Q1 2022 Aptargroup Inc Earnings Call

Thank you.

[music].

Thank you for your patience the Upcharge Twenty-twenty key first quarter conference call is going to be thoughtful around one minutes time. Thank you for standing by.

[music].

Thank you.

Okay.

Okay.

Mark.

Okay.

[music].

Ladies and gentlemen, thank.

Thank you for standing by welcome to 2020, Q first quarter conference call.

At this time all participants are in a listen only mode. Later, we will conduct a question answer session.

Introducing today's conference call is Mr. Matt Keller Maria 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 Stephane, Tan, President and CEO , Bob Kuhn Executive Vice President and CFO .

Our press release and accompanying slide deck had been posted to our website if.

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 the website.

Today's call includes some forward looking statements.

These refer to our SEC filings to review factors that could cause actual results to.

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. We appreciate you joining us today and I hope you're doing well.

Turning to slide three as highlighted in our press release.

We reported very good performance in the first quarter with core and reported sales growth in each of our segments, resulting in total reported sales were after increasing 9%.

And core sales increased 13%.

Before I cover our segment results I would like to spend a few moments talking about our continuing.

The resiliency of the company.

In this uncertain economic environment, we faced pandemic uncertainties rising inflation supply chain issues labor shortages.

<unk> in Ukraine, and the recent COVID-19 variant outbreaks and Lockdowns in China.

Engaging in ongoing war in Ukraine and how.

Hearts and solidarity go out to everyone.

With unfairly caught up in the mid of the tragic events unfolding.

Outbreaks and locked up.

In China, we are focused on the health and safety of our employees.

And we are updating our COVID-19 protocols were in EBIT.

While only a few of our offices.

Thus far we are closely monitoring the impact on consumer consumption level.

Okay.

Sam patterns.

Neither of the war in Ukraine.

He has had a significant direct impact on our first quarter results.

However, we had.

Putting soaring energy costs in Europe .

In both regions.

We will continue to monitor.

Evolving too.

It is necessary to serve patients consumers and customers to the best of our abilities.

During the quarter, we during the middle of our previously issued guidance Bob will briefly touch on.

Turning to our.

Segment achieved double digit core sales growth.

Growth with growth in each market.

Significant sales growth in the active.

Material science market, along with increased demand in consumer healthcare and Injectables were strong contributors to our results.

Demand also began to recover for our drug delivery devices for allergic rhinitis treatments in the prescription market.

Im also pleased to share that our elastomer component capacity expansion in France is progressing nicely.

And in our beauty and home segment increased demand from the beauty and personal care markets and price initiatives related to input cost recovery contributed to double digit core sales growth.

I'd also like to share that early this month.

We celebrated with customers and employees the outer shell completion of our new facility in <unk>, France.

We are investing in a new state of the art prestige custom beauty site, which will be operational by the spring of 2023.

With this initiative, we are consolidating five solutions with more sustainable feed.

Food and beverage we also achieved double digit core sales growth on top of a very strong prior year.

The growth was driven by increased demand and price to be introduced to recover rising raw material.

And other input costs.

Turning to sustainability.

We were pleased to announce progress in testing and transforming fewer cycles technologies ultra pure recycled polypropylene.

Working with pure cycle, we have recently converted prototype material from the pure cycle feedstock evaluation unit in.

Multiple colors of hinged closures, a technically demanding application with performance is similar to conventional resin for food beverage and cosmetic applications.

This type of industry collaborations which started with.

Is essential to achieve a more circular economy.

<unk> is reused and recycled.

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

In consumer healthcare, our airless system for dermal, which is based on <unk> technology used on many of our beauty and home patients skincare products.

The dispensing solutions for facial acne cream by Goldberg will hold three meal in the U S.

Yes, I care market in India, Cipla has launched BMO column used to treat glaucoma with our ophthalmic squeeze dispenser.

Turning to the prescription market the FDA approved <unk> and can be both Dana a generic version of <unk> and.

For a more thorough and inhaled medications used for the.

Maintenance treatment of asthma, and chronic obstructive pulmonary disease using about the immediate goes well.

And our nasal spray pumps or the dispensing solutions for both debentures and moment spring allergic rhinitis communications in Brazil.

Finally, our elastomer components are featured on several animal care antibiotic Mexico is in animal care therapies in the U S.

Turning to slide five in beauty and home.

And the European prestige fragrance market output spray pumps or the dispensing solution for the launch of several new fragrances are brands, such as Chloe Golar Pella Valentino and more in China. Our pump is featured on a peripheral Colton library.

In addition, well known beauty retailer is featuring our airless pump made from post consumer recycled resin on its line of facial skincare masks.

Next our unique combination between the drop in the bottle for precise and clean application with simplest sweet flow control valve with <unk>.

Low control technology, often found in our food and beverage dispensing solutions, along with some pharma applications.

Providing a soft and accurate dropped dispensing with.

With two new skincare products in Europe .

And finally, our fusion PPG beauty business is providing a customized package for Mac cosmetics skincare renewal emulsion product.

In food and beverage after continues to see success with in order to closures featuring a simplest Greece flow control technology, which is the recently launched a new range of flavor tiny spreads for Kraft Heinz in the U S.

In addition, with the flow control technology, we have entered into new businesses in China, with a leading oyster sauce and ketchup brand.

Also in the housing market, we partnered with <unk>, Brazil to convert their former glass with metal tab for it maybe the cocoa honey to an inverted closure was simply squeeze flow control valve. This is.

Yet. Another example of how we partner with our customers to differentiate their product and provide added convenience to the end consumer.

Finally in the beverage market our sports cap is the dispensing system for each two owned leads purified drinking water in Europe .

With that I will now turn it over to Bob who will share some additional comments on our first quarter results.

Bob Thank.

Thank you Stefan and good morning, everyone I.

I would like to summarize the quarter starting on slide six where you can see our reported and core sales results when.

When we neutralize currencies and acquisitions, we grew core sales solidly by 13%.

About 8% was coming from increased demand with the remainder coming from price initiatives across the majority of our markets, which I will detail in a minute.

As shown on slide seven we achieved adjusted earnings per share of <unk>, 96, and adjusted EBITDA of $156 million.

Adjusted earnings included currency translation headwinds.

Net negative inflation impact of approximately $4 million.

Our reserve against the note receivable of approximately $1 $5 million and startup costs related to our Latin America component capacity expansion of approximately $2 million.

We also continued to face ongoing supply chain disruptions, primarily in the U S. Prior.

Prior year's adjusted earnings per share reflect the lower tax rate and if we would've equalize the tax and currency rates. Our adjusted earnings per share would have increased 7%.

If we isolate net price cost effect, including the margin compression impact from passing on the higher cost our consolidated adjusted EBITDA margin of roughly 18, 5% would have been approximately 150 basis points higher.

Turning to some of the details by segment, our pharma segments core sales increased 13% with approximately 11% coming from strong demand and 2% coming from price adjustments related to inflation cost recovery.

Farmers adjusted EBITDA margin of 34% included customary startup costs related to our Latin America components capacity expansion and the impact of the notes receivable reserve.

Looking at sales in each pharma market core sales to the prescription market increased 3%, primarily due to the recovery in demand for nasal devices for allergic rhinitis treatments.

Core sales to the consumer healthcare market increased 13% on strong demand for nasal decongestant nasal saline and thermal devices.

It was again, a solid quarter for solutions for vaccines and other injectable medicines with core sales, increasing 7% primarily due to strong demand for our last American components used with biologics and vaccines.

Our active material science solution markets had a very strong quarter with core sales, increasing 58% and strong demand across a variety of applications led by our active film technology that enhances the integrity of at home COVID-19 tests.

In addition to the strong active film growth linked to COVID-19 diagnostic test the remainder of the business is also putting up strong core growth numbers, including vials for probiotics and diabetes related diagnostics.

Turning to our beauty and home segments core sales increased 10% over the prior year first quarter with 6% of the growth coming from price adjustments related to inflation cost recovery.

The segment's adjusted EBITDA margin was 11% in the quarter and slightly higher than the prior year and included the net negative inflation effect of approximately $5 million.

Had we not had this net negative including the margin compression effect of passing through higher cost EBITDA margins would have been approximately 200 basis points higher.

In addition, we also had approximately $2 million from a significant labor shortage and supply chain disruptions primarily in the U S.

Looking at each beauty and home market core sales to the beauty market increased 16% due to strong demand across all beauty applications led by the fragrance market, especially the prestige market in Europe .

Core sales to the personal care market increased 8% due.

Due to increased demand for hair care and Sun care dispensing systems.

Core sales to the home care market decreased 9%, primarily due to a reduction in demand for surface cleaning products.

Turning to our food and beverage segment core sales grew strongly in the quarter increasing 18%.

In addition to volume growth pricing adjustments related to inflation cost recovery also contributed and accounted for approximately 12% of the segment's core sales growth in the quarter.

This segment's adjusted EBITDA margin was 14% in the quarter.

We continue to pass through rising costs, and therefore, the margin compression effect on passing through higher cost and EBITDA was approximately 300 basis points.

Looking at each market core sales to the food market increased 18% due to price adjustments and continued steady demand for foodservice trade and dispensing closures for a variety of home food Staples.

Core sales to the beverage market increased 16% due to price adjustments and recovering demand for premium bottled water dispensing closures.

Cash flow from operations totaled $92 million for the quarter up $20 million from the prior year, primarily due to improvements in working capital.

Moving now to slide eight which summarizes our outlook for the second quarter as defined covered we are expecting some of the momentum we saw in Q1 to continue.

Exchange rates have recently reflected a strengthening U S dollar and we anticipate that we will face ongoing currency headwinds in the near term as well as supply chain and inflationary pressures.

The euro rate for the prior year second quarter was 121 and our guidance for the coming second quarter is assuming a 107 euro rate.

We have said that roughly for every one cent move in the euro rate that equates to approximately <unk> <unk> per share for the full year.

So for the coming quarter, we could be looking at approximately a five to six currency drag on earnings compared to the prior year.

Based on recently published economic and currency forecast, we could also potentially be looking at similar headwinds in Q3 and Q4.

We expect our second quarter adjusted earnings per share to be in the range of 92 to $1 <unk> per share using an estimated tax rate range of 27% to 29%.

You may recall that the prior year's second quarter effective tax rate was 25%.

The midpoint of our guidance range represents an 18% increase over the prior year's second quarter adjusted earnings per share when currency translation effects and tax rates are neutralized.

Looking to our current estimate for depreciation and amortization, we expect $240 million to $250 million for the current year.

For capital expenditures net of any government grants, we expect between 300 $330 million, which includes $109 million net for our three important growth projects that we discussed during our previous earnings call.

In closing we continue to have a strong balance sheet with a leverage ratio of one eight which allows us to continue to invest in our business pursue 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 $25 million in the quarter, we repurchased approximately 140000 shares of common stock in the first quarter for approximately $16 million, leaving a $184 million authorized common stock repurchases at the end of the first quarter.

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

Bob.

Closing on slide nine looking ahead to the second quarter, we expect the broad based momentum we experienced in the first quarter to continue with growth in each segment, including strong growth of our prescription drug device business, which will help to compensate for lower demand for at home COVID-19 tests.

The war in Ukraine, and the COVID-19 outbreak and Lockdowns in China, I expect it to have some impact on our business in their respective regions. Both the near term visibility for both in these situations is expected to remain highly uncertain and fluid for the next several quarters.

Nevertheless, the near term overall business outlook is solid with strong demand and the high focus on mitigating inflation and supply chain challenges improving cost and margin management going forward with that I would like to open up the call for your questions.

Thank you.

We'll now begin the question and answer session.

To ask a question.

Thats Star then one on your telephone keypad.

If you think you can speak a fine please pickup your handset before pressing the cage.

Any time Youre question has been addressed and you would like to make sure. Your question. Please press Star then Jay.

In the interest of time and fairness to all participants please limit yourself to two questions and then rejoin back in the queue. If you have more questions as time allows.

Okay.

Our first question comes from.

George Staphos with Bank of America.

Please go ahead your line is open.

Okay.

My first question on margin and particularly in food and beverage you had very strong core growth.

Obviously, I think you said pricing pasture was 12%.

Some of that but that still suggests that you had.

6% or so volume growth yes.

Incremental margins the revenue change was negative can you.

Talk about what was driving that that performance I recognize there was pass through effects and so on and.

And how you can turn food and beverage into much more.

Predictable.

Lower of earnings and margin guidance on a going forward basis, and then I had a follow on.

Sure Hey, George I'll take that one part of it.

The biggest reason obviously is the heavily.

Closures base business so.

One of the resin pass through dollar for dollar is impacted by about 300 basis.

The business as well as retooling.

Increases so it was.

It was also a mix of business issue in the quarter that also had heavily.

Okay.

Okay got it.

Okay.

And going forward.

And just so looking forward, how do you turn food and beverage into more predictable flow of earnings.

Yes.

Sure.

For a follow up.

Look the.

Currently men's business is a very important part of the business for us and clearly North America.

Situations in the quarter.

Quarter.

Other than that.

I think increasingly keeps chugging along.

Yes of course.

Predictably.

Grill out of earnings.

Okay.

I'll come back to another point and then just can you talk a little bit and thanks for that.

Talk a little bit about some of the one off items in the quarter. There was a note receivable on the venture.

There was $1 1 million miscellaneous net on P&L can you talk about what was in those.

Items.

Thank you I'll turn it over there.

Let me take the venturing in Buffalo and the other one.

We have a.

Make sure you can program to complement our early stage R&D.

This is related to a venture investment.

<unk>.

Yes.

The business did not work in our credit as well as we hoped.

<unk> built a nuclear revenue to date.

Debenture and reaches broadband denim to be prudent.

Overall in our bakery portfolio is actually performing very well.

We made significant strides.

Pipeline growth.

Okay to the Navy about interactions that <unk> 50 to one.

We needed to.

Great.

Sure.

Yes, George and other miscellaneous net.

It was it was an expense of about $1 1 million comparable to last year at about 1 million. The majority what goes through that line is going to be FX losses.

In the quarter.

And so thats, where that would show.

And then.

Obviously, you can see the rest of it is in.

P&L.

Most of that is netted from the FX.

Okay. Thank you Bob Thank you Stefan I'll turn it over.

Thank you.

Next question comes from.

Go ahead Jim.

JV from sorry. Please go ahead from already.

Okay.

Great. Thank you this is actually Matt Krueger sitting in for Ghansham. Good morning, everyone Happy Friday.

I was hoping that you could give us a real time sense.

How your business is being impacted by the following three factors so one.

The ongoing war in Ukraine, and its impact on the operating environment in Europe .

Two the China, Covid Lockdowns and then three it.

Aside from combos, lockdowns, the dynamic of growing and improving consumer mobility across the other regions across the globe.

Sure.

Let me kick off.

Barclays.

So the war in Ukraine.

<unk>.

Tremendous trajectory it is.

In fact, the three segments differently, just as a reminder for everyone before before we had roughly a $60 million business.

In Russia.

Roughly half of that produced locally harriss imported.

And.

We continue to operate the facility in blood in the year to support primarily essential customers and products in the pharma space.

Basic nutritional specialty infant nutrition and other essential products and.

And.

Clearly the demand environment has not been impacted anecdotally can vary.

And as in Ukraine has restarted.

Essential food products that also not been impacted beauty enrolled as of course being a bit more impacted.

Now we do not know.

Almost impossible to know what is the indirect impact products and sell into that would've gone through Russia, clearly you've seen many of our operating income field.

So nobody including ourselves.

Country.

Having said that demand in Britain.

In Europe .

Rebounding strongly.

Whenever we use them in the backend in Russia, it's hard to decide Brazil that indirect impact is not as big.

Biggest newborn sphere.

That's what you're also seeing solid growth numbers and we expect that to continue.

The much bigger impact, albeit is the inflation impact is specialized energy, we buy a lot of those.

Aluminum.

Yes.

Transportation.

Most of our customers do not have blocking some of their energy costs.

Yes.

That just leads to inflation now if anything we buy in Europe .

I think thats, probably the biggest impact of the war.

<unk> in Ukraine.

Thank you.

The second going towards China.

Clearly the lockdown.

It has an impact on.

Economic activity so for most of our facilities have been spared.

There are a couple of days here and there.

Construction projects been halted here and there, but everything resuming having said that the consumers being locked down in some of our customers.

Operating clearly demand has been impacted in April and the big uncertainty for US is what's going to happen in may and June for the balance of the quarter and ultimately what will be the impact.

Overall demand just as a reminder, but 10, 11% of our revenue is in Asia at roughly 6% embedded in China.

And certainly if we have a significant drop for a quarter.

We have an impact on us.

No.

Real estate loan.

The dynamic improvement in mobility.

Okay.

Clearly in the U S in Europe , and mobility between the U S and Europe .

Asia.

But given the overall weighting of our business is relative.

We're happy to China is larger for us.

The impact of the recovery in Europe is between Europe , and the U S and in the U S. The mercury grade impact than B.

Headwinds in China.

Great that's super helpful and excellent detail I promise just one parts of my last question here.

When do you think it's realistic to expect price cost across your business to turn positive for 2022, and do you need to implement incremental pricing actions to get there or are we simply waiting for already implemented pricing and contractual pricing to roll through the P&L.

Yes, it's very hard to give you a date certain here.

Of course.

We continue to.

Lee the new price decreases depending on the business. We're in wait five weeks weeks.

And they're not getting easier of course keeps rolling in.

We don't know when the increases.

Inflationary increases, especially in Europe .

Very hard to give you certain when that will be behind us.

I'm looking at brokerage.

Yes, I mean, it is very difficult to project, but I would tell you that at the beginning of the year.

You would not have anticipated the net $5 million negative that I talked about in my opening remarks. So.

The warrant Ukraine has added a whole new element.

Defined as mentioned on the on the energy prices and in the indirect ripple effect is that as it rolls through all the all the different substrates and everything that we buy so it's really difficult we are.

Funds said being very diligent in passing on now.

It's cumulative in those pricing increases are taking hold but we're really at the mercy of where the costs go from here right.

While we saw some resident abatement in Q1 in North America.

And an increase in Europe , we thought that resin was kind of modestly down only willing to see now that resident is starting to trend higher again in both North America and Europe . So it's a very fluid situation as we said.

It's more dependent on.

And where the costs go from here.

That's very helpful. That's it for me thank you very much.

Thank you.

The next question is from.

Mark <unk> of Jefferies.

BMO capital markets. Please.

Please go ahead. Your line is now open.

Hi, Good morning, Stefan Good morning, Bob Matt.

Hi, Mark.

Mark I Wonder I Wonder just to.

<unk>, if you could give us any sense as to sort of activity levels across the business.

In April .

Yes look.

We really don't.

Speak about individual months within the quarter.

I gave you understand that we deem impact in China from the Lockdown you will not be surprised.

But.

In general our guidance for the quarter is based of course, what we see.

Throughout the quarter.

To repeat them.

Very good momentum across the business, we see the prescription drug business accelerating.

We had some tough comps in <unk>.

Emergency treatment of America in the quarter one of those comes will be much easier in quarter two so.

We see good growth in prescription rolling in consumer healthcare continues to do very well injectables.

Brazil is the consumer facing business. So overall, we see good momentum.

Okay, and then for my follow up I wanted to go to geopolitics and geopolitical risks just given what's gone on with Russia, and the Ukraine Im just curious how this may have affected your thinking around the pace of growth in China.

We've had China hacking fairly aggressively in the South China Sea around Taiwan.

I'd like to get some sense of how you think about this and whether it's had any impact on your thinking.

Well.

I think what we have guided scoring person formulas really by consumer and end use in patient demand and thats driven by demographics.

And certainly that the demographics are changing and as one of the most stable trends.

Despite the political rhetoric that you're hearing.

And then also did you hear.

Rich.

Relocated understand.

Billed business goes on and as.

At the local level provincial level governments are extremely supportive of.

Investment and engagement.

I don't think you can turn your back.

Hum.

Biggest growth driver for the coming decades.

No.

We are not named.

<unk> been ignorant of.

Stakeholder nervousness around that.

I think when you look at the U S. China relationship there is tremendous.

Co dependency.

Ian.

Self interest.

Body.

And keep the business moving.

Okay. Thanks, I'll turn it over.

Thank you Matt. The next question comes from Kyle White of Deutsche Bank. Your line is open.

Hey, good morning, Thanks for taking the question.

I'm, sorry, Matt I, just wanted to update on the Destocking issue had a prescription it seems like it's largely behind you based on the commentary and the outlook is that what youre seeing as well and then as you go forward do you have good visibility for prescription getting back to the high single digits.

Possibly double digit core sales growth given the inflation that you're seeing.

Yes.

Certainly.

The destocking seems to be behind us.

Maybe there is none of them catch up.

Of demand.

As we get into quarters, where the.

The comparisons would not be surprised.

Touching the double digit.

For quarter or two.

Overall.

That outlook.

Very solid.

<unk>.

In the third.

Coming back to Mark's point on China in order to make one additional point.

Clearly we are living in a very different world today than we were three four years ago. We are all very cognizant that we work in.

All of our business was growing up in rent of everything was starting to converge globalization.

Convergence of trends and so on.

It's a much more complex world with many more.

Periods of military barriers political issues.

Having said that it is easier for a global company to navigate that.

That's a philosophy of local for local strong local leadership.

As for our smaller local competitors so.

While we deal with the headwinds from some of the rhetoric, we also see.

Fewer threat.

From local competitors.

Becoming too aggressive in some of our other markets.

And we also see customer behavior, changing where customers were.

Maybe buying from overseas for low cost <unk> as.

I'd, rather buy it and offer new in region indicate that capacity in the U S or Europe , because I no longer want to buy it will be for low cost region.

The supply chain is long response times alone.

The carbon footprint of transportation is.

While it is building.

The more complex wounds is not a negative for us is actually in the long run positive for us.

To add debt on them.

No I appreciate that stigma.

Sticking with the prescription to on the active materials.

Core sales were up 58%.

<unk>.

But then in the press release you talked about.

Potentially slowing sales of that her COVID-19 test.

Begin to decline how should we think about that going forward in terms of.

Is there any way to quantify maybe the benefit.

<unk> had for you to core sales growth over the past year, and maybe what kind of headwind that presents here going forward if that demand rehearsals.

Idaho, mainly look at this as a really rates because of the excellent co resets with Canada.

Having the first one.

Maybe quarter, four and especially quarter, one as a prescription.

It picked up the phone, but the truth.

Yes.

Overall for the program our growth, yes, I would just add Tyler it's been Super lumpy right is staring to see at home.

Covid test kit demand in Q2 of last year and has defined said again in Q4 not much in Q3, and then we see when we forecasted a very big growth in Q1 right. Now we're just not assuming that that's going to continue we're going to wait and see.

See where the demand is obviously.

There's a lot of discussions and philosophies around testing and certainly the government doesn't want to get caught off guard with lack of test kits again.

That's part of the reason why we received that grants to make sure that we had enough capacity should we need it.

But I think it's just going to be very lumpy going forward, but it's the bonds that we.

Surgeons and the prescription side should.

Should make up for any decline comparatively speaking with Dakota testers.

Got it thank you I'll turn it over.

Thank you call we now have.

Adam.

Davidson from Keybanc capital markets. Please go ahead your line is open.

Thank you operator, and good morning, everyone hope you're well.

Just one.

Stefan or Bob one question on your second quarter guidance.

So on the one hand, you are talking about broad based momentum seeing this momentum in April so you're off to a good start in the quarter.

On the other hand your range is correct me, if I'm wrong <unk> wider than it normally is normally there is an 8% range now.

<unk> versus <unk>.

Tencent range and Youre talking about a highly uncertain environment not only for this quarter, but for subsequent quarters. So can.

Can you just help me square those two things.

As it relates to your confidence level in the second quarter and why the wider range. If you have all this momentum in April and perhaps even into may.

Yes look at the peak.

As Bob mentioned.

If you just.

The foreign currency the euro is.

Dropping significantly you have inflationary impact of Ukraine.

The it isn't so much demand as we worried about it.

And that is the spike in energy.

You saw the cutoff to Poland, and Ukraine, avocados to Germany, and our energy costs are.

Through the roof and it happens data including than anything we buy.

No.

And then you have to join the titration.

No Crystal ball.

So what's going to happen in May and June .

Our head of China.

But our head of Asia.

Occur and extra months to go back to China at the end of February with you in January .

Because they are in the price of incentives.

Look there so.

And one.

We have recently been in the brain.

It continues with almost 2 million deadweight of an impact the best on the down on behalf is everything we talked about the persistent accelerating we see good demand in Europe and in the U S.

We still have.

Supply chain issues in the U S, but they are abating.

So thats one way the broader range.

Overall, you read it right.

<unk>.

Yeah.

<unk>.

At the midpoint.

80% earnings growth, so nothing to sneeze at.

And thirdly, both on the opening of their own.

No I appreciate that savanna and back to the China question I know when you came in China was a big focus area for you and you thought there were tremendous growth opportunities there.

And you fast forward to today I know you talked about re shoring to some extent for customers looking to reinsure to some extent, but you fast forward to today with the.

The increased tensions between China, and the west and obviously the Lockdowns. The fact that China's population growth last year I believe it was the slowest in six decades, it's a rapidly aging population. So I wouldn't think they are the same growth opportunities there that they are used to be.

How if at all has your perspective on China, and the growth opportunities there changed Stephane.

Tiny you took over to now.

Look.

I'm trying to see whether I have additional.

This is David on what I said before.

Remember that in October .

Is beauty.

The aging including digitally consumable.

Over index.

Hi.

The.

American or European consumer basket.

Very important.

Very important and.

That has not changed.

Food health.

Healthy food for aging population are extremely important.

And the numbers that just.

Significant now.

There will always also a more defensive you occupy that space before you give too much food too.

Competitors, maybe there is different we view is a little less pronounced.

It gives us a bit more time to develop our position.

Yes.

Anyone in the business in Asia in China from a growth perspective, I think is not prudent.

But.

You've got advantages.

I think that growing steadily and very happy with the moves we've made.

Yes, this quarter the next quarter.

B grades that were noted.

The following quarters.

We will be back and listen to forget the reprinted lockdown for 18 months.

So during this drove the disciplined strategy.

Another milestone.

Yes, no. Thanks, so much.

The next question is from Andrew <unk> of Morgan Stanley . Sir Your line is open onshore.

Hi, Good morning, this is actually some natural barriers.

Yes.

I just wanted to kind of get a little more color on core sales to the beauty market increased 16% and just kind of here.

Expectations were.

Coming into the quarter and just how we should think about how that market plays out through the balance of the year.

It seems like the impact of mix and consumer in response to Covid.

In China.

This segment in particular.

Any color on kind of demand resilience.

Alphabet.

Yes overall demand has certainly been strong and we expect that to continue.

This comprises of pet only upside March was very strong.

And that allowed us to offset some of the headwinds we talked about the one 5 million reserve.

Yes.

Headwinds and still meet them in the middle of the range of the guidance we gave so.

<unk>.

With the caveat of the China Lockdown I think we see demand continuing.

Got it. Thank you that's helpful and just a quick one I'll turn it over regarding the capacity expansion for customary components do you expect.

Any startup costs.

Sure.

Yes, the startup costs that we're experiencing in the last summer.

The divisions are expected to really continue to incur those.

Remember this is a multi year ramp up so.

They'll be getting less overtime, but we do expect to continue to incur.

Some of those startup costs for the remainder of the year.

Thank you very helpful.

Thank you.

We now have Justin Van <unk> with William Blair. Please go ahead, when you're ready.

Hi, good morning, Thanks for taking my question.

Want to focus on the pharma segment here.

Regarding your prescription business is there any key product conversion opportunities coming up for example, converting.

Injectable to nasal in the short term.

Yes.

<unk>.

Yes.

A big part.

The prescription growth is all about conversion.

Whether it's the milestone for us.

They converted from an objective to enable whether it's some of the other emergency treatment program.

<unk> is the loan or the allergic rhinitis business pulling from oral daily dose.

<unk> nasal delivery.

So that is we're assuming the pipeline.

<unk> talked about in any individual projects done with customers.

Vaccine growth and.

The migration from the large multi dose vial.

The range.

You can call a conversion if you like.

But clearly.

Yes.

Injectable unit is all about the power of <unk>.

Biotech.

Coming into the firm this space in a major way.

<unk>.

<unk>.

Being ready.

With the strong product too.

Fill that demand.

Got it and I'm glad you mentioned that in terms of and.

<unk> how is the quarter in terms of.

Your order book I understand there is not a big part of your business currently but are you still seeing.

Kovac forward orders coming through in <unk>.

What about non covered by our Alex Thank you.

Yes.

We continue to see good order.

Sure.

<unk>.

The good order books developing both of these vaccines and biologics and again as I mentioned earlier, what we see is the kind of people focusing on the next generation vaccine and there will be annual vaccine, maybe combination vaccine with the flu and.

Converting that we're migrating it from the multi dose Nevada to single dose and pre filled syringe rich.

We will only help us.

In more favor our.

Premium coded.

Products.

Okay understood and just last one fortinet products.

Do you have any early read on your clients view of the cold and flu season coming furnace fall.

And what was the amount.

Sure.

Versus pre pandemic bar.

I'm not sure that I can give you a crystal ball.

Clearly.

This is a normal maybe strong.

Cold and flu season.

Year on year, and the colleagues around you getting quote normal colds and flus as opposed to the progress.

You see it in our consumer health.

Healthcare business, which is pulling very strongly.

And you would think that people will go through that experience, but it will not get the flu shot.

So this portfolio is not crystal ball gazing, a can do gain and maybe I should add that with this current.

Variance of Omicron has had much more cold and flu like symptoms and so you have people treating it likelihood the normal cold and flu anyway. So you kind of have the convergence of the two as well.

Runny nose sore throat those types of things. So that's also kind of melding together.

That's super helpful. Thank you very much.

Thank you Justin.

We now have.

Daniel Rizzo with Jefferies. Please go ahead, when you're ready.

Hi, Thanks for squeezing me in guys I was just wondering if if and when costs do rollover. How sticky are your prices how much price concessions do you have to make.

Deflationary environment.

Yes.

Pete.

That really is.

What the contractual which is mainly raw material on the polymer side.

Everything else is negotiated prices.

We will do our journalists have a loan to those things.

And by and large.

We should be able to hold onto that.

Okay.

And if.

Yes, I mean things keep going higher.

I mean could we see some demand destruction will continues I guess mix degradation.

Just given consumers pushing back because I guess is that something thats happened in the past where you've seen.

Demand destruction amongst your products I mean, obviously I would think mostly outside of pharma.

I would say historically in the past you had certain tradeoffs right. So.

The smaller packaging right, which is important which is a positive for us right more units. So you may see a shift to private label less expensive products, we serve that that market as well so.

I would say that past historical <unk>.

Pressure is on the consumer has been met with different choices and Thats. The beauty I think of where we play we play across the whole spectrum right.

We serve prestige fragrance as well as Masstige fragrance, we serve private label on personal care as well as brand itself.

The types of historical pattern that you've seen.

What I will say is.

Colgate has certainly been the.

The significant net negative for us, including making a year of demand for a cough and cold in the allergic rhinitis.

But.

A generic recession, if there is such a thing.

We should fear.

Fairly well and have done in the past.

Alright, Thank you very much.

Thank you.

We now have.

Gabe <unk> from Wells Fargo Securities. Please go ahead Keith Your line is open.

Good morning, Stefan and Bob Hope you're well.

Not a big believer.

Believer I'm trying to revisit.

The price cost situation.

<unk>.

I just put some numbers around that I'd want to say you were $27 million behind on price cost from 2021, I think you had five so now we're at 42.

I appreciate the treadmill seem to be just getting turned up and it's growing faster.

But the expectation would be you'll get that back at some point.

And maybe it's 2023, when when kind of margin on price costs restoration.

Buyers is there a risk so first can you confirm those numbers too.

Is there a risk that it sometimes it gets lost in translation. So some of the prior question was.

That you don't get it all back.

So yes your numbers are pretty close.

Between $27 million to $28 million for last year, and roughly $5 million for this year. So to your numbers are pretty pretty spot on to what loop track into is there a risk we don't catch up it's really hard to say the further on as you go.

Everything kind of blend together, but I mean, we have put out multiple price increases right. So.

Those have those has to kick in and cumulatively.

Like I said.

Yes.

It's really more on what happens on the cost side and convinced that the pricing that we pushed through.

Should be sufficient for what we've seen in the past what I can't foresee a foreshadow is how much more is going to keep increasing and how much more price increases will have to push through it so whether it takes the 23 or whether it will catch up to 'twenty two.

It is really difficult for us to put a target out there.

No understood.

And then one I guess quick.

Quick housekeeping question.

Corporate was a little bit elevated this quarter and I want to say.

One $5 million references in the pharma segment I'm, assuming it was kind of directly in there. So is there anything there.

We should be mindful of kind of forecasting going forward or that occurred this quarter.

Sure. So yes, Q1, we are a little bit higher than what I would I would kind of project to move forward.

Probably target more in that $15 million to $16 million range for corporate license.

Like we've seen in the past.

Some of our equity awards, the accounting rules changed when people hit certain substances vesting thresholds, meaning that award, which normally might have been.

Expense over the three year LTE.

LTI period get expense immediately so you got a little bit of business compared to the prior year and you've got a little bit more on the professional fees, but I would say.

Yeah.

One will be now.

Historically, a couple million dollars higher than the other quarters, So I would target more in that $15 million to $16 million range.

Thank you very much good luck guys.

Thanks Kate.

Thank you Dave we now have a follow up question from.

George Staphos with Bank of America.

Please go ahead your line is open.

Thanks, very much hi, guys. Thanks for taking the follow ons. It's late in the call. So I'll ask these in parallel first.

Seem like Stefan from the new product discussion that there is a bit more momentum more interest in simplest squeeze.

A fair assessment or is it just coincidental in terms of what Youre seeing now in terms of the pipeline.

If it is a little bit more traction youre seeing in simplest squeeze in theory, a margin implication across your business is that better or worse for your mix wise if you can.

Price cost and so on.

And you talked about the momentum that you're seeing across your businesses.

And then you ultimately think you'll be able to get the pricing.

Do you need.

Pharma side food and beverage beauty and home has still been sort of lagging on margin will assume a lot of that is just the price cost is there anything you have left to do that you don't already have contemplated in the transformation of our beauty and home or any of your other manufacturing plants that could improve your cost side. So forgetting direct margin forgetting about resin is there anything left.

That you need to do to improve your margin traction.

Beauty and home and food and beverage from an op standpoint, thanks, guys and good luck on the quarter.

Thanks George.

Yes.

On simply squeeze I would be.

I would say, we certainly see us.

Also moving to farnell into beauty and home.

And whenever they buy all of it and that is a positive from our exit so.

A reminder, no single product launch moves it moves the needle.

If I just pick one from last quarter, the new dishwasher.

<unk>.

Product by a major company that serves as a fee is energy.

Is the game changer.

And that will certainly bode.

Well.

<unk>.

Beauty enrollment in food and beverage bromine that order we are never done.

I think I mentioned in last Q1, we have some additional ideas.

But what we do there around the world.

We're not quite in 19 men with volume growth clearly volume is good that's great but.

We're not betting on the merchant side, clearly we have margin compression would be.

Pass through but thats not.

That's not making their threat so yes additional ideas and the teams are busy.

With that then.

When we can discuss as we will but.

Yeah.

We remain committed to get there.

Thank you very much.

Thank you and we have no further questions I'd like to hand, it back to Stefan.

Thank you for joining us and we look forward to see you on the world and including virtual A&P person.

Yeah.

Thank you.

Today's conference call. Please have a lovely day you may now disconnect your line.

Right.

Yes.

[music].

Okay.

Okay.