Q2 2021 Aptargroup Inc Earnings Call
Okay.
[music].
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to <unk> 2021 second quarter conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session.
Introducing today's conference call is Mr. Matt della Maria Senior.
Senior Vice President Investor Relations and Communications. Please go ahead Sir.
Thank you Hello, everyone. Thanks for being with US today, joining me on today's call are Stefan Panda, President and CEO, and Bob Kuhn Executive Vice President and CFO, Our press release and accounts.
In slide deck had been posted on our website.
You are following along on the website you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right from the left as.
As always we will post a replay of this call on the website.
Today's call includes some forward looking statements.
Companies refer to our SEC filings to review factors that could cause actual results to differ materially from what we are discussing today.
I would now like to turn the conference call over to Stephane.
Thanks, Matt and good morning, everyone Goodyear being low.
As.
As you saw on our press release from yesterday, we announced strong topline growth in the quarter with reported sales up 16%.
And core sales up 10%.
With EBITDA improvement over the prior year.
I would like to discuss a few highlights as mentioned on slide 3.
In summary sales.
Sales increased in each of our reporting segments with currency related.
Adding to the core growth.
The wide breadth of our portfolio of solutions and services continues to be a key strength of after as we generated growth in each segment and double digit growth overall for the company.
Bob will speak.
In more detail on sales by end market when he gives his update.
Similar to the first quarter growth of our pharma segment was driven by strong demand for less to merit components, where injectable drugs.
And accurate in field solutions, which offset declines in sales to the prescription and consumer health care market.
Which continued to be impacted by customers drawing down inventory levels in key categories.
Our beauty and home segment reported solid growth in the beauty and home care markets with format being mostly on easier comparison to the depressed second quarter of 2020.
Although with some initial.
Actual signs of recovery.
Sales to the personal care market growth slightly below the prior year's strong performance as hand sanitizer demand is normalizing.
Approximately 75% of the growth came from increased volumes.
In our food and beverage segment topline growth was strong.
<unk>.
Each market segment with about 60% of the growth coming from price adjustments related to the passing through of higher resin costs.
We continue to be a very challenging input cost environment and we are in the process of passing through higher input costs to our customers.
I would like to remind you.
Across passing through of increased input cost is the effect of compressing margin percentages.
Our overall margin was also affected by the mix of sales within our pharma segment favoring some of our lower margin businesses and farmer.
We also remain active on the M&A front.
Making several strategic investments during the quarter, we announced that we were in the process to acquire the outstanding shares of <unk>, a pioneer in digital therapeutics.
This is a significant step in building a foundation in the SaaS growing digital health care space. If we have learned anything from the pandemic.
That is an advancement in healthcare are rapidly accelerating in things like remote patient engagement and patient monitoring whether for clinical trials or real world treatment will be a big part of each of our futures.
Just this week, we announced another pharma transaction with.
We have entered.
It into an agreement to acquire 80% of why high end new medical product.
A leading manufacturer of less generic components for injection devices in China.
This investment gives us immediate local and regional supply capabilities.
And the critical and growing injectable space.
Also subsequent to the quarter, we announced the collaboration with Chinese Skincare company called <unk>.
On the bringing new skincare solutions to the market.
We look forward to leveraging nyse's expansive market insight database focus on specific consumers continues and skincare profiles.
And we will use <unk> in debt experiencing customized turnkey solutions.
Well as online product distribution and promotion.
On the sustainability front, we have been active and forming strategic partnerships to further our progress towards a more circular economy. We are plastic can be recycling.
Reuse.
To that end, we have formed a partnership and are serving as a strategic advisor to a company called rebuild.
To offer a reusable water bottles that use the technology to help people stay high graded while helping to collect cost per waste plastic bottles.
Now on slide 4 I.
I would like to speak to a few environment, social and governance or ESG updates at.
As previously announced <unk> media evaluated 1000 largest public.
U S companies on ESG performance in Avatar is honored to be named among the top 50 companies who are leading in.
Corporate citizenship.
We also announced the launch of our 2020 sustainability report, which highlights again, our extensive sustainability initiatives that has been implemented across our global operations and we invite you to read the report on our website.
Our first comprehensive.
Inability reported for the year 2014.
So our experience and engagement is built on deep expertise and a long track record.
Finally, we are delighted to welcome canvas Matthew to our board of directors.
Kansas is a highly accomplished business leader with over 30 years of experience.
The thing in marketing products for the health care cosmetics food and beverage industries.
And she has held leadership positions with an way low now Coca Cola and Procter and Gamble amongst others.
Our directors provides valuable guidance and keen oversight based on the firsthand operating experience.
Developing the end markets and geographic regions in which we operate with debt.
Well as functional expertise and multi cultural insights.
Canada is a valuable addition to our board with deep from temporary knowledge of our markets, including heavy spend a significant time in China.
Turning.
Turning now to slide 5 and new product and technology launches I would like to briefly comment on several product introductions that growth highlights the breadth of our offerings.
In farmer on.
<unk> software is used with injection systems continue to play an important rule from the COVID-19 vaccine distributions worldwide, including.
In vaccine approved in Latin America.
Also supplying stock was for several animal vaccines Mexico.
In the prescription drug market the central nervous system pipeline is active and we have several customers, making progress with nasal delivery.
Variety of medicines in the area of opioid overdose antidotes F&I.
Net friends and medicines to treat 2000 tenancies.
In consumer healthcare, our preservative free ophthalmic squeeze dispenser is the delivery device from a new over the counter eye lubricant by Bausch and Lomb biodiesel brand in the U S.
In beauty and home.
Excluding it can be announced a strategic sustainable dispensing system.
Our first fully recyclable mono materials dispense the pump for the beauty and personal care product called future.
Because the future pump.
Only from polyethylene.
It also aligns with the most common materials used to.
The bottles polyethylene and polyester or pvt, therefore, the complete packaging, including pump and bottle.
More easily recycled.
We also supplied our prestige fragrance pump for a new term for fragrance and our dispensing closure for dollar shave clubs, new shampoo and conditioner.
We.
Most recently launched in the U S.
Also in the U S. Our airless pump is the dispensing solution for Coty as Covergirl Endo late brand color cosmetics product called rehab.
Finally in the home care market our closure with simplest results is featured on the new <unk> product in Europe.
On the line food and beverage we received critical guidance recognition from the association of plastic recyclers for are simply cycle.
Recyclable about technology. This recognition acknowledges technologies or packaging components that so long standing problems in sustainable packaging design.
Or simply cycled out we've made from a low density material on that allows the valves the float.
It's easy to be separated from the polyester stream and then ultimately recycled with debt polypropylene or polyethylene olefin stream.
In the food market.
Our test on closures are featured on the limited edition line of mesh.
<unk> sources, including Fox on coupled with ranch and startup sales combined with ketchup by Kraft Heinz in Canada.
<unk> has also launched a new range of condiments with flavors from the Middle East pulp mill.
Middle East, which feature our food closures.
Turning to the beverage market our closure was.
Without the dispensing solution for new concentrate product in Germany called <unk> <unk>.
Concentrates by Aldi.
With that I will now turn it over to Bob who will provide additional comments on our second quarter results.
<unk>.
Thank you Stefan and good morning, everyone.
Starting with slide.
Slide 6 is upon mentioned, we had a strong top line performance in the quarter and I will walk through some of the market growth in a few minutes.
Turning to slide 7 second quarter adjusted earnings per share increased 7% to <unk> 91 per share on a comparable basis with the prior year and when neutralizing currency effects.
After the adjusted EBITDA increased 8% to $148 million compared to the prior year and this included the negative impact of the shift in business across our markets as low as a net negative inflation impact of approximately $9 million.
Our consolidated adjusted EBITDA margin would have been approximately 1.
180 basis points higher without the net negative inflation effect and the margin compression impact from passing on the higher costs.
Slide 8.9 cover our year to date performance and showed a 5% core sales growth and our adjusted earnings per share which were $2 per <unk>.
Up 10% compared to the $1.83, a year ago, including comparable exchange rates.
Briefly summarizing our segment results our pharma business performance was mixed across the different divisions with total segment core sales growth of 2%.
Pharma had an adjusted EBITDA margin.
Margin of approximately 33%.
Which was reflective of the mix of business across the different market compared to the previous year.
Additionally, pharmacy margin was negatively impacted by approximately 100 basis points due to net negative inflation cost in the quarter of approximately $2 million.
Looking at sales growth by market compared to the prior year.
Core sales to the prescription market decreased 7% and core sales to the consumer healthcare market decreased 1% as certain pharma customers. In these markets continued to draw down inventory levels as treatment for allergic rhinitis, and cough and cold or.
Impacted by low levels of patient consumption and fewer overall non critical doctor appointments.
It was another strong quarter for components used for injectable medicines and our active material solutions.
Core sales to the Injectables market increased 14% and.
And half of the growth was related to vaccine administration.
<unk> of which the majority was for COVID-19 vaccines.
Core sales of our active materials science solutions increased 20%, primarily due to increased sales of our protective packaging solutions for probiotic products and COVID-19 diagnostic test solutions.
Turning to our beauty <unk> home segment core sales increased 13% over the prior year second quarter, which is the most difficult period during the COVID-19 pandemic.
Approximately 75% of the growth came from increased volumes.
This segment's adjusted EBITDA margin was 11% in the quarter and was negatively.
Impacted by the timing of passing through increased resin and other raw material costs as well as other inflationary costs, which had negatively affected adjusted EBITDA by roughly $5 million.
Had we not had this net negative inflation impact and we did not have the margin compression effect of passing through the higher costs.
<unk> EBITDA margins would have been approximately 180 basis points higher.
Looking at sales growth by market on a core basis.
Core sales to the beauty market increased 28% due to higher consumer demand for fragrances and facial skin care products.
Core sales to the personal care market decreased 1.
And as higher sales to the hair care and Sun care markets were offset by declines in personal cleansing as hand sanitizer demand normalizes.
Core sales to the homecare market increased 26% on strong demand for a variety of applications and increased custom tooling sales.
Percentage to our food and beverage segment, which had another solid performance core sales increased 23%.
Approximately 60% of the core sales increase is due to passing through higher resin and other input costs.
The segment had an adjusted EBITDA margin of 16% and <unk>.
Negatively impacted.
And net inflationary cost increases of approximately $2 million.
Had we not had this net negative inflation impact and we did not have the margin compression effect of passing through higher costs EBITDA margins would have been approximately 360 basis points higher.
Looking at each market core sales to the food.
Acted by increased 21% as volumes rose on increased demand for specialty food dispensing closures as consumers continue to cook at home.
Core sales to the beverage market increased 26% as we realized some recovery over a very low prior year second quarter.
Moving now to slide.
Mid 10, which summarizes our outlook for the third quarter I would like to take a minute to remind everyone that in the prior year third quarter, we had a significant amount of custom tooling sales.
Is that atypical Jonathan on sales last year interactive materials solutions group, where we were up over 50% in year over year top line growth.
It's defined mentioned, while we expect the second half to continue to show signs of recovery. Our expectation is now for a stronger recovery towards the end of the year.
There is still a lot of uncertainty regarding the pace of economic recovery in many of our customers remain cautious.
Don't yet see a significant change in the prescription drug market in the third quarter, but on.
Trading and improvement in the fourth.
We expect our third quarter adjusted earnings per share, excluding any restructuring expenses acquisition costs and changes in fair value of equity investments to be in the range of 90% to 98 per share.
The estimated tax rate range for the third quarter is 28% to 30%.
While we don't give guidance beyond the coming quarter EPS range, we have mentioned their optimism around the fourth quarter and that would imply that our fourth quarter adjusted EPS range should be above the third quarter nearer to the current published consensus of equity research analysts.
In closing we continue to have a strong.
<unk> achieved with a leverage ratio of approximately 1.5.
On a gross basis debt to capital was approximately 36% while on a net basis. It was approximately 29%.
In addition, we continue to invest in innovative growth projects and we are confirming our forecasted range of capital expenditures for the year at a range of 3.
$300 million to $330 million.
At this time to fund will provide a few closing comments before we move to Q&A.
Thank you Bob.
In closing on slide 11, I am very proud of our people and the work we have accomplished through the first half of the year.
These unprecedented.
Times at.
At certain economies begin to reopen we expect the recovery in our beauty beverage and prescription pharma business to gradually progress. However, this recovery is likely to occur at the measured pace given the uncertainties around the COVID-19 variance and very limited Intercontinental and Inc.
Based on travel.
We anticipate a strong our performance towards the end of the year as Bob pointed out our fourth quarter should be stronger than non third. Despite the fact that certain inflationary costs will remain as headwinds, especially labor and likely transportation.
To mitigate those effects, we aim to.
To implement further price adjustments where necessary to pass on these costs.
As we look out further vaccine distributions will eventually be more widespread and successful and likely will eventually return to more normal experiences with more robust social activities and international travel.
Inkjet business is built for the long haul as.
As I mentioned earlier because of our breadth.
Attractive new markets, we are able to generate growth.
Moving and conditions on what always ordinary in each market.
We will continue to focus on sustainable growth.
And we changed across all areas.
<unk> of our business and anticipated our consolidated margins will improve as we transition to a more balanced and steady growth pattern.
The long term outlook for our company has not changed and remains quite promising.
Making strategic investments today, which will further strengthen our.
That acquisition, including expanding capacity in key high growth regions and markets.
With that I would like to open the call up for your questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star 1 on your telephone.
Allison key paths again to ask a question. Please press star 1 on your telephone keypad in the interest of time and fairness to all participants please limit yourself to 2 questions and 1 follow on question. Dan you may come back into queue. If you have more questions as time permits.
Your first question comes from the line of George Staphos.
From Bank of America Securities.
Hi, everyone. Good morning, all.
Doing well thanks for the details.
I just wanted to start maybe with 1 line item that we Didnt I don't think talk too much about in the opening remarks, which was corporate.
<unk> expense was up a little bit more than we would've expected.
What was driving that was that related to some of the strategic moves you've been working on Stefan or Bob and if.
What was driving that and what should we expect going forward on that had a couple of follow on on pharma.
Sure.
Yes, I can take that 1.
So yes, George behalf of the increases from some of our strategic activities and some projects that are expected to continue in the near term and the other half is really more I would say variable.
An increase in.
Versus the first quarter was really <unk> and.
An increase.
Joe counting for some short term compensation accruals.
As we look to the outlook and where we think the end of the year is going to finish.
Looking forward I don't think the run rate and it should be at $16 million that you saw this quarter.
On that would be probably culture somewhere between 14 and $15 million range.
Okay.
Understood.
On on pharma you mentioned.
That Rx was down about 7% in the quarter and you've talked about destocking for a while so we understand but it was notable to US just because I think last year, if a prescription.
<unk> was down about 6% so.
A weak number off of what I recall from remembering the numbers correctly kind of an easy comparison was there anything else going on.
That we should be mindful of relative to your standing in pharma relative to longer term outlook why or why not.
No.
Not really.
Obviously, we have gone back with a fine tooth comb the last 7 years.
<unk> looked at all the different movements.
Scanning data that was available to us.
Hindsight is always.
Clearly we.
There was already.
Inventory in the chain unusual for a bit before we hit Covid.
And.
During 2020.
On.
Orders were at a slightly reduced but not in line with reduced.
With Chinese consumption, so that actually exacerbated.
Inventory build facility planned in 'twenty despite the.
The lower sales that we referred to and then finally in January everybody hit the emergency brake.
<unk> debt, we had a year of very low.
Consumer consumption.
And that inventory in the chain.
So clearly the inventory destocking.
Is more expensive than.
We would have liked.
But.
What we see from customer conversations is there.
Net debt should run its course.
During the third quarter.
Certainly have more indications about Q4 recovering there we had about 2.3 a month a quarter ago.
Although we were more scope and historically these adjustments.
For 2 quarters, because I think we've done a lot more research.
There is nothing around share or other shifts.
That you might be concerned about.
This will recover clearly the allergic rhinitis category is a low single digit growth category.
The 1 variable that we would always look at is conversion.
Based on the conversion continuing run off from oral solid dose 2 nasal spray.
<unk>.
Last time.
Glenmark new income.
Combination income spray approved so these will continue to come.
And debt.
Always 1 variable.
And beyond allergic.
Allergic rhinitis, which really drives most of this destocking.
Rx.
Of course, we are very excited about the central nervous system category that continues to grow very well, but on.
If a much smaller base of course.
In consumer healthcare, where most of the flu.
On treatments are.
Destocking still going on but its less pronounced and of course.
Flu season.
I think much more visible now even in some of Florida is going around so.
Those 2 give us on confidence for quarter 4.
Turning to a more normal pattern.
So on thanks for that run down last 1 from me you know when we look at deals like where hey, hang you in Atlanta, and the company, obviously I said not just today, but in the past that you are built for longer haul.
Nonetheless, you know these are not large deals, but they are going to divert some of your attention and and cash.
So they don't add to earnings.
That carrier dilutive through 'twenty 2.
Can you quantify what the benefit of having these 2 businesses will be to App tar.
I'll say 'twenty 3 'twenty 4 'twenty 5 how will your shareholders see this and your return on.
In your earnings and your growth tell us why these.
Capital is in food.
Sure. Thanks, Ryan Let me give you a quarterly review and debt. Please.
On the phone.
So let me start.
To start with right.
<unk>.
I mean, we've talked about the regionalization of pharma supply chain before governments woken up to the fact.
So.
And the category is critical as vaccine depending on substantial gross regional flows.
It is critical for us to have supply capability in the U S, which was built around Congress in Europe of course, we've had historically and in China.
On.
Thank you.
Very well set up.
In China has all the regulatory approvals, it's not that big a business but.
If we had to build it and get approvals zero 5 years later.
Essentially more money so I think this.
It's a very important strategic acquisition that will pay dividends.
Yeah.
Very soon in the very large and constantly growing.
Chinese market.
When it comes to rule on this this is clearly more of a.
Building, a capability and digital therapies.
Yes.
We can't say too much but the normal lumpiness is still a publicly traded company. So their research reports available on it.
But clearly.
They are 1 of the very few who have gotten FDA approvals on digital therapies, what is that Thats basically.
A combination of approval with the drug.
And the digital companion to manage.
Diseases, whether it's oncology or others, and we see the future and we've made of course digital.
Investments before on total group clearly that is the future investment in pharma timelines are.
All.
Average project was maybe 7 years in digital is probably.
But growing fast.
Is no faster than other projects.
We see that critical.
Supplement our device business and enable on device business with digital companions.
And I think debt.
And even deeper moat around it plus.
As patients would be no.
On the engagement.
Our health care providers as more and more digital.
And.
These.
Digital companions will just become a way of managing.
Both chronic diseases.
But also acute diseases so on.
While we see the debt.
Other important growth driver in the future.
Maybe I'll turn it over to Bob with some numbers.
Yes.
On the actual numbers looking further out I mean, you mentioned that it is slightly dilutive in 2022 most of that is.
And coming from.
Purchase accounting adjustments.
On most of the transactions I think the funnel touched on really the strategic aspects of this and certainly I think.
The injectables growth, we're going to see the Injectables division inside the pharma segment, becoming much.
The larger in the future.
As we've seen growth over the last 18 months here in this segment and certain based on what we're projecting going forward.
With our own capacity expansions in the U S and now.
The addition of Penguin side, it really gives us.
Much nights.
Injectable manufacturing capabilities.
Different regions.
Okay. Thanks, very much I'll turn it over.
Your next question comes from John Kreger from William Blair.
Hey, Thanks, guys, maybe just a couple of follow up.
On the elastomer business I think I heard you say that vaccine work in the second quarter gave you about half the growth that you saw and elastomers can you just talk about what sort of visibility you have on that sort of contribution longer term what sort of color.
Covid vaccine.
On the on order.
Question do you have out through next year.
Yes, we don't really guide into.
Debt much detail, but our order portfolio on our project portfolio is very broad.
Both COVID-19 vaccines as well as the traditional flu vaccine.
In different formats and different geographies plus.
As we discussed before.
As a result of the pandemic and vetting of suppliers. We also see much more activity around the biologics treatment in general.
Overall.
We feel confident on continued good growth in debt business and Thats why.
We are accelerating.
The capital expenditure that bulk already referred to.
And.
That is well underway.
Great. Thanks, and then.
The hang you purchase does that give you any new sort of product capabilities or is that really just about again on localized supply chain with elastomers.
The most important part but debt.
Maybe it sounds a bit too trivial.
Getting regulatory approval for our new manufacturing in pharma in China.
Maybe half a decade process so for us it really.
Accelerates our.
I think.
Presence in that market from local supply as opposed to importing from Europe.
Bias.
Moving many many years.
And of course, they have some technologies that are more adjusted to local demands but of course, we can also transfer income technologies.
<unk> a lot of debt has long timelines with customer approvals.
But the boots on the ground in a large market that's rapidly growing with full regulatory approvals is very important.
Great. Thanks, and then a quick follow up.
You gave us lots of detail on any inflationary pressures on the second quarter can you talk about.
What sort of assumptions you're making.
For the second half.
Sure so.
Mentioned, there was roughly a net negative $9 million in the first quarter.
Based on the perhaps food, we've already implemented and where we see.
Preliminary cost landing in Q3, we expect to be better than we were in Q1, but that certainly will still be a net negative in the quarter right now on and again, it's tough to have truly estimate where it lands and particularly on the raw materials side, which is which is the biggest component of it.
I had to guess right now I.
And free can probably be somewhere in the 7 to $7.5 million negative in Q3.
Great. Thank you.
Thanks, Joe.
Ladies and gentlemen on the interest of time and fairness to all participants please limit yourself to 2 questions and 1 follow on.
I would say and then come back into queue from more questions as time allows.
Your next question comes from the line of Mark <unk> from BMO capital markets.
<unk> good morning, Bob and Mark.
<unk> previously talked about a kind of a second half.
Question It seems like that.
More about fourth quarter pickup.
Some of that as Bob mentioned has.
Inflation, but I wondered if you could just put a little more color on the other.
Factors that are in play for you.
Sure R&D.
The biggest factor.
Clearly as the farm on Destocking being extended basically by a quarter.
On.
I was speaking earlier to increased granular understanding we have of debt and therefore the call. We are making on the fourth quarter. When you look to the other segments.
Beauty and home.
Is <unk>.
Starting to recover we have good customer conversations.
And start to see order pattern.
That is quite encouraging.
Unfortunately also see some supply chain dislocation is.
We all start to realize you just don't.
Let's start with the restart the economy by pushing a button. Just 1 example is government support for some of the smaller companies in Europe drives up some of the suppliers go bankrupt and free has to go to other suppliers, which put strains on supply chains.
<unk> lead times.
But the demand the demand.
<unk> is clearly they're invisible.
Customers.
We're excited about the Christmas season in Dolby.
Current events in China on 11, 11, and so on.
No.
The uncertainty that we all have is.
The variance and mortgage will a.
We will not do DD opening up with international travel clearly.
We are behind where I personally thought we were a quarter ago in terms of international travel Americans can travel to Europe.
Europeans cannot travel to the yes.
You would think thats the basics.
Let alone agents.
Travel.
Outside of the region or even within the region and clearly the Chinese consumer is going to be bottled up in China.
For at least another year and other.
Means a lot of that spending is being redirected to domestic spending and while we.
Do as much as we can.
To grow our footprint in China.
Share of consumer basket.
Domestic purchase Hainan Island for example.
Chinese travelers go now.
Slower than on a share of a basket that they spend downtown London, New York Preparers.
So.
It's the pace of reopening of international travel is a big uncertainty for us and Thats why we are optimistic but with some caution on the pace of opening up of Intercontinental travel and especially where the.
Chinese consumer spend there.
Discretionary spending.
Debt was kind of temper my.
Comments food and beverage we continue to see obviously good growth.
As people continue to Cook at home.
Beverage, which is more of.
Domestic purchase of course, there's some travel aspects on.
<unk>.
We see.
The recovery.
And that gives recoveries further along I would say than the beauty in a recovery.
Clearly, we are making progress.
We expect sequential progress, but we're not back at 2019 level yet.
Average okay.
For my follow on just real quick like you've done so many kind of small acquisitions in.
Joint Ventures I, just wondered if you could talk generally about how year on kind of managing tracking.
Performance on all of those investments.
Yes.
There are really 3 aspects of debt.
Just stepping back because it reminded we really look at acquisitions as a complement as a complement to our ability to grow organically with bolt on acquisitions like <unk> and as a complement to our innovation activities with venturing investments which for.
For example.
Now, we only do entering investments if there is a strong.
Business rationale.
With the business leaders.
<unk>.
Wanting to spend time on that.
Wanting to sit on the board engaging in a licensing agreement or some other hook.
Yes.
That.
Make sure that there is an ongoing good relationship so and on.
Most all of these.
In fact in all of them, we have 1 of our business leaders or innovation leaders spend time with that company.
Make sure that.
Developments progress that we have for future.
<unk> value to be derived.
So.
That's kind of the business following side of it then.
Then of course Bobs group is very diligent.
Making sure their books are correct and <unk> properly account for them and then thirdly as in <unk>.
<unk>.
<unk> flow Adventuring review.
Off these assets to make sure that overall the portfolio continues to make sense.
Is.
So it will make sense, we will also do that and you've seen propeller.
Sale of debt you've seen.
The evolution of.
On the pure cycle investments so by far so far.
Batting average has been certainly.
On a pretty good and we derive a lot of innovation pipeline filling and future value from those investments, but it certainly is a muscle that we have to build in terms of making sure. We're following these and we get good value.
I hear from them.
Excellent that's what I was looking for I'll turn it over thanks.
Your next question comes from Janssen.
Bobby <unk> from Baird.
Thanks, Good morning.
I guess on beauty and home can you just give us a sense as to how <unk> volumes compared to.
Covid level baseline.
And also the same for the major subcategories. So we can get a better chance as to where we are on the recovery for that segment.
I didn't think that non ghansham.
So if we look at Q2.
And when you look at the segment as a whole from beauty and home.
We're about 95 per.
Percentage of the 2019 levels for this segment and if I look at it on a year to day basis, we're probably closer to 90% for the year now if I break it down into where we are from specifically from our beauty category.
We're about 85%.
For Q2, where.
Per pre pandemic in Q2.2019, and then if I were to look year to date 19 versus year to day 21 per beauty.
We're about 80% of the way there so.
We're getting closer on.
On the BD side.
Got.
Got it and then in terms of incremental margins on.
On an as reported basis it looks like it's about 21% for that segment and then if I adjusted for the.
I think you've called out $5 million of price cost impact on beauty and home. It's closer to 30 is that the right baseline to think about going forward in context of all day.
Productivity initiatives, you've had for that segment.
We were debt that's really hard for me to generalize.
And the beauty and home.
Segment, we've got so many different product lines and so many different skus in it.
And across multiple regions on an average basis, probably not too far from that but it's really hard for me to.
It's going to depend.
Categories are growing and remember if you don't have if you've got 1 particular area that is down impacting particularly the factory debt that has a significant downward polar headwind on the overall average sorry, it's hard to really say that debt.
That can hold true.
Revenue category.
Got it and then maybe just 1 final 1 for Stefan on pharma.
Youre sharing some optimism in terms of the destock kind of cycling through <unk>, but can you just give us some other.
What is that based on I think you mentioned conversations with customers.
But is there anything.
More concrete.
Now that you can share in terms of.
Inventory to sales or some version of that that gives you confidence that <unk> will we will see that improvement that you sort of implied.
Yes look.
Okay.
The forward looking statement language book income.
Within that context.
As we look at <unk>.
Scanning data.
We look at for cash.
Their database data subscription data that we have for the U S and Europe.
As you know.
These data do not cover club stores nor online.
It gives them some caveats and we went back with a fine tooth comb on kind of okay. What are those inventory levels, where they were probably as in home.
And.
On.
CMO locations finished form.
We now have the 2 year.
Which lies on finished forums.
Triangulate.
Backwards, where we were at the beginning of the pandemic and what the evolution of.
<unk>.
Consumer demand is given debt at.
At least in the U S and Europe people are up from about LNG.
In full.
On Bloom.
And then correlate that with customer conversations or to forecast, which.
They are giving us and I would say, it's a more info on coal.
3 months ago.
In other perfect coal by any stretch.
Shelton.
The 1 thing we know if everybody goes outside.
Put on masks while outside the.
The incidence will be less but debt.
The likelihood of debt in the U S and Europe is not high.
I think that's probably as much as I can give you.
Perfect. Thanks, so much.
Your next question comes from Kyle White from Deutsche Bank.
Hey, good morning, Thanks for taking my question on if you go back to Mark's question regarding kind of the acceleration that you expect.
Towards the end of the year.
You're now guiding towards for Q earnings, but you've kind of pointed to what it could be and I am just curious what the outlook.
For some of your costs like RASM are embedded in that kind of.
Outlook that you provided do you have any any benefits from revenue falling there.
Yes, I don't know predicts will be embedded any positive certainly I think we've seen some signs of abatement on the raw materials.
So there is a certain amount of expectation debt.
But we're going to be catching up on some of the delays, but again.
<unk> be very.
Concrete on that I mean, we are just now getting into hurricane season, as we know anything anything can happen, but certainly there is an expectation.
We're getting.
For catching up on some of the raw mat.
And then on beauty you talked about the travel restriction on Thompson impacting some of your Asian customers on Im curious if youre seeing anything from your customers in terms of potential product launches being delayed or pause just given the variance.
From the travel.
You mentioned.
No.
Strategically to debt question, we don't see debt customers remain.
On.
Yes.
Companies, probably too excited.
Bullish about the Christmas season.
We haven't seen.
Product launches from frankly right now.
A lot of our challenges to make sure that our lead times meet with them.
On the customers' need towards the end of the year.
Given supply chain dislocations and certainly.
We see the demand strengthening.
<unk>.
Having said that of course consumer confidence plays a big role in what people actually spend so.
I'm, probably less concerned about.
The demand being there.
Growing more concerned about.
If there is something coming with Covid and the debt.
Sell through doesn't happen.
What does it.
It mean for next year.
You'll get some debt is as good as anybody's.
Got it I appreciate the detail from 2 other things out there.
Thank you.
Your next question comes from Adam Adam Josephson from Keybanc.
Thanks, Good morning, everyone I hope you're well.
Yeah, Bob 1 question on I think Kyle asked you about this as well that the kind of implied fourth <unk> guidance. You said you prefaced your comments with we don't normally talk about quarters beyond the current quarter, but on nonetheless say that we expect to be closer to the analyst consensus, which I believe is a dollar I guess what.
What prompted that comment I mean, what prompted you to talk about quarters beyond the current 1 which is obviously not typical for the company.
I would say.
More of our visibility and more of our confidence.
Looking out further I mean, we're getting we're getting some good.
Signals from from our customers on alluded to.
1 on auto product very much about some of the research that external data that we collaborate with them to take a look at and triangulate our numbers with <unk>.
So as more of a I.
I'd say more of.
On direct correlation to our.
Confidence and we see this improving in Q4, rather than leaving you with with a Q4 Q3 quarter.
That is lower than what the consensus is today and people kind of wondering whats going to happen in Q4 the other.
Other thing I would add Adam is enormous.
Fourth quarter for us is lower than the third quarter.
And the share Europe holidays, all debt.
Since this is a year, where we've seen this pattern will not be a normal pattern, which is wanted.
Guys to know that we don't think it will be like other years, where the fourth quarter is lower than the third quarter.
Yes.
I appreciate that and on farm I know there was some thought.
Kind of closely on a last year that the vaccines might be quite good for your pharma business and therefore, the pandemic as a whole would be beneficial to your pharma business and then obviously the cold and flu season never happened and there is there has been this significant.
Customer Destocking as a result.
Or would you characterize the overall impact that the pandemic has had on your pharma business and given what's happening with the delta variant et cetera.
What do you see the ongoing impact as in other words good bad.
In different et cetera.
On.
Look.
For people to be X.
On the songs terrible to say it but for people to be exposed to dust in Poland.
They need to be out in about a month where mask.
And then we can help with allergic rhinitis.
Sure.
In the room.
COPD are low.
And quite good.
And of course, if people over on that go with their likelihood of contracting the fueling the sniffles is much lower.
Debt is the negative side of it good for.
For people.
For the.
Thanks.
Now on the on the vaccine you already mentioned that.
As is.
People get vaccinated on hopefully a key countries our key markets just north of debt.
Magical.
<unk> whatever it is.
75.
<unk> growth.
Everybody moves about then yes.
Both from the vaccine and from the higher incidence of allergic elegies and.
Cold cough and flu.
And the benefit of the drug can only be positive and debt.
Scenario.
Plus.
<unk>.
Gross booster shot materialize to any extent.
I think that will be continuing boost to their business.
Rising.
If everybody is back to indoors with wearing masks.
Then of course, we have a very different scenario.
On to 80 per low to APAC, the beauty business the beverage business.
So on that by.
By now refers to average a pattern, but if we if we remain positive.
And it looks like.
Governor needs to turn into cash.
Those origination rates up and I think Europe.
On the U S. Initially.
But catching up from adults to push it from Hollywood explanation I believe both the market market seemed like it will balance out really good for Revpar.
China is a mixed bag back from you.
It's a low so the control.
The condensate through harsh Lockdowns on Sunday.
And basically closing the country off for X.
Outbound tourists as relative inbound tourists.
And business travel so.
With the effect that.
It's more of a Chinese domestic game and we are well advised to continue.
To increase our footprint to take advantage of the large domestic economy with China, but.
Clearly the lack of travel.
On industrial stayed with us as long as the Chinese vaccination rates don't go up.
He has a negative impact on our beauty business.
I appreciate it thanks a lot.
And maybe on from add on a couple of things on.
On pharma win.
Maybe moving away from the quantitative.
Aspects of Covid qualitatively I think it's been a net positive really for the pharma business.
When we talked about before.
Got it the exposure to many new customers.
Certainly on our injectable provision that we weren't really selling to in the past. So it put us on the map so to speak with with a new customer set that's obviously led to our our bullish outlook on investing in additional capacity expansions, there and certainly the acquisition that we just mentioned in.
And then I would also add on the active material solutions Division.
Allowed us to push our material science technology into new areas right I mean, we.
While we thought we had a credible do have incredible on solution.
5 decontamination and the and there wasn't a need.
From that but we're now starting to see.
Our technology being used on test kits and things like that and I think thats only going to continue.
As in home testing category increases not just for COVID-19.
God forbid and future pandemics and even flow.
Pat So I would say that it's been a net qualitative positive in both pushing our innovation and technology as well as giving us access to new customers.
Increasing our bullish outlook on injectable component.
Thanks, a lot Bob.
Your next question comes from Neel Kumar from Morgan.
Stanley.
Hi, good morning.
And in pharma.
You mentioned on negative on your debt.
From inflation and any thoughts on mix as well on margins.
Talk about where specifically you're seeing inflation in the business on impact next had on margins as well during the quarter.
Do you expect we keep on the margin generally be in line with the second quarter levels.
Yes, so I mean, the biggest piece of if I look at it for.
For pharma is really coming on.
Some of the specific resins that we used on our active material solutions category and Thats, probably the biggest and then there was.
In other <unk>.
Some on the regular resin little bit also on the labor side.
In addition, but I would say that.
The bigger needle mover on on the margin is going to be the mix of where the business fell in Q2, right with both consumer health care and prescription being down.
And injectables and active packaging being up.
Got it that's helpful and my impression was that that business is actually more of an immediate pass through in pharma versus having a lag in getting Tommy in beverage.
They're different in the at the packaging business.
It is we had some large contracts there and.
And the active packaging side.
Some of our larger contracts are based on annual reassessment of total costs. So some of those won't get fully pass on or at least.
Pats on until we get into 2022, so there's a bit of a headwind there and then what to see where it looks like.
Turning to began looks a little slightly different on the contractual side and the other control solution side.
Okay.
Helpful. And then just thanks for allergies can you just talk about how some of the other areas Inc.
Prescription performed in the quarter were there any other areas you would call out as coming in below expectations.
And I wouldn't say, so I mean central nervous system continues to do very well.
Growing double digits, but off a small base.
And.
The.
COPD.
Area is not as affected by the Destocking on it.
The allergic rhinitis.
On.
Lower than normal.
Alright, thank you.
Your next question comes from Daniel Rizzo from Jefferies.
Good morning, I'm, sorry, if I missed this but on Capex is up this year.
Can you remind us what what we're spending on that on just provide some color on that.
Sure. So I mean, we've got 3 pretty significant projects that we had mentioned at.
At the beginning of the year that led us to our.
Total target range of 300 to 330, and so 1 of those is debt injectable <unk>.
Capacity.
The expansion and debt.
That is underway and we've begun to make investments there. So we've got about 35 million expected there in terms of cash outlays in 2021.
We also have started a project in China on 1 facility.
<unk> for our existing operations, primarily focused around pharma and <unk>.
Here again, we expect that theres going to be cash spend this year about $14 million and then we are optimizing our footprint in France also for our decorative capabilities and there hasn't been a lot that's come through yet.
But there we expect about 22.
$2 million.
And cash outlays in 2021, so all in all you got about $71 million.
On 2021 Capex.
That's included a net 300 to 330.
And for 2022.
A portion of that will be the similar cost next year from this from the same projects work.
On the shaped charge, yes, there'll be some bleed over into 2022 as the projects are getting closer to completion.
We have not yet signed in 2015.
Guidance on.
Cash capital expenditure.
But right now I'm just just in general terms.
Okay. Thank you very much.
Yes.
Question comes from day paid from Wells Fargo.
Good morning, gentlemen, hope all is well.
Kind of late in the call just 2 quick ones for you 1 on.
Obviously inflation I think came up a little bit hotter and quicker than what people were thinking.
Coming into this year have you guys taken this opportunity.
Your next day it sounded like most of it centered on presence but.
Perhaps to kind of maybe revisit some contracts as they do come up.
On to shorten that lag or is that something that debt deals.
As necessary.
And on them.
Real quick just on.
Other.
Attune loss.
To provide more openers.
No.
Really the answer is yes on both.
You've noticed debt.
On the pass through a food and beverage is not much faster than it's been historic low because we've changed some of these contracts.
In the past.
On the.
On the way up it's a little harder to do so.
But.
We are already benefiting from having changed those contracts.
On the other questions.
Absolutely.
Putting through general inflationary.
To increase that are not related to raw materials.
And.
All 3 businesses are looking.
Implementing goes have gone out with Ben you've even seen publicly announce increases in June that were not raw material related but general inflationary increase.
Or and confirm that it's more of a.
2.
Renewals of long term contracts, where you baked on <unk>.
No other than the equity material solutions business. There are no automatic pass through clauses clauses for the most part.
On the other hand, as low pricing power that we price as contracts get renewed.
They have price maintenance built in so clearly.
There are more tools in the toolkit and just the raw material pass through and we're using all of those tools.
Thank you Stephane and then on Abbvie.
From you guys kind of had 3 transactions to announce to us.
We've heard some chatter that private equity has has backed out a little bit.
From from the M&A market just curious if there's anything still on the pipeline I mean I. Appreciate you guys are probably always active to some degree but.
Anything that you feel like you're getting close on.
I guess on kind of update there.
Yes.
Our M&A activity.
As active as active as it is.
It's always been.
Hugh you work on a.
It doesn't deals when you do 1.
And you lose some in the wind from.
There is no change to that.
And.
Our leverage is 1 and a half so we certainly have the firepower.
We continue to look at M&A to complement our organic growth and geographic growth as well as our innovation activities. So there is no change to that in.
It remains an active environment.
But it's not done until it's done on the press release goes out.
We can't really speculate beyond that.
Understood. Thank you.
Your final question comes from Salvator Tiano from Seaport Global Securities.
Yeah.
Yes, hi, thanks for taking my questions. So first of all on.
Especially since now you've provided some color on Q4 I wanted to understand by each of the vs and figure can provide us little bit color on the lead times you have and on the order book when do you when do customers provide you with day initial indications on when.
Do they have to perform their own virtual by quarter for example.
Yes.
I don't want to really go into detail.
We did tell you in.
Happy to reiterate that our lead times.
In beauty and home.
Higher than we want them to be.
Last year, we were even written off from the Wall Street Journal.
We can't get enough fan sanitizer pumps out there in pumps are still.
A little bit backed up and.
As we see a rebound.
Some of these supply chain disruptions of dislocations that I mentioned.
Lead.
Times are higher than we would like them to be in the beauty and home area I think.
Leave it at debt.
Okay, and with regard to the other segments, especially on farmer I guess, what I'm trying to understand when youre talking about the visibility and clarity on having 2.4.
I'm trying to understand how.
Strong confidence you have here, yes, so we are not supply constrained.
Any extent.
In.
The prescription drug business or the consumer health care business as you can imagine from the.
The volume levels.
Certainly.
Supply chain is getting a little tight in the injectable.
Space, but we have the capacity to service the demand.
But.
The only area, where this is really a topic is in beauty.
Yes, okay.
Just switching gears a bit sustainability published I think I reported was in May.
Wanted to understand a little bit.
<unk>.
Actions have you taken then what line will start to have poor procurement to get I think PCR consumption to around 10% that going into 2025 target.
I think your second lien debt products went up from 35% last year to 64% this year.
Move what have you done.
Please day it looks like on the integral products that much.
A lot has to do with making products more mono material like we talked about it with the future from.
Also.
Changing the makeup of our special simply squeeze wells.
To be recycled.
<unk>.
Those are just 2 examples.
In terms of the low longer term picture force.
1.
Patrick because of what we offered the other.
Africa with clients actually buy so.
This is probably our loan commitment that is highly contingent on the behind client actually.
Buying solutions that net higher Pcr content.
And on a full fully recyclable.
I mean.
We've had certain PCR.
Offerings available on time, but guidance didn't buy as much as we thought certainly.
We expect debt to continue to rise and you're quite right debt availability of.
The right grades of PCR is a topic, that's driving invested in pure cycle.
To help them accelerate.
Food grade approved polypropylene production.
Hum.
And.
To be honest, we co invested with some of our customers there.
So that is an important industry. The other 1 debt we look to very closely is the acceleration.
Availability accessibility of chemical recycling.
So taking plastic and mixed use plastic stream back to monomers and then be polymerized.
So there's a lot of activity here going on.
And ultimately we will on our customers hopefully before the commitments they've made publicly that they need and they need to.
Awesome.
Average in line with their public commitments.
Great. Thank you very much.
Thank you I think this concludes our call. Thanks for your interest and look forward to meaning you're on the road virtually.
Ladies and gentlemen, this does conclude today's conference. Thank you for your participation.
You may now all disconnect.
Okay.
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On.
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Thank you.
Yes.
On the model.
Yes.
Okay.