to 30% on an annualized basis.
We've done a lot of good work in.
Taking cost out and preparing for the upturn.
And if history is there any guide.
We were excited about the future and with that I'll close to coal and we'll see you own the virtual wrote a over the coming months. Thank you.
This concludes today's conference call you may now disconnect.
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