Q3 2020 Aptargroup Inc Earnings Call
[music].
Bins are in a listen only mode. Later, we will conduct a question and answer session. Introducing today's conference call is Mr., Matt Dellamaria Senior Vice President Investor Relations and Communications. Please go ahead Sir.
Thank you and welcome everyone participating on our call today, or Stephan Tanda, President and Chief Executive Officer, and Bob Kuhn Executive Vice President Chief Financial Officer and Secretary.
You'll find a copy of our press release as well as the slide presentation filed it summarizes our results on our website.
If youre following along on our website you can advance the slides by hovering over the presentation screen and clicking on the arrows on underwriting endless.
We will also post a replay of this conference call on our website.
Todays call includes some forward looking statements. Please.
Please refer to our SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward looking statements.
After undertakes no obligation to update the forward looking information contained therein.
I would now like to turn the conference call over to Stefan.
Thank you, Matt and good morning, everyone.
Good for you and your families are continuing to see healthy increase during this time.
We appreciate you joining us today.
We began this dynamic drew in your early in the year learning from our Chinese quality late January extending the crisis team to oversee the evolving situation with a focus on our people and the production of essential dispensing solutions.
Today.
Our priorities remain the health and safety of our people and they come to you reduce production. So that we can deliver on our promises and provide the drug delivery and consumer dispensing solutions that are helping millions of people each and every day.
I would like to thank our dedicated people around the world, which contributed so much to ensure to supply and support of our customers and consumers and patients everywhere.
As shown on slide three.
Continue to adapt our safety procedures and working policies to comply with new insert in local government regulations.
Our COVID-19 actually two years rigorously monetary depend damage and we have maintained a regular cadence of town Hall and other communications with our employees most of our travel restrictions and limitations on the number of visitors to our facilities remain firmly in place.
Like all of US we have also rapidly boosted electronic collaborations tougher.
To further increase customer engagement and to ensure we share our broad solution expertise, especially during this time we.
We are greatly increased deployment of digital engagement formats, and the training of our people in very effective use.
On a daily basis, our segments are holding the virtual events digital co creation sessions, and webinars with our customers potential prospects and industry partners.
Our pharma segment has also launched a knowledge, which contains our latest scientific content and digital event information all designed to inspire and foster innovation.
We are encouraged that as a result, our new business development and innovation pipelines remained strong across all segments.
Now turning to our quarterly financial performance on slide four and I'm pleased to report topline and bottom line growth, especially when considering the trend together conditions outerwear.
Our diverse product portfolio serves multiple attractive end market each long term growth markets.
Today, we know two of those markets remain temporarily impacted while all our lives are growing nicely.
Our recent acquisition in particular fusion PDG and mobile are also performing well in addition to the organic core growth over the prior year, we are generating strong level of cash flow and have exceeded prior year levels through the nine months to date.
Moving to slide five our pharma business, which is the best of breed global leader in drug delivery solutions and services and has been a very consistent growth franchise for many years.
Turning another impressive performance, we grew core sales of our devices and primary components in each end market.
However increased sales of the drug delivery devices were offset by lower custom tooling sales in the prescription market.
The 11% core growth for the segment was on top of a very strong quarter a year ago.
Current period growth was driven primarily by increased demand for primary components used is injected met things such as existing seasonal flu vaccines and other treatments.
As well as some beginning orders in anticipation of coming to with 19 vaccines.
Since the onset of the pandemic, we have seen that consistently increasing recognition of our technical capabilities in the injectable field.
And the steadily rising number of attractive inquiries from pharma and Biopharma customers.
And we expect the positive trend to continue.
During the quarter. We also benefited from increased demand for our consumer healthcare and active packaging solutions.
We continue to be optimistic that we will benefit from a globally increasing demand for primary components used with injected medicines, including those related to cope with 19 vaccine therapies at least to the degree of our market share.
Now I would like to share a few recent pharma products and technology launches.
Our after pharma services company novel recently launched at here at Ti.
The connected intuitive and user friendly onboarding solution for the growing number of patients with chronic conditions, who use auto injectors to administer them indications at home.
This is the first full interchangeable connected add on solutions that can work across a multitude of auto injector platforms.
This launch is an important advancement for patients with self administer their therapies at it furthers our mission to provide robust training devices and onboarding programs.
In the quarter. We also have PNG launched our VIX simex sailing ultra fine nasal mist in the U.S featuring in our bag on valve system and actuator.
Meeting, where elsewhere inhalers used to treat asthma and CVD are found on medications in Mexico, Turkey, and South America.
Finally, our unit dose nasal system can be found on a new naloxone nasal spray called $20 in Threed that is used to reverse the effects of an opioid overdose.
Now turning to slide six and starting with beauty and home.
We continue to see stronger demand in the personal care market for our dispensing pumps enclosures for hand sanitizer than liquid soaps.
And increased sales to the home care market, primarily related to cleaners and disinfectants.
While the beauty market did experienced some positive trends in the early part of the quarter due to the reopening of many stores.
This market continues to be negatively impacted by the effect of Covidien 18, and sales decrease compared to a year ago.
We were encouraged by the level of activity related to retail sales. Although it is not clear if that level of consumer movement and spending will continue as we head into the winter months in the northern hemisphere.
Customer engagement and dialogue is at a good level, especially around sampling systems, which we perceived as a positive signal.
We also continued to implement cost containment measures and streamline our footprint.
Turning to recent global product launches in the quarter, our pumps and closures continue to be featured numerous sanitizing and cleansing products in the worldwide fight against COVID-19, we.
We have Unilever launch a new best brand of entity bacterial spray in Mexico, featuring our spray pump along with an entity bacterial enhanced soap featuring our closure.
Ocean pump is frowned on a new antibacterial hand soap for Unilever's, Vaseline and lifeway brands in Thailand.
In India, we have Colgate launch a mouth protect spray with our plan. We also supply several new perfume and Cologne launches, including Tribeca by bond number nine.
Tom Ford by Este, Lauder, Puny rose by Avon and many others.
Moving now to food and beverage we reported strong core growth in the food market that was partially offset by lower sales to the beverage market.
Due to the on the go and beverage category are being affected by the pandemic.
The strong growth in the food market is attributed to the demand for pantry staples with consumers continuing down at home more.
In addition, the effects of passing through lower resin prices to customers also affected the segment's overall growth.
Turning to recent product launches our closure is found on a new begun axles for purchase of Mcdonald's in Brazil, and our closures with Simplisqueeze valve are found on the new inverted old El Paso, Taco sauce, new oral hygiene water enhancer for pet Coke Tallyho by Ocean spray.
Before I turn the call over to Bob I would like to share a few additional highlights as shown on slide seven.
We have recently joined the gender and diversification airline group of denied annual kits and more than 50 corporate leaders to support the use of key performance indicator is high level internal measurement to provide an overview of the diversity of our workforce we.
We will use key performance indicators to measure gender and underrepresented groups.
We also publicly announced that our science based targets have been validated by the time based target reintroduce you said and emission reduction goal consistent with requirements of key global warming well below two degrees Celsius per year 2030.
The science based approach incorporates after his own operations electricity fuel oil natural gas and refrigerant use and operation within the value chain, including transportation of goods raw materials travel and commuting.
Our business strategy focuses on reducing our environmental impact while living up to our purpose and responsibility to society.
We remain committed to running and encouraging increasingly energy efficient operations, along the entire value chain.
With that I will now turn it over to Bob Who's going to provide additional comments on our results Bob.
Thank you Stefan and good morning, everyone.
I will walk through some of the details concerning our third quarter performance starting with slide eight.
For the third quarter, 2020 reported sales, including positive effects of currency translation rates and recent acquisitions increased 8%.
In core sales increased approximately 2%.
Stefan mentioned, our pharma segment had a terrific quarter and achieved core sales growth of 11%.
And an adjusted EBITDA margin of 36%.
Looking at sales growth by market.
Core sales to the prescription market were even with the prior year.
Prescription drug delivery device sales grew 4% on a core basis against the very strong quarter a year ago.
This was due to increased demand for our metered dose inhaler valves for asthma, and CRPD treatments and nasal spray devices for allergic rhinitis.
This growth is devices was offset by lower custom tooling sales compared to the prior year.
Core sales to the consumer healthcare market increased 6% due to increased sales of our pharma systems for nasal decongestant nasal sailings.
Core sales to the Injectables market increased 27% with higher demand for primary components used was injected medicine, such as the existing seasonal flu vaccines and other treatments as well as some beginning orders in anticipation of coming COVID-19 vaccines.
Core sales of our active packaging solutions grew 56% as a significant increase in tooling sales accounted for 46 of the 56% increase.
Nevertheless product sales were also strong accounting for 10% of the 56% growth.
Turning to our beauty and home segment results were mixed across the market with growth in the personal care and home care markets being offset by decreased sales to the beauty market.
Core sales decreased 5% for the segment and beauty in homes adjusted EBITDA margin was 10% in the quarter and was negatively impacted by the reduced volumes at our locations that produce dispensing systems for the beauty market.
We are continuing to rightsize, our footprint and have recently announced facility closures in Ireland and Spain.
However, we are very much dependent upon volume growth in the beauty market in order to meaningfully improve our overall margins.
Looking at sales growth by market on a core basis.
Core sales to the beauty market decreased 21% due.
Due to a significant reduction in orders from customers selling both prestige and mass these beauty products, mainly in the travel retail and standard retail settings.
Core sales to the personal care market increased 12% due to increased sales of our products used on personal cleansing applications, mainly for hand, sanitizers and liquid soaps.
Core sales to the home care market increased 6% due to higher demand for household cleaners and disinfectants products.
Turning now to our food and beverage segment core sales increased 2% due to increased demand for pantry staples in the food market.
The food and beverage segment achieved an adjusted EBITDA margin of 19%.
Looking at each market.
Core sales to the food market increased 15%.
The increased demand across several applications for pantry staples as consumers continue to cook at home during the pandemic.
Core sales to the beverage market decreased 22% as sales of our single serve bottled water and on the gold functional drink products continued to be negatively impacted by the consumers traveling less during the COVID-19 pandemic.
Turning to slide nine third.
Third quarter adjusted earnings per share at home one dollar per share.
And were an increase over the prior year comparable earnings per share of 97 cents.
Adjusting for currency effects.
Slides 10, and 11 cover our year to date performance and show a 2% core sales decline and adjusted earnings per share, which was $2.72 compared to $3.15 a year ago adjusting for currency effects.
Slide 12 outlines our outlook for the fourth quarter as we expect the company to achieve core sales growth.
Rising demand in many end markets is expected to more than offset COVID-19 related decline in some of our other end markets.
We expect our pharma business to continue to do well with existing business and increased opportunities indirectly and directly related to the pandemic.
We expect our adjusted earnings per share range to be 84 cents to 92 cents in the fourth quarter.
Now I will share a few more details around our cash flow and capital expenditures and then turn the call over to Stefan for closing remarks.
In the quarter reported cash flow from operations was strong and totaled approximately $154 million.
Capital expenditures were approximately $50 million.
And as shown on slide 13, our free cash flow was $103 million compared to $97 million in the prior year.
We continue to have a strong balance sheet and on a gross basis debt to capital was approximately 41% while on a net basis. It was approximately 36%.
In addition, we continue to evaluate and challenged our capital expenditure needs and are forecasting a range of $240 million to $215 million.
At this time Stephane will provide a few comments before we move to Q and a.
Thanks, Bob.
So in closing on slide 14, we had a strong third quarter with top and bottom line improvements over the prior year, driven primarily by our pharma and food and beverage segment.
We are proud of the way our employees have responded to the difficult year in we're encouraged by the level of dialogue with customers and the beauty markets. We saw some positive consumer spending patterns when retail stores opened.
We expect our best of breed pharma business to continue to do well with existing businesses and increase opportunities related to the pandemic.
Our balance sheet is in great shape, and we are generating cash flow above last years level. We will continue to focus on furthering sustainable diverse inclusive business and the more circular economy I.
I would now like to open the call up for your questions.
If youd like to ask a question at this time. Please press Star then the number one on your telephone keypad, if youd like to carry a question press the pound key in the interest of time and 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 questions as time allows we'll.
We'll pause for a moment to compile the culinary roster.
First question comes from John Kreger with William Blair.
Hi, Thanks, very much as Stephane.
Could you just expand a little bit more on your what you're hearing from innovators around the pandemic.
Is that early demand, you're seeing more driven on the vaccine side, our therapeutic side or sort of indirectly from other products dealing with respiratory on us. Thanks.
Hi, John.
Yes, it's really all of the above in terms of quarter three results.
The strong performance is really.
Related to increased demand as well as the flu vaccine increased demand from coated related treatments as well as in.
Robust demean the increased demand for traditional.
In home from the treatments like.
The CBD like allergic rhinitis ceiling wins.
People just alluded to stay healthy.
Take there.
In a chronic disease treatment regularly and also let's not forget the most totally cases are.
Not to pursue year, but people still needs.
Deep congestions and take their regular medications and make sure. They are coming is as good as good as possible.
Towards the very end of the quarter and similar heading into quarter four we see people starting to make at risk purchases to ramp up some of the early rexene candidate to manufacturing of debt.
But as we said that only starting.
Late in the quarter and into quarter four I think in general.
This is pandemic really has.
Or put a spotlight on our injectable business, our technical capability and for the first time, we see dual sourcing.
As the supply chains for for the vaccine productions are being an owner.
Organized in the customers that are pleased with our overall capability and having having multiple options. So overall, we are very optimistic about the future, but so far what you've seen in the demand uptick is mainly related to secondary effects.
Thank you and just a follow up on your comment there about the injectable part.
Part out here of your pharma business I realize there is uncertainty about whether or not any of these vaccines will be effective but if this sort of 27% demand that you saw in Q3, where it should be sustained during next year do you have capacity to handle that or are you are you needing to add additional capacity at this point.
Well, we have of course, the added capacity over the course of the last.
Eight months right to the tune of about 25% or so we are continuing to ramp up investment too.
Add additional capacity.
Turning to the tune of 50% to 30 million and three we are reviewing the need.
Regularly so right now we're comfortable with our capacity situation.
And.
Of course of whether the 27% will be repeated in exceeded.
We're not giving any guidance on that but certainly we see a bump.
In the in the growth rate, the indirectly and directly related to corporate.
What exactly it is maybe 5% maybe 7%.
Growth number were at kind of the baseline growth that is already in the teens.
Mid teens with this business.
Excellent. Thank you.
Next question comes from Ghansham Panjabi with Baird.
Hey, guys good morning.
Everybody is doing well.
Stefan maybe on the last.
Following up on the last comments on debt you kind of think about support different sub verticals, yet that you have outlined in pharma injectables and.
Prescription and so on and so forth.
Can you just sort of stack rank for us.
The covert impact on each of those subsets, which ones would have obviously been the most I would assume its injectables, but maybe just more color on that in terms of what you're seeing at this point.
Well yeah.
Yes of course, they are in the top line growth rate is injectable, but also realize it's over a smaller base compared to the other businesses, we certainly have been.
Positively surprised in the quarter about the strengths of our prescription division.
Division.
And.
The use of you want some of our traditional.
Products and medications and.
Getting excited to what I said.
Proactive.
Making sure you are in your medicine cabinet is full but also just treating light cobot symptoms.
The theme for consumer healthcare.
Check that will certainly has.
Have a step function in the interim.
Driven by the flu vaccine driven by Covidien other treatments in hospitals that are existing injectable form.
And the.
Just the overall activity levels.
Gearing up significantly and.
Providing sample quantities.
Qualification quantities and so on overall, we have about that this done north of 80 active projects.
By now it's kind of a more stabilizing numbered new projects coming some products could stop with that pretty.
Pretty stable number.
And then let's don't forget active packaging active packaging is doing very well.
We are starting to get good traction in the oral solid dose.
Category, which is new for us while the kind of the chronic disease diabetes treatment remain.
Solid and also.
Some of the more consumer healthcare application and are are very much in demand as people take care of themselves in these tough times.
So it's really across the board, but clearly the step change in the trajectory or is our injectable business.
Okay, and then on that last point on Injectables I mean, there are many drug candidates out there in late stages.
[music].
The trials et cetera.
Is it fair to assume that you are going to be a part to spend no matter, who wins and to enter to the vaccine or is it going to be more specific to customers and I guess I'm, referring to that comment that you made about dual sourcing is that a relatively new dynamic for this type of rollout relative to maybe the previous baseline.
Yes, I think the pick up on the last point that is new usually would be you know people get specked into a particular project and then during the project for the life of the project.
And.
In this particular case goods where demand is.
Amping up quickly and people want to make sure that the bases covered.
See dual sourcing and the situation that we have been qualified and several projects.
The second source.
The other overlay I would remind you office of course geographic we have certain strengths in certain geographies.
In some geographies it will be more prefilled syringe with that product mix and other geographies. It will be more multi dose vial with stoppers coded uncoated style Brazil.
As we said before and I think it's very safe to assume that at least in line with our market share in the overall injectable ecosystem, we will benefit no matter, who which vaccines were in house.
Okay. Thanks, so much Stefan.
Our next question comes from George Staphos with Bank of America.
Hi, This is actually Catherine killer sitting on behalf of short stop us that thank you for taking my questions. My first question is with regard to target and just kind of the previous comments made so last quarter you talked about.
Covered projects in particular side. It was around 100, so how many are particularly engage with right now.
Where that stands and how the progress.
Thanks.
Yes. Thanks, I, just said earlier north of 80, so somewhere between 80 and 100.
This is a dynamic number so it's not it doesn't keep increasing as is typical with new project. Some Diane some new ones get added sort of somewhere between 100.
Okay. Thanks Thats helpful.
Thanks question comes from Mark Landy with BMO capital markets.
Morningstar, Brian morning, Bob.
Good morning, Mark.
So just to to.
To come back to the covert question one more time before you had talked about.
Getting.
Incremental business sort of in proportion to your market position and today, you are really suggesting something a little different can you. Just can you put a little more color on that I hear you and talking about the dual sourcing, but I'm what I'm trying to figure out what is leading you to say you might actually have.
Volume gains beyond your share.
Well.
Not to parse.
Every every day.
Come on.
The area that we say, okay at least in line with our share is it a little bit more optimistic I guess, so none of that has to do indeed with.
Well, we perceive is broader based technical recognition of our technical prowess and the ability to.
Maybe just as good as anybody else across.
Across our product line.
Thats being confirmed with the dual source.
Operations also.
Mmm.
We do a lot more now on the bio.
Biotech side biologics vaccines, obviously, so its just.
Playing back to the confidence that we see in amongst our customer base about our capabilities. Okay.
Okay, that's fair enough.
I'm just curious if Parma continues to kind of outgrow the rest of the portfolio and at the same time is as you point out I think attending some healthcare conferences over the last couple of quarters.
Feel like you're making headway Stefan with the investment community and getting them to think about you as more than just a packaging company.
Yes.
It's a journey in the previous lives the journey took very long but.
To be re characterized and obviously the multiple following that.
But we are well along those journey I think it's just the fact of life that pharma investors on.
Understands this kind of business better than somebody who has to follow materials mining and packaging and Thats no no.
No judgment, it's just the fact of life.
And clearly run from our investors look at our business the margin profile the growth.
And then what is the.
Trade that we see a lot of value, but it's at the beginning of the journey, but we are certainly committed to that journey because I think we are an attractive.
And our option for farming versus yes file for what it's worth step on a lot of that packaging analysts also see a lot of value of the company I will turn it over.
Split to hear it.
Next question comes from Neel Kumar with Morgan Stanley.
Hi, good morning, and taking my question.
And indeed home piece to that for other amidst steady all year, you referenced and where you are genuinely care transformation span and what he's having attended a cadence that margin recovery in the business from here.
Yes, I didnt quite phonetically I understand the first part of it but.
Let me.
Just to cover the the field here.
A reminder, in our beauty and home business.
We embarked on the transformation backing.
The beginning of 18 late 17 with four pillars, one is to term.
Accelerate and upscale the frontend of the business sales and marketing and sales force segmentation customer project management and so on.
That is.
Very well advanced.
Quite happy with the performance I am very happy we did before the pandemic.
When I see the to the skill base, we have in that team and the revenue to switch to virtual electronic interactions and the the tracking we do on customer project pipeline conversion and so on so thats number one.
Number two was.
Shifting some of the underperforming operations on our own.
It took a little longer but as I mentioned before I feel very good about that.
Nearly all of the underperformance directories and Charlotte.
Very good efficiency levels.
Service levels recognized by our customers between there's always more to do so don't get me wrong, but.
Very good progress I realize you haven't seen the benefit of it because of the significant.
Under leveraged show from a volume point of view.
All our beauty facilities, but when we.
Dive into the personal care weaker facilities, we already see significant gains there from the volume leverage confirming.
The improved performance.
The third part was the reduction of fixed cost and overhead.
In their progress is still being made a bit slower than the other two and then last and least corporate support functions and very happy with that.
Bob can maybe speak a little bit to the shifts represents as we started up in the Czech Republic, and that's performing very well and we.
Pull more and more activity into the shared service center.
Having said that.
Of course, we continue now also to address this strategic gaps that we have which is zero.
And under exposure to the more rapidly growing skincare color cosmetics Asian markets.
That's partly organic and partly through acquisitions.
We remind you of the recall acquisition total cosmetics 50 wire acquisition in color cosmetics in China.
Gains there being more responsive as fast beauty, we're very happy with the fusion PK GE acquisition.
But even in the pandemic is performing well.
Can.
Firming that rapid reaction agile model and over time, we will build that out in select countries in Europe for us in China.
You're never done.
In the earn a big believer in.
The old Andy Grove, or only the paranoid survive and we will continue to make sure that.
We earned adapt our product and end market portfolio last sublease with all that comes of course peering down.
The footprint in the west and.
When I look over the last two years.
We've made a lot of progress there were of course in the middle.
Hello.
[music].
The North American footprint project and as Bob mentioned, we announced recently in the rental earn into the closure of our island facility and then also a smaller facility in Spain. So we will continue to adapt our footprint.
As we position decisions to towards the faster growing segments and geographies, notably Asia, where.
Beauty is very much over index compared to the west.
Okay and to the question.
Yes, great. Thanks for all that detail.
And then within the Injectables and format is there a way to quantify how much of the growth in the quarter came from more people getting the flu vaccine. This year and you expect that benefit to continue at that same degree in the fourth quarter.
Well.
We I think I mentioned before we estimate and Thats really where it is estimated that maybe a quarter.
Maybe a third of the growth bump.
Is due to cope with directly and indirectly, especially.
Specialty indirectly.
And of course that will now also transitioning more to vaccines have directly.
Hum.
Jana this 5% to 7% growth premium.
We expect to continue until of course, we lap it.
I think thats, where we as as much transparency as we can give you.
So.
Thanks.
Next question comes from Adam Josephson with Keybanc.
Thanks, Good morning, everyone and congratulations on a really good quarter cap Stefan one more question along the lines of what you're just talking about so you grew 11% in pharma on a really difficult year ago comparison as you referenced earlier.
You mentioned in some of these trends are going to continue for some time, just as the vaccines and therapeutics get rolled out.
As people pay more attention to their their health for obvious reasons you have this long standing core sales growth target of 6% to 10% in pharma.
And your you ban on top of that for the last two years and it sounds like you are on top of that freight K, one what was really difficult comp.
Is there a reason or to reassess that long term target given the spot you're saying from Covance did do you expect to remain.
At or above the high end of that range for the foreseeable future as a result.
Yes, I mean look.
Thanks for the congrats Adam.
We're proud of the quarter and of course as it seeks the 10% target does not anticipate fluid.
And we are getting a bump here, but even with the bomb Sobi grew 11%, let's remember.
Couple of percentage of that is tooling.
Yeah in Injectables also we took about 3% in price so.
And the 6% to 10% is kind of a volume range. So even with all the bombs, we recommend that 6% to 10% range or if you strip out.
The tooling and the pricing.
I do not see a change of targets here in the middle of a pandemic, but certainly if we step back next year in the.
Take stock of the maybe next normal we may take another look at that but I wouldn't hold my breath and six to 10 is a pretty good quarter.
Sure.
Fair enough Stefan and just I think to Mark's question earlier about.
Just wanted to healthcare contractors attach Rob.
Do you think the beauty and home business.
Gift impedes.
Kind of the ability for investors to see the value in this company given the extent to which it drags down your returns your margins your gross et cetera, or do you continue to view. It has so enter goal to the pharma business that the two just go to gather period end of story.
Well the short answer is the your last sentence, but the longer answer is no. We're not holding back any anything in farmer in any way other than the rigorous disciplined management as you would expect.
We are.
By pooling the beauty market.
Realized right now we have a depressed demand in beauty.
Yes.
We see the bounce back in China too.
Clips pre koby levels and.
And that bodes very well for the rest of the world.
It's clear what is in the rearview mirror.
And as I said before I understand of course, the capital market multiple logic.
Of a pure play, but the industrial logic is we.
Just going out there we do the same things.
Often.
Some cases it shared sites, we do have acquisition and injection molding, we do high speed the assembly rotary.
Continuous motion Assembly, we practices across the company and we do very specialized metal processing that we shared facilities between from acuity. So.
Yes.
I'm not saying it can't be done in this is that before we can put a royalty amounts greatest separate entrance and rent out the back half of the house. It can be done. So it's just the industrial logic, what we do hope is that by eliminating.
The pharma business through the broader investor base, including Us getting rest is that.
People do a fair valuation of the total company in some.
Some of the parts of two parts doesn't seem too hard to do.
Thanks, a lot.
Next question comes from Salvatore piano with Seaport Global.
Yes, hi, thanks for taking my questions first.
The first one.
On pharma again, I just want to look forward roughly next 12 months, assuming that we do get that one or several vaccines.
I came in Q3 in Q3 of 21.
Put your volumes that exceed this call big boost for Cree Colby treatments flu vaccines could be actually a decline.
And obviously in this scenario Injectables would benefit so what would be the net effect of the flu vaccine against Q3 20 volumes next year.
[music].
Yes, I think this is the short answer is we really don't give guidance.
For next year at this stage.
You do have a mix effect always in farmer with.
The profitability being highest for our prescription.
Division and consumer health care than active packaging than injectables, so, but when you look at the performance quarter. Three you also see by deduction. The Injectables actually has been quite successful in boosting their margins. So the negative mix simply impact of their higher growth.
He has been muted so but you will always have that mix impact is there is a stark.
Differences in growth rates in Europe.
Clearly if you put some high numbers on the board you're going to have tougher comps in certainly we alerted you to that fact.
But especially also for quarter three now.
With co with the booster.
We were able to grow nicely against tougher comps, but thats not the guarantee for.
Over.
Yes, okay, perfect and four.
For my second question.
Can you can you provide there will be some update of how you think about M&A any areas that you you, particularly like and.
Ease the pressure on Qt volumes, providing the opportunity, perhaps some targets that you could acquire at attractive valuations.
The environment is very active so.
Maybe surprisingly we have a lot of deal flow and look at the different targets.
We have been able to pull the trigger on some very small things that.
You may have seen.
Connected reusable packaging company in Europe, Nuon and connected device company coherent.
Very small investments but.
Larger premium assets still come at premium prices, especially with the interest rates, where the earnings and sponsors are able to get money again so.
And we remain disciplined so.
The themes.
You know.
Certainly digital for US is important specialty pharma. So we continue to look at digital we look at services opportunities.
Geographic is important.
[music].
Demographic imperative of Asia has not diminished or may be the opposite so we will continue to look at the Asian opportunities and at the same time stay disciplined so nothing.
Nothing given an abrupt whether you want to do it.
Yes, I think you summed it up I mean is there there's not any any bargains out there to be honest with you and I think we just need to stay true.
To our form and remain disciplined and not overreact here.
On assets that fit that are out in the marketplace. So I think Nick will will.
We'll stay the course and if we see something that makes sense from a strategic point of view certainly we'll be aggressive and go after that.
I don't see any any real big positives or negatives at this point.
In any environment.
Okay perfect. Thank you very much.
Next question comes from Daniel Rizzo with Jefferies.
Hey, guys. Thank you for taking my question.
You mentioned the gate to growth in food and beverage because of consumer pantry.
And I was wondering if you anticipate a dip in demand maybe in 2021, given cash I guess, both core inventory build by consumers.
India again, given guidance for next year.
And that's something we want to get into anything just common sense thinking about it will be if that's the case. It would mean that becoming is opening up people eating out more into those that would help our beverage business a lot more.
That is depressed right now so I think there is kind of an offset built in.
Clearly demand has been.
Very robust in quarter three perhaps there has been some pantry restocking, but we're Regina I guessing here also a lot of it is now moving onto.
Online E commerce.
And as you've seen from the economic number overall.
And the consumer facing businesses.
The economic numbers have helped people.
Shopping a bit more in June.
Yes, I don't have more insight for you than that.
Okay. Thank you very much.
Next question comes from kind of light with Deutsche Bank.
Hi, good morning, Thanks for taking the question I wanted to get a bit more clarity or color on beauty and the core sales growth throughout the quarter, how did volumes trended throughout the quarter did you see a month month progression has any of that kind of recovery stalled here as October.
Yes, certainly we've seen.
Good built.
Throughout the as the month progressed and as we highlighted particularly also in sampling.
Formats clearly there is.
The brand owners and retailers have retooled and are looking for big Christmas season.
A lot of the sampling is not in store sampling sampling that together with your online purchases.
So as as.
Retailers and brand owners retool, how they can accelerate the top line.
We certainly have the good dialogue good project discussions.
But.
Let's be clear.
Retail traffic and.
Up more travel certainly would help a lot more than at these depressed levels, but.
We've seen good progression from the bottom in April and May.
Theres continued rebuild from there on.
For all of US really don't know, let's be clear is.
The very latest.
The shutdowns in Europe.
Although.
Factories remain open and then all the factors remain open and growth the pandemic will do here.
Yes, maybe I can just add that.
From a from a median home perspective, Q3 is always a little bit different than the other quarters trend.
Typically August is a.
It is a slow period for us with European vacations, and so that's a really good earnings.
Fox in July.
And then we saw you know.
Expected reduction in August and September was which was pretty near.
July levels now traditionally what we'll see then is you will see that that September bomb.
Flatten out in October a little bit and then typically trend lower in the back half of the year as most of the most of the beauty orders have been already feel like going in store shelves by them and then and then wait until Q1 before we get kind of the.
It's a good sell through season, no another bump or.
Valentine's day, and mother's day, and things like that I would say it was not a it's not a progressive trend throughout the quarter, but that that warm up for us.
Great.
That's helpful. You touched on it a little bit more brands than closing kind of newer specials.
In your direct production level facilities are still open but there are there anything that we need to be mindful of regard, maybe your supply chain or any indirect impacts related to that.
We don't think so certainly everybody has become more sophisticated.
About how to manage things.
And.
At the moment, it's not even restricted to essential business with all businesses.
Remain open just being much more.
Diligent and rigorous in how we manage it.
No we can't divorce ourselves from the general population so.
We do see.
Higher coal with counts, but still overall relatively low and we are better able to manage it.
So.
I don't see us shutting facilities or anything like that I think were normal.
Experience on how to manage the situation.
Thanks, Good luck in the quarter.
Thanks.
Next question comes from gauge with Wells Fargo.
Hi, Stefan Bob Good morning.
Rob.
Thank you Pete.
I was hoping maybe you could talk about what came in better in the quarter.
More upside on versus my model beauty and home.
On taxes, maybe three cents or so and and FX kind of been a penny or two but.
And then.
I guess, if we kind of get advanced emergency use authorization as of the vaccine in fourth quarter or something like that.
Would that potentially drive upside to the fourth quarter.
Bob you want to take it.
For so I would think gave overall in Q3, all three segments.
And our models and our forecast performed better than than what we had expected obviously pharma.
Pharma was was a significant growth driver in their part part of that you know outsized growth at least in the active packaging division.
The division was some tooling validations by customers of one anticipating until Q4 later, so thats that was the positive part.
But we were expecting but the food and beverage subsequently.
Performed well as the quarter progressed and I would say the same thing.
Really from beauty and home as well.
We picked up some business in the quarter and then.
Some of that fell to the bottom line.
Also bedding.
Some business on the diagnostic side and that the packaging, while which is which is nice to see.
So overall I would say it was broad based.
Improvement from where we had expected.
Yes.
A question of course.
A steep ramp up of the vaccine.
Would be beneficial to quarter four.
All right. Thank you and then I know you tell us always I think Bob Tonight.
Think about increased tooling sales as foreshadowing future growth and they tend to be lumpy, but.
It seems like an active packaging you guys are working on a couple of things that put.
But in fact kind of drives future growth than that.
Our brains looks like but maybe above what your long term target traditionally have in pharma can you talk about maybe.
Maybe timing as to when some of the stuff that hit or or.
Part of your channel owner.
Sure. So yes, we do have a number of active projects in.
And active packaging there that we're excited about the tooling sales and this one is a classic example of a customer who is already in the market with the first generation product and due to the success of that.
What we validated with kind of the sex second generation product as well and so to me that that's a good sign in that the customers product and successful in the market and they're anticipating needs for an a next gen.
Product in quantities and they are already in discussions for kind of vary a third phase. So we this is kind of what what we'd like to see in the so it's not necessarily a new product. It's just the follow on success of a customer's project.
All right. Thank you and on real quick you call out I think slide 11, some temporary operating efficiency and efficiency thats specific to be at home I suppose.
Speculative.
If you're able to quantify that for us and then related to the.
The two facility closures in Europe.
Well, maybe savings, we would expect kind of going into 2021.
Sure and the and the inefficiencies is definitely.
It is not related.
In particular, it Didnt factor is as you might suspect and you've got certain breakeven points and as we've said numerous times, we need to kind of run in.
Hello idle mode in those facilities and when you're not getting the.
The volume throughput you just can't absorb all of the fixed overhead bin advances made great strides in reducing a lot of that fixed overhead.
But there is some of that that you just can't without literally shuttering, the facility, which which we don't want to do.
In terms of some of the the plant closures here.
Looking at run rate again.
Mrs. The several projects here, we talked about in the past.
Us which.
Has been slightly delayed.
Due to the positive bump bump on the lotion business, but I would say all in you're probably looking at.
14, 15 million on an average run rate basis. Once all these get done and closed organic.
Some time.
For that happens.
Great. Thank you goodbye.
Great.
Our next question comes from George Staphos with Bank of America.
Hi, guys you touched on it that I just wanted to ask quickly about.
On the go beverage markets and I know you talked about large and they get the pandemic, but just wondering if you're seeing any sort of rebound either sequentially or year over year anything.
Anything at all and then how much does this end market represent as a percentage, but couldn't beverage segment has all that.
Yes, I mean, we see.
Clearly the funding them bounce back in China.
It's.
As you would expect.
Kits have been gone back to school.
And.
Sequentially that.
And year over year, that's looking up.
In the other.
Geography is.
Much more mixed.
Because of the lack of people movement in terms of the relative importance of.
Let Bob answer that.
Yes, so so beverage for us on an overall aptar basis is about 5% of our overall sales and working off of kind of last year's figures right now.
And then within the food and beverage segment, it's about one third two third beverage.
Birds concerns.
Food.
EPS.
Thanks.
Next question comes from Adam Josephson with Keybanc.
Sure. Okay. My follow up I appreciate it and Bob Forgive me if I missed this but can you talk about what price cost was in the quarter for the company and what you're seeing in the Russian market share. Obviously, there's been some inflation going on im shrink what.
How thats playing into your fourth quarter fourth quarter guidance excuse me and then what you're anticipating perhaps thereafter.
Sure. So on the resin side. So it didnt have a we did have a negative impact on the top line.
In beauty and home food and beverage little bit more predominant in food and beverage as you might expect there was it was less than a half a percent on the topline for beauty and home negative impact and it's about three three and half percent on the food and beverage side, so pretty significant there.
And Bottomline impact you had kind of.
Two different things going on we had little bit of a positive on the beauty and home side on the EBITDA side does it pass through and that that was more or less on a consolidated is offset by a negative on EBITDA flow through side, but.
Food beverage looking forward I mean, it's it's a crapshoot really in terms of what we've got baked into the.
Into the forecast I can't really give you specifics on what we've got in there I will tell you that.
We're looking at slightly lower prices in Europe, but.
But as of right now works in slightly higher prices in North America. So it doesn't depend.
Before typically.
The weaker quarter in terms of overall revenue, we'll have to wait and see what impact that has on.
On the overall results.
Appreciate it Bob and just on the restructuring to be the primarily beauty and home restructuring I think thats pretty much winding down now correct me if I'm wrong. There do you anticipate any more restructuring in beauty and home or are you finished with that for the foreseeable future.
Well I mean, when you say, we're done I would say, it's more of a mindset change right now right. I mean, it's it's really now embedded in the culture the organization and so some of the some of the plant closures that we've talked about those are kind of ongoing evaluations of the business and and cost out structure and reacting.
For the environment than in the benefits as Stephane said of some of the efficiencies that we gain blue transformation process. So.
Now in terms of the formal program Yeah, we're about two thirds through with that we'll still executing on some of the initiatives some of the some.
Some of those.
A broader more complete.
Complex initiatives and those those are related to some of the plant closures, which we've always said was going to be kind of in that third year. So there'll be some lingering effects of that none I think and awards that the C, which with where the market goes and does it require any more heavy lifting or not.
Okay, maybe as you say the same different words as far as large programs large onetime costs, that's running down but in terms of.
Mindset and and all.
Offshore project secondary projects.
It's becoming a way of life in there so it should be.
In terms of vigilance. So there are smaller projects that are running in all three segments Timberlake Timbuktu.
One of the earlier questions I mean, what we learned in the muscles restraint.
Also deploying nine the other segments I mean for example, food and beverage margin expansion, that's not by coincidence that.
Those muscles now being applied.
The other segments and even pharma has its own.
Improvement drive of course so.
The big one years running down the mindset and the follow on is differ as a way of life.
I appreciate that thank you.
Last question comes from Salvatore piano with Seaport Global.
Yes, hi, thanks for taking the follow up.
Couple of quick ones firstly on taxis.
There have been some more specific rulings recently obtained by the IRS for foreign taxes.
How does this affect your tax rate is there going to be any change this year and any change in that long term tax rate that you are assuming going forward and I assume you want do specific capex for next year, yet but.
Growth in farm on your investments is it safe to assume that it's going to be trending higher next year.
No.
The tax side I mean, one one thing for certain is in this environment of.
Every government is looking.
For taxes, so we've seen an amplification and audit scrutiny in the challenging and some of the governments that are where where you used to be able to have the dialog with them are now kind of drawn lines in the sand and saying well if you disagree with your assessment.
Port So we've got a few small ones like that but I would say we benefited in this quarter.
Really from a couple of things one slightly higher equity comp.
Exercising of options in the quarter that that was probably about a percent in half.
And then we had in recent ruling by by the IRS and use them on the treatment of some guilty taxes. So that was also a positive for us in the quarter of about a percent perhaps going forward. It like I said the scrutiny is there.
And certainly.
I don't expect that to lessen any heading into the.
Sure.
And at this time I will turn the call over to Mr. Ken.
Thank you all thanks for your continued interest.
We're obviously proud of the numbers, we put on the board and we look forward to discuss it with you in more detail.
In the coming weeks and please everybody stay safe.
This concludes today's conference call you may now disconnect.
[music].
Revenue.
[music].
Yes.
[music].
Okay.
[music].
Hello.
Yes.
[music].