Q3 2021 Aptargroup Inc Earnings Call

Ladies and.

Gentlemen, this is the operator today's conference is scheduled to begin momentarily until that time your lines will again be placed on music hold thank you for your patience.

Yes.

[music].

Yeah.

Ladies and gentlemen, thank you for standing by and welcome to <unk> 2021 third 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 Gelling, Maria Senior Vice President Investor Relations and communications.

Please go ahead Sir.

Thank you Hello, everyone and thanks for being with us today.

Our press release and accompanying slide deck has been posted on our website.

If you are following along on our website you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left.

As always we will post a replay of this call on our website.

Today's call includes some forward looking statements.

Please 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 I hope, you're all doing well and thank you for joining us today.

Starting on slide three as you saw in our press release, we reported strong top line grew 9% and earnings that were in line with our previous guidance.

These results were made possible by our diverse product lineup.

And our ability to serve multiple markets with our deep portfolio share technologies across our segments.

When taking a closer look <unk> components for injected medicines posted another strong quarter.

Our consumer healthcare solutions, we're seeing positive growth trajectory.

Our active material solutions continue to be in high demand, especially for diagnostics and prebiotics. However, as we indicated previously year over year sales decline in the quarter as we had a significant custom tooling sales last year that did not repeat.

Is it a reflection of the importance of and high demand for our unique <unk> technology. We are honored to have been awarded a U S government contract that will fund and 19 million dollar expansion to our existing domestic production.

This proprietary film is used.

Actual COVID-19 antigen tests.

As a validation of our proprietary technology capabilities and the important role that we're playing in the fight against the pandemic.

Also in the quarter sales of Orion nasal and pulmonary devices, where the prescription drug market declining.

The increase in COVID-19 cases during the year caused people to again stay at home, where mis and keep socially distance.

And this meant fewer common illnesses fewer doctor visits and consequently, lower consumption of allergic rhinitis cough and cold in certain polymer treatments.

In fact, this is prolonged the drawdown of inventories at our customers.

Thankfully as vaccination rates continue to rise we are seeing some positive signs that people are beginning to visit their doctors to a greater degree than before.

The Delta there and in particular had caused some regions to again restrict social activities.

The recovery of this part of our business. However, anecdotally we are reading about the recent rise in the number of incidents of cold.

And even what is referred to in the UK is a super cold So as people move up in the boat to a greater degree it seems unfortunately common pre pandemic illnesses are returning.

Our pharma margin in the quarter was below the prior year, mainly due to the mix of business, reflecting the lower sales to the prescription market previously mentioned.

We achieved double digit core growth in beauty and home and food and beverage on both increased volumes and higher pricing.

The beauty market continued its recovery and we also saw increased demand for hair care and body care dispensers in the personal care market.

The feed market continued to benefit from at home cooking trends.

We also saw a rebound in our beverage closure business when compared to a particularly weak period a year ago.

Our beauty and home and food and beverage margins reflected the rapidly accelerating inflationary environment and related pass through effects as well as supply chain challenges.

We continue to pass on rising costs, but did not fully offset those costs within the quarter.

We fully expect to make up more ground in the fourth quarter. As a reminder, the passing through of increased input costs on a dollar for dollar basis.

Act of compressing margin percentages.

The foundational strength of our business is derived from our shared core technologies and solutions that are leveraged across all of our end markets to enable our customers' growth.

I would like to highlight a few recent launches by customers using our technologies in the next few slides starting with our pharma segment on slide four.

Our partner Becton Dickinson announced the launch of a pre filled syringe for use with biologic that incorporates our premium coke plunger with prudent Etfs film coating technology intended to ensure integrity.

Two new FDA approved Nathan lead the administered drugs came to market with our devices.

Oyster point pharma care via the first and only maintenance rate that treats the symptoms of dry eye disease.

Further validating the amazing as an effective channel for a wide variety of medicines.

And each mine had launched naloxone treatment folks auto with our unit dose nasal device to treat suspected opioid overdoses.

Our <unk> material technology, which protect sensitive drug products probiotics medical devices and more for moisture and other environmental conditions was recently approved with Gilead.

<unk>, which is an oral medication for patients with HIV.

In addition, there is a new probiotic neutral one probiotic X, which comes in our active while.

On slide five in beauty and home lawyers variety reveal skincare solutions in China and features our patented airless packaging with booster cartridge for the formulation of personalized skin care solutions.

North America, our ecommerce capable solution with a Swiss deluxe acknowledges that prevent leakage. Your interpretation is featured on Union levers baby Dove oil.

And our fusion <unk> business provided several patients skin care packaging solutions pushy setose drunk elephant brand.

In food and beverage closure technology for flexible colleges continues to penetrate new categories and there is not also dispensing kroger's sweet cream cheese.

And the brand defy featuring our sports closure on the electrolyte and mineral infused water.

Turning to slide six on the M&A front, we have added key capabilities in our pharma segment.

During the quarter, we closed on our agreement to acquire 80% of why high end medical products, adding unless to merit and plastic component manufacturing capabilities in China for injectable drug delivery.

We also completed the acquisition of a majority stake in <unk>, which expands our digital health care portfolio by adding digital therapeutic solutions and broadening our digital health care services across multiple chronic conditions and diseases.

Subsequent to the quarter, we completed a public tender offer for the remaining shares will lunches and reach the required threshold to fully acquire the company.

Also in addition to our previously announced investments to expand our less summer component capacity.

We will be further increasing our capacity for our <unk> technology as a result of the contract awarded by the U S government, which I referenced earlier.

This technology. In addition to protecting antigen test strips is also leveraged across other platforms, including the protection of oral solid dose medicines and in the food market, where we are creating anti microbial solutions to prevent food contamination and spoilage.

The expected investment at our Auburn, Alabama site to be completed in early 2023.

On the sustainability front 10 of our European manufacturing sites are certified with the international sustainability and carbon certification or <unk>.

<unk> plus.

Certifications to come this leading certification system ensures traceability feedstock identity and can help to validate sustainability claims around recycling constant enables all of our segments to provide customers with solutions produced from certified sustainable food grade resin.

At a quality that is similar to that of conventional resin.

With that I will now turn it over to Bob who will provide additional comments on our third quarter results.

Bob.

Thank you Stefan and good morning, everyone.

Turning to slide seven just upon briefly mentioned for the third quarter 2021 reported sales, including positive effects of currency translation rates increased 9%.

Core sales increased approximately 8% including price adjustments.

Recent acquisitions completed in the quarter had an immaterial effect on our sales in the quarter.

Turning to slide eight third quarter adjusted earnings per share were <unk> 94 per share and adjusted EBITDA totaled $154 million.

Adjusted earnings included the positive effects of currency translation rates and the net negative inflation impact of approximately $13 million.

Our consolidated adjusted EBITDA margin would have been approximately 250 basis points higher without the net price cost effect and the margin compression impact from passing on the higher cost.

Slides nine and 10 highlight our year to date performance and we achieved 6% core sales growth and our adjusted earnings per share were $2 94.

Up 4% compared to $2 84, a year ago, including comparable exchange rates.

Briefly summarizing our third quarter segment results, our pharma segments core sales declined 2%, partly due to lower custom tooling sales compared to the prior year.

Adjusted EBITDA margin was approximately 32% and below the prior year's third quarter margin due to mix of growth across the end markets.

Looking at each pharma market.

Core sales to the prescription market decreased 9%.

As we have been discussing during the year fewer non critical doctor visits. This season have resulted in certain pharma customers, drawing down inventory levels as sectors, such as allergic rhinitis cough and cold and certain pulmonary treatments are being impacted by the low levels of patient consumption.

Core sales to the consumer healthcare market increased 5%, primarily due to increased revenues and the eye care category.

It was another strong quarter for components used for injectable medicines with core sales, increasing 16% primarily due to continued strong demand for our components used with vaccines.

Core sales of our active materials science solutions decreased 15% entirely due to significant custom tooling revenue in the prior year that did not repeat.

If we isolate that tooling revenue from the prior year. The underlying business is quite strong would have continued with the trend of strong double digit growth on increased demand for our diagnostic and probiotic protective applications.

Turning to our beauty and home segment core sales increased 10% over the prior year third quarter.

Approximately half of that growth came from increased volumes and the other half from price increases.

This segment's adjusted EBITDA margin was 12% in the quarter and included the negative inflation effect of approximately $9 million.

Had we not had this price cost negative impact and we did not have the margin compression effect of passing through higher costs.

<unk> margins would have been over 300 basis points higher.

Looking at each beauty and home market.

Core sales to the beauty market increased 18%.

With increased demand for our fragrance and facial skin care solutions contributing to the sales growth.

Core sales to the personal care market increased 4% as higher sales to the hair care body care and Sun care markets were partially offset by declines in personal cleansing and hand sanitizer demand continues to normalize.

Core sales to the home care market decreased 5% on lower demand for household cleaners.

Turning to our food and beverage segment, which had another solid performance core sales for the third quarter increased 28% and.

In addition to strong double digit volume growth pricing adjustments also contributed and accounted for approximately 60% of the segment's sales growth in the quarter.

The segment's adjusted EBITDA margin was 16% in the quarter and included a net negative inflation effect of approximately $2 million.

Had we not had this net price cost negative impact and we did not have the margin compression effect of passing through higher cost.

EBITDA margins would have been over 400 basis points higher.

Looking at each market core.

Sales to the food market increased 20% due to price adjustments and increased demand for condiments, and sauces dispensing closures with consumers continuing to cook at home.

Core sales to the beverage market increased 52% due to price adjustments and a partial recovery in the on the go beverage closure demand compared to a very weak third quarter of the prior year and a high level of custom tooling sales this year.

Approximately 37% of the beverage market growth was from tooling sales.

Moving to slide 11, which summarizes our outlook for the fourth quarter, where we expect core sales growth in each business segment earnings growth will be tempered by business mix foreign currency translation headwind inflation and supply chain disruptions.

We expect our fourth quarter adjusted earnings per share, excluding any restructuring expenses acquisition costs and changes in the unrealized fair value of equity investments to be in the range of 88 or <unk> 96 per share.

The estimated tax rate range for the fourth quarter is 28% to 30%.

In closing we continue to have a strong balance sheet with a leverage ratio of slightly less than one eight times, which allows us to continue to invest in the business.

Strategic opportunities and continue to return value to shareholders in the form of dividends and repurchases.

In addition to a cash dividend payments to shareholders, which totaled $73 million in the quarter, we repurchased approximately 220000 shares of common stock for $28 4 million.

We had announced earlier this year that we had lifted the suspension in repurchases that was in place to preserve liquidity during the height of the pandemic uncertainty.

Currently have approximately $250 million authorized for common share repurchases.

We continue to invest in innovative growth projects across our segments, including the three accelerated projects. We discussed earlier this year.

Our new state of the art facility being built in Suzhou, China that will be a shared facility housing production for each of our segments. The capacity expansion in our elastomer components division of our pharma segment to support the future supply chain projected medicines and a new state of the art Christie's beauty device site in France.

We're very excited to have begun each of these projects and we are on track with our previously forecasted range of capital expenditures for the year at a range of $300 million to $330 million.

At this time to the fund will provide a few closing comments before we move to Q&A.

Thank you Bob in closing on Slide 12, we have been pleased with our ability to deliver solid results, while navigating the surgery the delta variance over the summer months, various supply chain challenges and significant inflationary pressures at.

At the same time, we are excited about the progress we are making in positioning the company for growth beyond the current pandemic and economic environment.

The completion of our recent M&A transactions and the investments, we are making to support future growth, including increasing our capacity to produce electronic components for injected medicines and academic geoscience solutions represents meaningful progress on our growth strategy and ability to succeed across numerous.

Geographic end markets and product applications.

As Bob mentioned.

We expect solid core growth across each segment in the fourth quarter with considerable headwinds on earnings, including the temporary shifts in pharma business mix.

The prescription drug market demand for devices used for central nervous system treatments is expected to be below the very high level of a year ago at.

At the same time, we are encouraged by a partial recovery in demand for devices for LNG investment treatments, which are expected to be near the levels of the prior year's fourth quarter.

The beauty market will continue its recovery, albeit at a more gradual pace than previously expected mainly due to the delta variant over the summer delaying some projects.

Food and beverage segment will be up against a tough comparison to a year ago, we saw high levels of consumer stocking trends.

We will continue to contain costs improved.

Improved efficiencies and reached prices to recover the effects of rising inflation.

Our global procurement team is working diligently to navigate the challenging energy markets.

Continuous supply chain to secure all the materials supplies and equipment, we need as we move forward.

<unk> is a resilient and adaptable company.

Very proud of our global workforce and their commitment to provide the drug delivery consumer dispensing and <unk> material science solutions that millions of people around the world rely on every single day.

With that I would now like to open the call for your questions.

At this time I would like to ask a question press star one on your telephone keypad and the interest of time and fairness to all participants please limit yourself to two questions and then come back into the queue. If you have more questions as time allows.

Your first question comes from the line of George Staphos with Bank of America Securities.

Hi, everyone. Good morning, Thanks for all the details hope Youre doing well.

Okay.

So first question that I had for you and I know, it's very difficult to project and you gave us some.

Some helpful qualitative commentary in terms of the fourth quarter. When do you think we will be through when will you be through the destocking phase in pharma do.

Do you think given what you know right now given your end market.

Channel checks that this will be more or less resolved by the fourth quarter or first quarter any help there would be terrific.

Second question I had.

Just on guidance for the fourth quarter.

Last quarter. When you were commenting I think you said fourth quarter should be relatively close to what was the consensus at the time, which was I think a little over a dollar.

Obviously, there are lots of headwinds that youre suffering and everybody else's in terms of supply chain inflation and so on and the range is where it is is there any way to quantify.

If guidance now somewhat below what you would've expected a quarter ago, how much of an inflation how much is in tight supply chain anything like that would be helpful. Thank you guys.

Hi, George Good morning.

Kevin tried to break it down.

For the pharma picture, it's hard to give you an exact time, but clearly we see quite.

Right, some encouragement and consumer healthcare.

Unfortunately.

People.

Listen the business is called.

Clearly returning.

More and more.

Customers pointing to the debt and the order intake that we see for consumer healthcare related to cold and cough is clearly.

On the up.

The allergic rhinitis.

Destocking, we feel is coming close to an end.

The fourth quarter, we think the fourth quarter will be about in line with the fourth quarter from last year.

What is however, a drag on the fourth quarter you missed prescription business is that last year, we had a huge loan growth.

<unk> orders coming through that's kind of a lumpy business.

And I can tell you that we've done in the fourth quarter a little bit.

Still in the first quarter of this year over year effect.

The rest of the pharma business is continuing to grow from strength to strength, our injectable business continues to grow very nicely.

Yeah.

Investing in capacity and we don't see any reduction in that of course.

On a year on year comparisons with large numbers of peaking but overall good growth in that business.

And then the active material business is.

Really continuing to grow nicely in the diesel Knights Award from U S government and these exits from the Air Force.

Confirming the technology, we won't be more of that.

So overall.

I think these were.

In the middle of next year for sure we will be normal state, where there is already in the first quarter.

Really can't tell you, but we do the right things.

Allergic rhinitis seems to have run its course, but even this quarter.

I mean, the overall include rebounds in pharma on the horizon.

Now on your second question.

On a more quiet before the bulk of the new depot clearly.

Leaned out the window, a little bit more than we should have in July.

No.

But we are in a very different world now.

One we felt the variance has been a huge.

Future impact on everybody, but most of our businesses to.

The inflationary depression.

The accelerated tremendously.

The supply chain disruption that you hear everywhere.

On a pre meal and then it was up a bit.

Yes.

Latencies tuition, which just.

And it creates enormous inefficiencies and friction losses. So I think those are the big ones.

And exchange warehouses in Boston breakeven.

Sure so.

Sitting back in July when we were looking out the two biggest drivers are going to be come.

Coming from inflation.

Stronger now.

And in fact in July So we were anticipating back then and those are very very rough numbers.

<unk> <unk>.

<unk> headwinds.

And the inflation in Q4 are now projected to be closer to seven.

So the net debt to about five.

The Delta right there and then our exchange rate assumptions back in July we were at a 119 Euro and were now projecting Q4 to be about one.

Don.

So you got about two to three there depending on rounding coming from FX and just to give you a rough idea coming back to Q3, we were actually expecting.

Think on the call you had mentioned you thought.

Net headwinds on inflation in Q3 was about $7 5 million and as you heard from my earlier remarks, the level of 13. So it is truly a fluid situation.

Upon mentioned.

We didn't know about rolling the electricity mill shutdowns in Asia that in July.

We werent talking at all even thinking about energy prices spiking in Europe at the time so do.

These are things that are.

That are influencing our guidance for two quarters alone.

On that front joined the back of the line. Thanks, guys I'll turn it off are very helpful.

Your next question is from the line of Vishal Rajavi with Baird.

Yes, thanks, good morning, everybody.

Good morning, guys.

Good morning.

I guess sticking with pharma for a second so the last three years 18, 19, and 20 double digit growth from a volume standpoint.

2021 looks to be about flat just sort of using your implied guidance for Q.

And I guess my question is that.

I understand the reasons in terms of inventory Destocking et cetera.

Well 2020 to also be sort of a transition year before we get back to historical growth rates and then in terms of beauty, obviously youre seeing some some level of mean reversion in terms of volumes et cetera, as the world has reopened and comparisons versus last year, how much of that is inventory sort of re alignment. If you will at the customer level and should we expect.

Headwind at some point as we cycle through 2022.

Yes.

On pharma Ironwood first of all Savior.

Very much then behind our <unk>.

Published targets.

Imaging.

Add to the pipeline integrity work in the market.

Mr King wounded from that.

Encouraging us I think very big picture pharma.

The Covid impact just came in a year later.

And all the effects that we talked through.

You need them.

Fitness and CNS.

Tenant.

As with the other experiences other business experience.

Sure Lindsay.

B.

Pharma is clearly taking an off year in 'twenty one.

I don't disagree with your flattish assumption, let's see reporter for loans.

Fundamentally there's nothing broken in pharma.

We're starting to build where we are adding capabilities.

With the actions that we've mentioned.

The R&D investments.

Fully.

Do not.

Between the two is another off year, and we couldnt be break the first quarter.

Clearly, we see this business going back to <unk>.

Guided growth rates.

On beauty.

I think there is some inventory effect.

But.

Yeah.

The industry is clearly more cautious there was a lot of optimism going into the summer.

And the Delta.

We immediately pulled back.

No that is again a lot of optimism.

As you know the beauty business is that all of the product launches and how successfully the sell through on the launches. So I think thats. The big question will be 11 11, Joe.

The Christmas build in payments.

<unk> is up for next year, but clearly.

After treatment.

Down in the Delta.

Optimism was.

Recently in Europe, but it looks pricey and Monaco and we had less work in New York last week.

A lot of optimism.

The industry also clearly everybody is dealing with the same supply chain disruptions.

One of our largest customers in the zero provisions are organized chaos.

So.

And also to deal with their own manufacturing issues labor availability short shipments and all that so.

Industry is gearing up for a growth year.

With all the.

Additional hurdles that we discussed with the maintenance dose.

Okay. Thanks for that Stefan and just second question, maybe for Bob on free cash flow I mean, how should we sort of think about free cash flow for full year 'twenty. One obviously materially below last year I understand there are some reasons with inventory and working capital adjustments et cetera, but.

How should we think about the fourth quarter.

Yes.

Full year relative to last year.

Yes, I mean, I think you nailed it qualitatively can suddenly I mean, we're going to be down.

Off of last year, and some of the reasons are obvious right.

Our our cash spend on capital is going to be higher.

Last year.

One thing that's influencing our free cash flow, but we'll see.

On the working capital side of the business picks up we are seeing our receivable balances increasing no real change comparative base sales outstanding no flexibility issues or anything like that on the inventory side.

Obviously, the increased costs on all the orders are coming in and that having.

The decrease in the inventory valuation and because of the supply chain disruptions that we've been talking about.

And certain resins in certain raw materials like colors and things like that.

E comm dangerously low in previous quarters to almost being out of stock on some of our components and so when we have the opportunity to replenish the supply we are moving forward. So we're probably a little bit conservative on the raw material side and then we're carrying slightly higher finished goods than we had in the past and that is partially due to.

Kind of transient issues in terms of transportation things like that.

Thank you so much.

Your next question is from the line of Michael <unk> with BMO capital markets.

Good morning, Stefan Brian.

Bob.

One of our market.

Hi, Bob.

Bob I Wonder if you could just help us with any.

Way of quantifying drag in the third quarter from the labor issues that you mentioned, but also any issues with global logistics and I'm conscious that historically, you've shipped component pieces from one part of the world or another.

So I can't I can't really give you hard numbers.

The breakouts between supply chain and labor I will tell you that of the total that negative inflation about 80% of it is coming from materials and then 20% is really making up the rest.

Our labor issues are primarily North America.

Thats more of a north American issue.

The transportation and supply chain, that's more of a global issue, we're doing okay on our intercompany component shipments and things like that it's.

It's more many cases.

With truck drivers to be able to ship finished goods to customers et cetera. So we're doing what we can to make sure that.

And in some cases, we are producing in advance of shipment dates to make sure that the customers are getting the product.

Products on time, but I can't really break out specifically, how much of the labor Thats more of a U S issue.

Maybe let me add some qualitative commentary.

It is immediately publicis so.

Again, what happens is we are understaffed at several of our large facilities.

To the tune of Walton, having 10% to 15% of the.

<unk> staff.

That results in your current run certain shifts.

You can.

Ship some product.

Obviously, we estimate wages.

Across all of the factories and often we have some sign up bonuses retention bonuses.

People just wait.

Or is there because we've got the retention bonus.

Charles So it is a very unprecedented environment.

On the us facing that are customer facing that Europe is before better but also in Germany, it's pretty tough to do.

Higher qualified people.

But by far and use it the biggest impact has been as Bob said truck drivers are.

Very high demand.

Customers just can't pick up shipments so.

<unk> environment.

It's pretty hard.

Over time.

We'll certainly look more to automation than before.

Logical consequence.

And because the labor market is not going to ease up anytime.

Soon.

That's the quantity also lose a decline in sales in the third quarter.

Because of an ability to produce and offer to deliver or not.

Yes.

It's the whole portfolio.

Clearly we have some some learnings of the flat out.

If you could sell more beauty.

Megan what we can sell more there or the length of it is applicable everybody is tight and then something.

Right.

Work.

Very hard to get that done and then the customer can pick it up.

Does that change.

The labor so.

And in general it's more friction.

Mathematically could be absorbed.

So I think we'll get automatically be a percentage or two for the fourth quarter I'm not so sure.

Yes.

I would add mark that when we started the CD transportation disruption that was earlier in the year. So early in the year. We did have some shipments that were ready to go and go but I think now what you've got is what was supposed to go in Q2 ended up now going into Q3, and maybe even get some sitting it's just as well in Q3 is going to hold Q4.

We're going to head into Q4, that's kind of all in Q1, so I don't think quarter on quarter.

A significant effect and certainly I wouldn't sit here and say that we're sitting on.

Massive shipments that will fall into Q1.

The drive.

The main thing that's helpful.

We highly kinetic dynamic environment.

You change on the di.

Joining up with more cost.

And then I'll.

I'll turn it over thank you.

Sure.

The next question is from the line of call White with Deutsche Bank.

Hey, good morning, Thanks, taking my question.

Need to focus on pharma I think we all recognize the inflationary environment supply chain issues in regards to packaging and you gave the inflation impact in your other segments.

Pharma is a bit more unique can you just talk about how you price classes has been in that segment what level of inflation are you seeing outside of materials and are you able to price to cover it or is there a headwind until contractual resets there. Thank you.

So on the pharma side, the net negative for the entire segment was around $2 million.

So roughly about 100 basis points on the margin I would say the majority of that is probably from our active materials Science division than it is from the other again I can't really break down what the.

I can't parse out what was coming from labor against.

We're also repricing in pharma, but that is more on an annual basis and where you can.

Breaking the contract.

Do that but.

This is much more long term industry.

52 months.

Got it and then on beauty. It seems like consumers are looking to do holiday shopping sooner are you seeing Mr. Hernandez from customers and what kind of impact that's had on you.

How do you manage it and manage that in terms of lead times with their customers given the tight supply chain.

Yes, I mean lead times.

Obviously a lot longer.

So.

I'm not sure I can give you more color to that we saw people thinking.

The foot off the gas.

Delta.

Stepping on the gas again.

A lot of regional differences.

Yes.

China.

With 11 11 is fully get up and then Spooling up where the Chinese new year.

The Christmas season.

Europe is actually growing.

Very well as vaccination rates.

Moved ahead of this country.

Moving around as much easier.

The shops are open so.

Recovery in Europe is actually growing well so overall.

Yes.

Very positive.

Pick up.

Okay fair enough.

The next question is from the line of Gabe <unk> with Wells Fargo.

Good morning, Bob.

Okay.

I wanted to I guess.

Clarify what I heard for beauty and home.

That the lagging recovery was about 300 basis points.

And EBITDA margin, so it puts us closer to kind of that 15% range.

So if you could confirm that and then more importantly, it looks like restructuring had kind of jumped up again.

This quarter and I don't know if that's a timing issue or if there are some other things that you guys are trying to accomplish to kind of restore the margin profile there.

Get to that $80 million of transformation savings that you've talked about the poor.

Sure. So I can confirm the 300 basis point impact on the BD com and net negative which was.

Terms of absolute dollars above $9 9 million.

As far as the larger than expected restructuring costs.

We had talked about even last year shutting down some of our east coast operations.

And Vincent just a north American facility, we had to delay that as you remember last year.

Because of the demand for Sanitizers and pumps, which are being produced in Thailand and in earnings <unk> facility, so that large.

The majority of that large construction cost is coming from.

The finalization of that planning.

<unk>.

Sure.

Facilities.

Okay could you maybe quantify for us what the fixed cost savings might be.

That action right there or.

I don't know.

I'd have to check and get back they don't have.

Sure.

Alright, Thanks, Tom.

The other one I was curious just thinking about kind of capital redeployment.

We had bought back 20 million shares this quarter.

How active the M&A environment is.

And.

Kind of how you guys kind of go through the decision tree.

Share repo versus making an acquisition in sort of in the context of ROIC targets that you guys put out there with capital markets day, and then appreciating that it's also part of the year kind of.

Incentive comp.

Yes.

In general the M&A environment continues to be very active and we continue to be very disciplined.

The level of yields that we look at them.

Sorry to step away or so typically done.

Sure.

Pay the prices that we would expect.

But if we step back and our overall capital allocation clearly our first priority is to invest in the business.

With capital expenditure project and the return on those.

Our.

The most predictable.

While the returns on our capital expenditure projects have been very steady.

We're north of 20% so that is first priority.

And then of course.

We.

I think 28 years.

Annually rising dividends.

To break that streak.

<unk>.

Incomes M&A and share buybacks clearly, we've paused the share buybacks.

The height of the pandemic to be more cautious.

Preserve liquidity, but now we are back in the market.

As we've mentioned before and certainly.

No.

To continue that.

Thanks for the clarity there Stefan good luck.

Thank you.

Your next question is from the line of Adam Josephson with Keybanc.

As defined Bob Matt Good morning, I hope you're well.

<unk> just on that the restructuring issue that gave was just asking about is it is it fair to assume then that we should not expect to see much.

The lay of restructuring charges in future quarters and just.

Relatedly, how would you frame the returns that you. Thank you.

Realized on all of your restructuring actions over the past say three or four years.

So.

I'll take the first part of the question yes.

Is it safe to say that we're at the tail end of the official kind of restructuring charges and whatnot. So.

I think thats, a true statement as far as as far as the actual returns.

It's a multiyear project, but I think what we're seeing.

We continue to right size the business group the capabilities the front of the business during some very difficult times and so we've taken about eight plants offline.

And in our business, we've gotten more efficient investments in capital. So that I think really if you take a step back.

What we said we were going to do.

And the transformation and I think we're very well situated for the rebound com so visible right now with Goldman and everything there to say Hey, we've got a great return out of it.

Talk to me in a couple of years when the business normalizes and I think we will we will have a different discussion.

Just to add.

Yes.

I know it.

Been a while.

I compare on our positioning in the market.

<unk>.

Feedback from customers.

Both qualitative and quantitative.

I would compare.

The back to losing share did not a business that from the Frankfurt that's gaining share.

So.

Geographically the high growth areas.

For maintenance.

Important consequences will be.

We've never done that.

Certainly being developed.

<unk>.

Restructuring charges.

For the most part.

I appreciate it's upon Robyn and just Bob you made a comment that when business normal business conditions normalize in a couple of years, we will see the fruits of this labor and to that point there've been so many unanticipated.

Problems from the pharma destocking to the Delta Varian inflation supply chain.

Issues et cetera.

How do you foresee at this preliminary stage and how do you foresee next year shaping up do you expect many of these same problems to persist the other pharma destocking aside for the most part do you expect any of these problems to persist or do you think it will be a clean year next year, just any thoughts about how next.

Year might evolve.

<unk> to this year, just given how unexpected so much of what's happened. This year has been for you.

Yes.

Let me.

Kind of zoom out for a moment.

Please go ahead Sir.

Yes.

How do you forecast black Swan events.

Nobody predicted told at.

Today in 2014.

I'm actually very proud of the team.

The team has managed through.

Colgate.

And.

Delta, probably hopefully will last.

Story.

We'll be character and its problems I would characterize it.

Sure.

The issues that the team stood up and dealt with including the curtains.

That is one of the strengths of FBR.

When you look at the resiliency the everywhere.

Flat this year and we are growing again.

A&P dealing of course, EPS reflected pharma, but there was also related to COVID-19. So.

I think the company is handling those issues very well if you tell me the number of these issues will be there next year, but we have again because of the year.

But if there is another delta there Ian.

We will have to deal with that we will be dealing with it.

Capable team.

I think that gave good color on our expectations from pharma and beauty.

Sure.

There will be.

More echo going into whatever area.

I think we will have a great year.

Yes.

Add on I mean, how do we look at it.

It's a challenge, but it is the sponsor.

<unk> 2008, nine and net prices and the only way you can deal with us through on the shelves contingency planning and that's something that we didn't know it online we continue to do today. So.

Do we have a budget and a forecast for next year of course.

Yes.

Based on a number of assumptions, but we also know there is contingency plans in place.

We're ready and willing to execute should.

There's another black Swan events happen right and on the flip side. We also have the balance sheet and and the wherewithal to invest where we need to invest in things go better than we expected as well. So I think thats one we can manage through this difficult to predict.

Having the flexibility in the muscle and.

Contingency plans in place.

<unk> had really what makes us kind of weather through these storms.

Thanks, a lot Bob.

Your next question is from the line of Andrew Costello with Morgan Stanley.

Hi, good morning, and thanks for taking my question.

I hate to belabor the point on primarily maybe a different way of looking at it as you think about kind of Destocking here that continues into the fourth quarter would you say would you characterize I guess customer levels of inventory and getting closer to a normal or are they looking to run leaner than they have historically.

So again I would.

With that I will remember we took four units in pharma.

Three of which are growing.

Nicely.

The <unk>.

It is material.

It was a double digit.

And within the prescription division, we had significant destocking in allergic rhinitis and coal to come.

Holding cost.

Is behind US, we clearly see that business on the uptick allergic United seems to be normalizing as we.

<unk>.

We think 'twenty.

Quarter, four 2081 levels will be signed this quarter towards 'twenty levels, which were unaffected from the destocking.

So.

The <unk>.

Additional items that we're calling out.

No.

Our prepared remarks is that we had a very big.

AUM of CNS sales last year that it will not most likely repeat and Thats why we see prescriptions do b.

No.

Not in the growing compared to the rest of the pharma businesses.

And then I guess.

Thank you.

<unk>.

Clarify the way I'm kind of thinking about it is if we kind of get more to a normal environment.

Customers have enough inventory on do they have to come back.

Particularly it's within prescription.

As we think about kind of an easier comp.

In the last couple of quarters in a destocking that happened.

Is there the opportunity for maybe a little bit.

Restocking.

Okay.

Yes, I would not want to speculate.

The one thing that we'd call out we've done a really a deep dive into.

Kind of whats sold in pharmacies in the retail environment. Please also remember that the CNS and distribution channels are very completely unconventional and then it goes through an emergency.

Responds crews.

Good.

There is no data.

Okay.

Understood. Thank you.

And then just a separate one on you mentioned automation investments have the potential I guess to answer some of that labor.

We continue to have.

One in the U S.

Is that contemplated in the restructuring that you've done or.

One I guess maybe.

What would that mean for 2022 and we continue to have happy.

Persistent kind of labor issues.

What would be kind of a thought process around that how much would you need to kind of invest in it.

Just kind of automate are there or do you think.

What kind of a shopping on that.

No I wouldn't call it restructuring and I think this is just normal productivity investments when you look at the economic return of every investment.

What is the.

Head count savings.

That will be able to create.

With you, but let me do the businesses, yes, I mean, I think in our restructuring and transformation, we talked about a little over $50 million that we invested specifically in the automation and automated factories.

That ranges from anything from material handling to.

The final packaging and shipping things like that and as technology improves and increases will continue to look for ways to automate and be more efficient.

Part of our kind of annual DNA.

Very helpful. Thank you.

The next question is from the line of Daniel Rizzo with Jefferies.

Thank you for fitting me in guys.

You mentioned <unk>, the tooling comparison being pretty tough.

Q3, I was wondering if it's going to be again tough in Q quarter or over the next couple of quarters.

So Daniel I mean tooling for us is.

Actually we were to look at it overall.

We're actually up slightly in total companywide tooling.

It always impacts one from one market so.

It happened to be a negative drag on pharma. This time, but remember we mentioned that beverage was accounting for about 37% of their growth.

So it was a positive there right now and again <unk> is one of the things that physical forecast youre not exactly sure when production tooling is going to come online, but right now we're not expecting on a consolidated level any any significant differences with the prior year, mainly specific to <unk> and exiting field solutions, while if you can.

Julian.

Louis.

Yeah.

To speak well.

But there was tenants yes, yes, so last year, we were up 57% and connected care solutions in the third quarter and that was due to really the exceptional tooling sale on the success of our pharma customers flash glucose monitoring systems. Because this was kind of the next evolution of their product range that obviously is a part of.

Well for us going forward, but those those types of Julian events don't happen every quarter and certainly don't always happen every year either.

Okay. Thank you for clarification and then.

Labor labor and supply chain side. If you look just at your raw materials, particularly polyethylene polypropylene and things like that I was wondering what your expectations are going forward.

Respect your guidance are you expecting it to continue to rise and playing catch up or just kind of a plateau here or what.

So.

As expected has announced a decreased slightly in North America, and Europe, but it will still be at much higher rates than what we saw last year. So yes, it's not increasing at the rate we've seen over the last several quarters.

We expected it to kind of abate and potentially subside, a little bit, but it will still quarter on quarter year on year comparison.

And higher than.

Prior year.

Thank you very much.

The next question is from the line of Salvator Tiano with Seaport research.

Yes.

Yes.

Bob Thanks for taking my questions. So firstly elevate going.

Going back to apartment tool.

It seems to me like the mix of your bigger things become much worse in the third quarter from what we saw in the first half of the year.

The earnings decline accelerated in March.

I Wonder if you can provide a little bit more details on why this happened and if you can put behind our freedom, but declining.

<unk> solutions tooling.

Tooling sales of what was kind of a year on year impact from the books.

Okay. So the mix is what we've been talking about really both tour in previous quarters.

It relates to the to the Destocking factor around allergic rhinitis products and asthma COPD type products and Thats, primarily in our Rx Division and we did have destocking in consumer healthcare earlier in the year around nasal decongestants cough and cold. We now are starting to see that improve as the <unk>.

<unk> mentioned cold and flu season in fact device sales and increasing short term horizon.

We've talked about recovery.

It is an asthma COPD and a little bit of a tough comparison compared to in CNS in Q4.

As for active material I can't comment specifically, we don't make a lot of money.

Tooling sales in general, but it was about $12 5 million in total revenue per active material solution last year in the third quarter. So.

Again as I mentioned, that's a positive from us from the standpoint that that can lead to future product sales, which is really what we're focused on that.

Other customers. So it's all sort of let me just.

I assume I hope to be.

Hopefully helpful. So again has eliminated our pharma reporting segments.

Four business units.

Deferred profitability, although we don't disclose that.

Directional guidance, the most profitable alumnus prescription drug.

The big units they are allergic rhinitis.

The COPD pulmonary treatments with a nice growth engine the central nervous system drugs business. That's in prescription then comes consumer healthcare likely that's profitable everything around the cough and cold nasal Ram thermal treatment ophthalmology.

Good conductive material solutions.

In terms of profitability.

And then comes the injectable business, which is still nicely profitable new carpeting.

Overall company.

<unk>.

Of course, when injectable emissive material grows a lot faster.

Prescription decline you have the mix effect that's really.

What has played out this year.

Okay I understood and one other question if you can provide us some detail on the financial impact of the two recent acquisitions, especially I think the loan containment.

<unk> phase II.

Clause, if I remember correctly, so how should we think about.

The impact from Europe.

Yes.

Can you give some numbers.

In general we're lumpy.

<unk>.

Sure.

R&D investment into.

The.

Digital therapy, and digital companions to all of our devices in the long run. So this is really I mean.

And the next generation platform, we have and it will ultimately humana has been the total company's delayed.

Thankfully.

Cross the threshold and we will be able to screen.

The minority buyout business, adding to our digital therapy capability.

You can find in their public filings the revenue use debt, but for US we think of this is it.

There's a significant R&D effort that would be free.

While rising business then.

With over two eight years.

That is very important.

Getting boots on the ground in China for the injectable.

Medicine segment.

Significant growth in that part of the world.

So far the.

That is mainly with.

Increasingly with inputs from Europe with injectable medicines.

In turn more sustainable and this is a nicely profitable business.

To explain the progress the world.

Building on the basis of up there hanging.

In general.

Our overall M&A track record I think as we've talked about that at capital markets day.

Of course, CSP, which became deck with material science business.

<unk> fusion <unk> to larger ones doing very well with those of our venture investments.

Returning very nicely. So maybe you can give some numeric impact sure sure. So.

In Q4, the thing you and the velocity acquisition prior to two to three cents dilutive and Thats pretty typical.

He knows the time you got to work through some inventory write ups and the like on the purchase accounting side and then looking out to 2022, it's going to be roughly eight diluted primarily coming from.

The digital health investments.

And I can't really give you the breakout what that is but recruiting is.

2022.

Okay. That's great color. Thank you very much.

The next question is from the line of Justin <unk> with William Blair.

Good morning, Thank you for us.

Just two quick ones for me I guess, what's your expectation for the upcoming cold and flu season.

Baked into your guidance.

You mentioned a potential super call it in Europe.

I guess does that mean, you're expecting something similar to pretend that arms are maybe still something more.

Yes, I think that the last couple of days.

Several of our pharma customers at their earnings allowance so.

I think reading their statements.

Did it answer that I can give you clearly whether it's the <unk> are a couple of minutes of our anecdotal evidence from our colleagues in Europe.

It looks like it's going to be.

Quote normal flu season may be more than willing to speculate.

We clearly are going with optimism.

Into the fourth quarter in our consumer healthcare business.

Yes.

Okay.

Just another one for me.

Talk about raising their prices.

Continuing capacity cost out to your customers I.

But I guess I'm curious what other measures do you have in place to navigate this environment.

And inflation, and particularly supply chain and labor shortages continue for another year.

Three words pricing pricing pricing.

We are very vigilant.

Raising prices enjoying that.

On the prior call.

With.

Delay often.

We're getting better at that.

They recognize our food and beverage business is really in its structure.

Structurally change either.

So it will take time, but general inflationary increases.

That demand has.

To be honest.

While every price increase is tough with the environment.

A receptive because our customers.

Every day everywhere.

Were you surprised when we walk in there.

Is what are we going to do another one.

And I would just add right now I mean, you see a lot of reports out that the consumers are accepting our customers pass through of higher cost, but I mean, if you look at us historically.

We don't just serve the multinationals. We also serve a lot of the private label brands and so.

It's something that we'll be keeping an eye out on you could see a shift in business from branded products if prices get to the to the point that consumers want a stable a few pennies, but typically for us that doesn't mean any less sophistication around dispensing ease of use and we're selling to the private labels roughly what were selling to them.

And of course im not implying that we are not doing all the other work that you can expect us to do around productivity.

Savings automation and so on.

The marketplace is good work.

We use open tools that are available in the marketplace to attract and retain the right labor. It's just got a lot of artisan with big pharma.

Rollout.

Alright, thank you so much.

You have a follow up question from the line of George Staphos with Bank of America.

Hi, everyone. This is cash into and on behalf of George satellites Eric.

Just wondering quickly if you could go through that charge related to pure cycle, and just remind us on the background of the partnership there. Thanks.

Yes, so pure cycle.

It was an investment that we made.

Year ago or so.

Wind power.

Public via a stack vehicle in the second quarter. So.

We saw initially.

In the quarter that they went public we had a huge gain of about $16 million to $17 million.

<unk>.

On the unrealized write up of that investment in now there was about a $9 million write down but net net for the year on an unrealized basis.

We still have about $6 million.

And just as a reminder.

A large part of our polymer used is polypropylene.

And as our customers need to have more and more recycled content, where we need.

To have in the world.

<unk> polypropylene, but as food grade.

So that it can be contact with foods with metals.

With.

<unk>.

Beauty treatments.

In pure cycle with one of the few of the relative technology. So this is one of the mentoring.

New strategic for us to help them get off the ground make sure the technology sees the light of day.

Thankfully.

Other people have seen the same potential improving some of our customers and investors in that.

No they still have to build a large scale plans, but slightly.

Marketplace capital markets seem to be potential so it's a.

It's just one example dependent mainstream investments we do early stage to make sure that.

We are at the leading edge of innovation, putting all of our money for both teams.

But this is a good example of that.

Technology that we need to be available in the marketplace.

Alright with that.

We're going to wrap it up I appreciate all the questions again.

Okay.

With confidence into quarter four.

These trends work themselves out and we look forward to talking to you on the road.

And this concludes today's conference call you may now disconnect.

Yes.

Okay.

Right.

Okay.

Hi.

Okay.

Alright.

Yes.

Yes.

Good morning.

Okay.

Thank you.

Yes.

Okay.

[music].

Overall.

[music].

Zero.

Okay.