Q2 2022 Aptargroup Inc Earnings Call
I want to grow with our customers as they also benefits from life returning to a new normal.
Our CFO , Bob Kuhn will review some details from the quarter later on in this call.
First I would like to touch on some highlights.
After farmer achieved double digit core sales growth with increased volumes across all our major health care markets.
Our prescription business has worked through the 2021 destocking situation and is ramping up towards pre pandemic levels.
Higher sales of our delivery devices for allergy emergency and pulmonary medicines drove the growth in the prescription drug market.
As many people around the world experienced colds and cold like symptoms, including from COVID-19, omicron infections demand for nasal decongestant and other cough and cold treatments increased briskly in the consumer health care market.
<unk> also increased for our injectable medications components.
And active in Geoscience solutions, even with tough year on year comparisons.
Profitability in our pharmacy segment is within our target range and includes the previously anticipated dilutive impact.
Our recent digital health care acquisitions, and some startup costs related to our expansion of our elastomer components capacity.
Which is on schedule and expected to progressively come on stream starting in late 2022.
Throughout 2023 and into early 2024.
Our beauty and home segment increased demand from the beauty and personal care markets as well as our pricing initiatives.
Contributed to double digit core sales growth.
We saw significant year over year sales increases in prestige fragrance.
Facial skincare color.
Color cosmetics hair care and Sun care Union home margins are recovering in Europe , and China, but are being held back by continued labor shortages in North America and uneven demand in Latin America.
We will not be satisfied until we move within our long term target range and we will continue to diligently manage our costs, while we prepare to implement further price adjustments to recover the input cost inflation.
Finally growth in our food and beverage segment was driven primarily by pricing with volumes up slightly.
A softening of demand in the food market, especially in the U S. Following a period of strong growth was offset by increased volumes in beverage <unk>.
Margins reflect the weaker food volumes as well as the effects from an inflation.
Turning to slide four I want to take a moment to talk about a key priority for after capital allocation, we deployed over 3 billion in the past five and a half years balanced across investing in our business.
Making acquisitions and returning capital to shareholders in the form of dividends and share repurchases.
In the first half of 2022, we had capital expenditures of approximately $150 million. The majority of these expenditures were in our pharma segment.
Including expansions in the U S, France and China.
We also returned over $100 million to shareholders through dividends and share repurchases.
We are in a 29th year of paying an increased annual dividend total.
And we have repurchased shares every year since 1999, except of course for 2020.
Moving to slide five another steadfast focus has been ESG and we are pleased to share the many milestones and achievements surrounding our progress in 2021 with the release of our annual corporate sustainability.
ESG report, which is prepared in accordance with the global reporting initiative standards and shows our alignment to the UN sustainable development goals.
We also published our second UN Global compact communication progress report.
In addition to publishing new summaries for SaaS be the sustainable accounting standards Board and Tcf D. The task force on climate related financial disclosures.
We are actively working towards a more sustainable future for all as we develop pathways to deliver critical medicines enables families to recycle more plastic and improve our operations to reduce greenhouse gas emissions.
This priority is not only good for our planet, but it's good for business, helping us mitigate enterprise risk and I am convinced helps us to future proof the company.
After he is known for its focus on innovation quality and services that go far beyond direct delivery dispensing or packaging.
Technologies, often used across a number of markets, we serve and we participate in a number of new product introductions each quarter.
Turning to slide six our pharma segment continues to supply nasal delivery devices.
Administration of emergency medicines, such as the opioid overdose antitumor naloxone, where.
Where we supply the leading brand as well as several generic players.
A new Acme dermal medication recently came to market with our airless pump system.
Also our components for injectable medications has been chosen for use with a variety of drugs in the U S.
As shown on slide seven in the beauty market, we supply solutions with several new launches in the quarter, including multiple new fragrance launches in Europe and Latin America.
Facial skincare and hair care product in Asia.
Regarding China, specifically, a multinational best in customers, who are doing business there as well as our local customers are quite bullish as things begin to open up and we were encouraged with the level of activity we saw in the quarter.
Also on slide seven in the food and beverage markets. We continue to see squeezed the performance come to market using a custom power treatment and flow controlling closures.
We have a local Chinese food company launch, a new powdered milk infant formula using our ceiling and dispensing closure.
We also are encouraged by demand for our foodservice trade technology, which can enhance freshness and extend shelf life and has been adopted by a major fast food chain in the U S.
Latest product is from <unk> CSP technologies, a company we acquired in 2018.
Many of our shareholders note as part of the business because of the extra ordinary growth. It achieved during COVID-19 supplying test kit manufactures with its active film technology.
Another application of its film is for protecting and extending the shelf life of food.
This is the Great example of selling one technology across multiple end markets.
And these are but a few examples of some of the new applications brought to market with our solutions in the quarter.
With that I will now turn it over to Bob who will share some additional comments on our quarterly results.
Bob.
Thank you Stefan and good morning, everyone.
I would like to summarize the quarter starting on slide eight.
Even with the considerable currency impact this quarter, our reported sales grew by 4% when you equalize the effects of currencies. After had solid core growth of 10% approximately half of the increase was driven by volumes and the remainder driven by price initiatives implemented across the majority of our markets.
Sales were positively impacted by these pricing initiatives margins remained compressed as costs are being passed through on a one for one basis.
As shown on slide nine we achieved adjusted earnings per share of <unk> 96.
And adjusted EBITDA of $160 million.
We continue to face ongoing inflation supply chain disruptions and labor shortages, primarily in the U S.
If we isolate the net inflation impact, including the margin compression impact from passing on the higher costs are a consolidated adjusted EBITDA margin of roughly 19% would have been approximately 100 basis points higher in the quarter compared to the prior year.
While we continue to make progress with our pricing initiatives, we have not yet fully recovered the prior year's cost increases.
For a more balanced comparison, keeping exchange rates constant with the current year and adjusting for restructuring and acquisition costs. The prior year's second quarter earnings per share would have been <unk> 85 per share compared to our adjusted EPS of <unk> 96 for the second quarter of 2022.
The year over year improvement was driven by strong results in our pharma segment and continued recovery in beauty and home slides 10, and 11 cover our year to date performance and show the 11% core sales growth and our adjusted earnings per share, which were $1 92, compared to $1 89, a year ago, including comparable exchange rates.
Turning to some of the details by segment for the quarter.
Our pharma segment's core sales increased 12% with approximately 9% coming from strong demand and 3% coming from price adjustments related to inflation cost recovery.
Farmers adjusted EBITDA margin was 33%.
Looking at sales in each pharma market <unk>.
Prescription core sales increased 15%, primarily due to the continued recovery in demand for allergy emergency medicine, and pulmonary drug delivery devices.
Consumer healthcare costs increased 13% on strong demand for devices used primarily with nasal decongestants.
Our elastomer solutions for the Injectables market grew core sales, 9%, primarily due to higher volumes, including for biologics and pricing initiatives.
Turning to our active materials science solutions core sales grew 5% and demand across a variety of applications led by active material science technology for probiotics and oral solid dose solutions.
Turning to our beauty and home segment core sales increased 10% over the prior year first quarter with 7% of the growth coming from price adjustments related to inflation cost recovery as well as good volume increases in certain markets.
This segment's adjusted EBITDA margin for the quarter was 12% slightly higher than the prior year and included a net negative inflation effect of approximately $1 million in the quarter.
Which is already on top of a very high level of inflation in the prior year.
Neutralizing the negative effects of passing through the cost inflation EBITDA margins would have been approximately 120 basis points higher in the quarter compared to the prior year.
Looking at each beauty and home market.
Beauty market core sales increased 19% due to very strong demand for our pumps, especially in the prestige fragrance and facial skin care markets.
Personal care core sales increased 6% due to higher demand for hair care and Sun care dispensing systems.
Homecare sales decreased 17%, primarily due to a reduction in tooling sales and lower demand for household cleaner dispensing solutions.
Turning to the food and beverage segment. This segment achieved a core sales growth of 8% in the quarter pricing initiatives related to cost pass throughs contributed approximately 6% of the core sales growth in the quarter.
This segment's adjusted EBITDA margin was 13% in the quarter and was impacted by softer demand for food dispensing closures and the resulting lower productivity primarily in North America. Following a period of strong growth in the prior year.
Although the inflation impact was offset by lower resin cost in the quarter, we still have not fully recover the inflationary effects from the prior year.
Looking at each market food core sales increased 8% due to price adjustments and increased demand primarily for foodservice solutions, including food trays.
Beverage core sales increased 11% due to price adjustments in demand for our bottled water dispensing closures.
Interest cost in the current quarter was approximately $12 million versus approximately $7 million in Q2 2021.
The increase was driven mainly from our first quarter $400 million, three 6% bond offering and higher interest rates from some of our local foreign borrowings.
Additionally, we incurred approximately 400000 in prepayment charges for a $75 million private placement issuance that was set to mature in Q3.
Going forward, we expect our interest cost to be lower than Q2 by approximately $1 3 million.
Year to date cash flow from operations of $177 million in free cash flow of $42 million or slightly ahead of the prior year levels.
Moving to slide 12, which summarizes our outlook for the third quarter, we expect currency headwinds to continue reflecting the continued strengthening of the U S. Dollar.
With the majority of our sales coming from outside of the U S. This impacts us significantly.
Although we are seeing some recent relief in resin prices other input costs remained challenging.
Additionally, supply chain issues in the very tight labor market, primarily in the U S puts additional pressure on our beauty and home and food and beverage businesses.
The euro rate for the prior year third quarter was $1, one eight and our guidance for the coming third quarter as assuming a one point or two euro rate.
As a reminder, 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 an 8% currency drag on earnings compared to the prior year.
We expect our third quarter adjusted earnings per share to be in the range of 90 to $1 per share using an estimated tax rate range of 28% to 30%.
The midpoint of our guidance range represents a 10% increase over the prior year third quarter adjusted earnings per share when currency translation effects are equalized.
Looking to our current estimate for depreciation and amortization, we currently expect $230 million to $240 million for the year 2022.
And for capital expenditures net of any government grants, we currently expect between $290 and $320 million.
In closing, we remain committed to maintaining a strong balance sheet. Our current leverage ratio of one eight allows us to continue to grow shareholder value by selectively investing in our business as well as weather challenging economic environments.
At this time to fund will provide a few closing comments before we move to Q&A.
Thank you Bob.
In closing on slide 13, we have started to emerge from the effects of COVID-19 only to find ourselves facing new economic uncertainties.
Having exposure across multiple end markets, such as prescription drug beauty personal care food and over the counter pharmacy product.
And with a presence in 20 countries makes us more resilient to shifting cycles and downturns.
We understand the capital allocation is especially Paramount in times like these.
Our strong balance sheet allows us to help mitigate the effects of a potential downturn in the global economy, as we selectively and prudently look to allocate capital to grow our business in.
In the decade prior to depend Emmick, our pharma business delivered an average core sales growth of 8%.
This segment is now a much larger part of our business today.
It was in 2009, when we navigated the global financial crisis in good form.
We are particularly encouraged by the current recovery for our prescription drug and consumer health care market.
And our order book supports the expectation of continued strong momentum in the second half of the year.
In addition on our project pipeline continues to strengthen in both number of opportunities Andy and value at.
As stringent regulatory standards increase and as our customers continue to explore new ways to deliver medicines.
Our investment in R&D as well as laboratory analytical services have positioned us at the forefront of drug delivery innovation.
Whether it be liquid <unk> powder single dose multi dose and by our routes such as nasal and pulmonary ophthalmic dermal oral or injected a broad portfolio of innovative devices components and active material solutions will enable us to grow consistently in the health care sector for many years to come.
Beauty business is expected to continue to recover and our customer centric focus with a deep history of innovation positions us to take advantage of the evolving and growing facial skincare markets in both western markets and in Asia. We will remain focused on pricing initiatives to help offset continued rising input costs.
And managing our expenses.
I'm confident that we can achieve our long term profit margin across each of the businesses as we move forward in the new post pandemic era.
Our broad portfolio of innovative solutions and services diverse market presence.
And our solid balance sheet give me the confidence that we will be able to continue to navigate turbulent waters return value to shareholders in the form of dividends and share repurchases.
As well as take advantage of growth opportunities.
<unk> themselves.
With that I would like to open the call up for questions.
As a reminder, if you'd like to register a question. Please press star followed by one on your telephone keypad. If you change your mind. Please press star followed by two and please ensure you're on mute when speaking it would be.
Interest of time in 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.
Our first question comes from George Staphos with Bank of America. George Please go ahead.
Yes, hi, everybody. Good morning, Thanks for the details.
My two questions. One is on startup cost, particularly around pharma and then I had a question on the operating leverage in food and beverage.
Bob could you tell us what level of startup cost you might have had in the businesses in <unk> and as you look out to 2022, what your expectations are and in particular, if you could provide some granularity on pharma for.
Particularly as regards Injectables and then on food and beverage.
Obviously, some really good core revenue growth a lot of that is pricing we get it.
But I was a little bit.
And the lack of operating leverage in food and beverage. Despite the growth. Despite the pricing EBITDA was down there if you could provide us a bit more color in terms of what was going on underneath the hood there. Thank you.
Sure Good morning, George.
Look as you know we are deploying about $180 million capital in our injectable divisions in that over a number of years.
We're starting up capacity.
This year, all next year and into the following years. So we will have to the tune of a couple of million dollars every quarter.
Startup cost.
<unk>.
And as you validate it with customers.
Bringing on labor ahead of revenue stream, so I think thats about the order of magnitude.
In food and beverage it is really this is a.
A double.
One is if you have lower volume and the efficiencies in the plants really go down, especially in North America that are tuned.
Two high volumes, so thats really what you see.
I mean can you just give us a bit more commentary on what was going on within food. You had commented in the past that you were encouraged by the pickup in food, there's kind of a delayed.
<unk> fair during the Covid cycle, and we were encouraged I think in total about that level of activity being able to continue going forward are you, suggesting now that that probably was a one off bump that comes down and if so sorry for the double dip here, how do you deal with that thank you guys I'll turn it over.
Yes.
<unk>.
That's separate.
The demand picture fan.
Margin in the quarter, so from the demand picture clearly.
We benefited from.
Much lower in home consumption of food.
Cooking and boosted our condiments segment.
On the flip side.
Lack of moving around.
Dented our on the go beverage now we're kind of finding a balance in the new normal and the balances that clear.
Clearly the condiment.
And condiments, we are tapping the brakes of the market tapping the brakes I don't think it will reverse completely as we all know the new normal is hybrid.
So people, who spent a significant amount of home, but they also go out.
Eat out more.
I think this is just an adjustment to a new demand center.
And on beverages, clearly people being out and about we see that growth the growth in beverages.
Okay Congrats too.
Matt and Tim Murray as well and Thats been great working with you. Thank you Sir.
Thanks George.
Our next question comes from Mark Wilde of BMO, Mark the line is yours.
Thanks, Stefan I wondered if you could just update us on what Youre seeing in terms of European activity year commentary.
During the prepared comments, but Europe sounds a little better than I might have expected.
And then if you could also just talk about what you and your customers are doing to prepare for potentially a rough winter from an energy perspective in Europe .
Sure.
Let me tag team was brought up here, but let me kick it off so.
First separate the demand pictures from the cost picture so from the demand side.
We're really encouraged by what we're seeing we have a very strong order book and firm most profitable divisions prescription drug as well as consumer health care.
And we see that continuing.
In the second half of the year for sure in quarter three.
We also see good.
Demand pickup in beauty now remember.
Not at all and maybe by sharp Longshot, what we sell to our European customers is for European consumption a lot of the finished products get exported to Asia.
Get exported in part also to the U S and that is really driven by.
By demand around the world for things like luxury fragrances prestige fragrances skincare, while we report and comment on the demand in Europe is really a demand that.
Benefits from it.
Overall people being out and about more traveling more.
Travel retail picking back up.
And that really helps us on the cost side.
On the cost side clearly Europe is in the throes.
Substantial inflation.
And it really comes in.
Different than in the U S. One is energy.
Maybe Bob can talk to how we manage our own energy costs.
But that's not the whole picture of getting most of our suppliers.
Okay.
With their energy purchases.
So we just get it in the form of additional input cost on the supply side anything from metals springs to aluminum parts to.
Transportation.
This energy triggered inflation in Europe is substantial.
And then the <unk>.
Second part is wages.
No.
We actually anticipate.
Higher wage costs in quarter three.
So I know that it's one off.
And maybe I'd, just remind everybody it'd be about deploying about 2500 people in the U S. But we employ more than 8000 people in Europe .
Those alone in France.
All of those employees have representation.
Our relations are very tense.
As massive inflation is putting strains on household budgets, especially for entry level workers slow wage earners.
In the U S. You've heard us say that we had to raise entered elevated by 30%.
In Europe , we anticipate onetime payments in quarter three.
Tim are strongly encouraged by the government for example, the French government.
And.
Yes, if you look out maybe we will not have these onetime payments in quarter four but this is a taste of things to come.
<unk> reach.
And salaries are adjusted on a calendar year basis. So.
We will have some onetime impacts in quarter three included in our guidance, but clearly wage inflation as a topic.
And maybe it's a stronger topic in Europe and it is indeed.
Maybe Bob you can highlight some of our own entity.
Setup and purchases sure maybe mark before I do that I'll give you a little bit of quantitative color on the first part of your question, which is Europe and the strengths in fact.
If I look at all of our regions, we were up in core sales in all the regions, but Europe was actually up about 15% in the quarter.
On a consolidated basis and it actually was up double digits. If I look at each segment in Europe . So Europe was definitely strong.
In the quarter for us turning to the energy situation, particularly in Germany, which seems to be the biggest focus these days.
We've got essentially guaranteed supply for all of our electricity.
In Germany, and I think the government itself has a certain backup possibilities.
As it turns to electricity front. The real question is around gas and for US we only use natural gas to primarily heat the facilities with default a few small exceptions in some of our plants on some decorating machines and things like that but for the most part gas for us is.
<unk>.
Is primarily used for heating so in theory, the machines themselves injection molding machines, they do throw off a certain amount of heat.
Now as Stefan said, we cannot control what.
Is how our suppliers are run and the indirect impact that'll have on that but we we look at this risk is low to minimal for us.
In the second half of the year.
[noise].
Yes.
Our next question comes from Kyle White of Deutsche Bank. Kyle. Please go ahead.
Hey, good morning, Thanks for taking the question just two parts real quick on that one I was wondering if you could actually quantify that onetime payment that you expect in the third quarter. That's included in your guidance and then related just on price costs. It looks like price cost does continue to improve here sequentially, but you.
Still noted that you havent recovered last year's cost increases when do you expect that to be recovered and how should we think about price cost going into the second half.
Yes, maybe on the first one we baked in about five minutes.
In the third quarter guidance update long term payment.
Inc.
Yes, I can take that I can take the point on that.
Net price cost impact so we were slightly positive in this quarter.
Which is again the cumulative effects of the pricing initiatives that we started last year as well as I would say a little bit of a flattening of the raw material curve.
We're still in the hole by I would say roughly about $30 million last year, we had about $28 million of a net negative we had another $5 million in the second quarter now of course. This this five pennies that defined as referring to will also be another inflationary impact, but again a lot is going to depend.
And what happens around the.
<unk>.
The raw material prices going forward.
But again, we're going to continue to be very diligent and <unk> and <unk>.
Passing those through.
We've been very transparent with our customers on that it's impossible for me to tell you. When we will recover that that delta of about $32 million, it's hard for us to quantify with all the uncertainty that's out there right now.
Got it and then a follow up is that the <unk> is that mostly in beauty and home and is this something that you expect.
Have to pay a onetime payment next year as well.
So.
This is really spread across all of our business.
When you look at our geographic footprint obviously.
We have many more pharma and beauty facilities in France that we have in the other countries, but in principle, it's spread across all the businesses.
Are there active in Europe and no.
I think this will be all baked into whatever the outcome of wage negotiation with unions and works Council. This is done on a site by site and country by country basis.
But.
To ensure continuity of operation for us.
This year.
In the context of European.
In country data.
<unk> relations.
Required and as I said in some cases the government basically.
Both your hands very strongly.
To do that.
Thank you I'll turn it over.
Our next question comes from Ghansham Panjabi of Bad function. Please go ahead.
Yes, Thanks, good morning, everyone and Matt Congrats to you.
It really hasnt been a pleasure working with you over the years and congrats on your retirement.
Thanks, guys first off maybe yeah. Thanks, Matt maybe you could just disaggregate for us the various end markets within beauty and home.
And give us a sense as to where they are from a volume standpoint relative to the pre COVID-19 baseline.
<unk>.
Sure I can I can tackle that one ghansham. So if you looked at the beauty beauty was up about 19%.
In the quarter and again that was on the strength of the prestige side of the business. Although Masstige was also up primarily fragrance facial skin care and we are seeing improvements in color cosmetics as well.
We're not yet at 2019 volume levels, but we're getting very very close.
If you look at total sales dollars of course were above 2019, because of the pricing, but we're very encouraged by the volume growth that we're seeing.
We talked I talked about the 7% of the 10% being pricing and beauty and home, which then naturally leaves 3% for volume with that 3% is muted a little bit by a decrease in tooling sales in the quarter. So just as a reminder.
When I announced core sales growth ex acquisition, not including acquisitions and the actual product sales in the beauty and home side.
Excluding that tooling negative impact would have been closer to 5%. So again very encouraged by the volume growth and if that continues we should start to see.
<unk> surpassed the 2019 volume levels, when we get to the second half of the year personal care is still growing.
About 6%.
There, we see again like we did in the first quarter a slight shift right.
We're seeing a lot more in hair care and Sun screen demand as people are out vacationing and obviously lower around the hand, sanitizer and those types of products.
Again, we are encouraged by the personal care side household it down but household was down primarily and that's where the big tooling sale came last year on a new introduction product that we had and then we do have some disinfectant cleaners that are also down.
As you might expect similar to what the hand sanitizer is in the personal care.
Got it very helpful. And then for my second question as it relates to just global consumer elasticity in.
The enormity of inflation that everybody spacing and the choices that are being made in some of your customers are talking about.
Elasticity, which is a very different message from three months ago, just curious as to what youre seeing from a real time standpoint, as it relates to new product development have been slowed.
And if you could just give us some insight into which categories, specifically may have slowed or maybe everything stable. Thank you.
Yes.
I mean, let's start with pharma, which is about 40% of our business. There we don't see any impact and in fact, we see a very strong order book.
Both in prescription and consumer health care and consumer health care.
The cold and cough.
Is that because of engines in part.
Also because on the chrome presents are symptoms that are more cold and cough like.
<unk>.
Until basically doesn't apply there.
<unk>.
Sure.
Beauty and home side clearly.
Alright.
We are feeling pent up demand.
People are out and about again traveling again.
Right now, we don't see a lot of price sensitive in the luxury and priest prestige.
Category clearly, we only look at what's going to happen in Masstige.
Inflation device.
So more wallets.
On food.
There, we do anticipate that what we've seen in previous slowdowns irritation to larger format irritation to club store type.
Not all of them have.
And the high quality closures without rather than them.
And down trading to private label and again another one for longwall, we supply private label not all of these closures are not the same quality as a branded closures, though you will probably.
Okay.
We anticipate there could be some impact there.
In addition to just the demand pattern that we talked about earlier.
Okay. Thank you Stefan and Matt Congrats again.
Thanks Ghansham.
Our next question comes from Adam Josephson of Keybanc, and then the non issue was.
Stefan Bob Good morning, and I'd, just like to Echo <unk> comments, Matt that it's been a pleasure and privilege working with you. All these years. So thank you for everything.
Thanks, Adam Adam Bob.
Thanks, Matt.
Couple of questions on guidance excuse me one on guys, but firstly, if I look historically your fourth quarter earnings are typically lower than your third quarter earnings for seasonality reasons.
Is there anything I know Don I know you don't guide to <unk>, but is there anything this year that might be different than the normal.
Historical seasonal pattern whereby earnings typically are our lowest in the first and fourth quarter.
That's hard to its hard to say I mean this is.
We are an unusual times right. So.
Yes.
And can it really happen, but I think the biggest factor that I see is that <unk>.
Thats the <unk> referred to that we've baked into Q3.
We're not expecting anything like that in Q4, although as Stefan mentioned as well, we're going to see the new labor rates kick in in Q1. So you do have that.
The horizon that I can see between Q3 and Q4, we'll have to see what currency is going to do right. I mean, if you look at it thats eight.
Just comparatively with our Q3 results of last year. So you take that all in you got the <unk> and the <unk> for Q3, that's 13.
Now last year's Euro rate in Q4, we're starting to come down so the impact assuming we hold at 102 is going to be slightly less but there's still going to be a pretty big delta. So.
For me those are probably the biggest factors that I see that could influence the Q4 as far as volume demand than anything else.
The pharma business as Stefan said, both the Rx and the CHP business looks really strong for the remainder of the year I Havent gone back and looked at what that has been in past fourth quarters, but thats one thing that that looks really solid for Q4.
And then you have kind of the outlier.
Yes.
What if there is an additional.
Varian pick up or.
What that does.
It can be both positive and negative depending on how it plays out and then of course the wildcard.
Energy upset in Europe beyond what we can see here.
At this moment.
Yes.
No I appreciate that and Bob one more in terms of.
Your guidance range. So I think the last two quarters, it's been wider than it used to be it's been a 10 cent range, whereas before before then it was an eight cent range correct me if I'm wrong. There are you thinking about this as the new width of the range just given how uncertain just.
About everything is or do you view this as temporary and you want to get back to an <unk> range any thoughts you've had along those lines.
Yes, I mean, I would love to get back to a tighter range because of the tighter range means there is a little bit more certainty on the horizon. So yes.
Yes.
I think the 10% range that we've kept for Q3 is really indicative of the uncertainties that.
That are surrounding us right now but.
I would love to be able to get back to an 8% range in the near future that just means that things are are becoming.
More certain and predictable.
Yeah, Bob just one last one on the labor tightness, particularly in the U S. Can you help us with how long it's been this bad for is it getting any better or is it getting worse what are you seeing on the horizon.
Any better understanding what's going on there would be helpful. Thanks very much.
Yes, let me take that Ed.
I would say, it's certainly been the worst.
Earlier this year.
But if you talk about uncertainty we've certainly been surprised.
This has been and it's certainly been worthy.
In Q2 than we thought when.
When we guided.
And then other affected or better.
I would say it is it is getting better I think on the last earnings call.
They were missing 20% of the workforce in the Midwest.
Now, it's probably around 15%.
And dropping a bit.
Yeah.
The slowdown in the overall economy may help.
But thats certainly.
The picture and it is of course in two ways one is.
Just the inefficiency of manufacturing the constant rescheduling.
Lower yields, but secondly also.
With new sales opportunities because.
Lead times that they are not satisfactory missed that revenue.
It is getting better but it is getting better at a slower rate than any of us would like to see.
Thanks very much.
Yes.
The next question.
Churn comes from Justin <unk> of William Blair Justin. Please go ahead.
Hi, good morning.
When you talk about the cadence of your pharma growth across the four business units for the rest of the year.
We start seeing some tougher comps in certain markets and I guess, what are you, saying about the pharma margin progression for the coming quarters.
Yes.
We really don't Guy.
Guide to that detail, but quantitatively.
We are very comfortable with our 6% to 10% range.
It.
Segment, and then when you look at.
Where we are versus 2019.
Prescription is pulling.
Even with 2019, and certainly we will finish the year.
All ahead of 2019.
Kind of getting back to that 8% Kevin.
Kind of growth rate.
Over the long term and consumer health care clearly is a very strong.
Rebound and continued growth now we're well ahead of 2019 levels already.
Expect a strong second half.
Injectables is already showing good growth on tough comps.
So.
We are bringing on more capacity.
We feel very good about the pipe.
Pipeline as well as the mix of the pipeline as it shifts more and more of our sales towards premium codes.
That capacity comes on stream.
In.
For us we did not we did.
Participate a little bit in the COVID-19 vaccine, but before us.
With respect to Injectables was really all about.
Establishing a much broader visibility on that business and its capabilities such as being good for that pipeline.
The one business that will have a very tough comp in quarter four as though of course active material solutions, because we had a big.
Business in.
At home Covid test kits and right.
Right now, we don't see that repeating but.
We're talking pretty far out.
As you heard in my prepared.
Remarks, we feel very good.
About the growth prospects of our pharma business.
It's hitting on most cylinders again, and we see good acceleration that part of that is just because of a prescription.
I'm sorry.
<unk> EZ.
In the first half, but we see continued pulling ahead here.
In the second half and yes.
Overall feel very good about it.
All divisions.
Thank you.
Good day.
Yes.
They're not a little bit and you touched on your pharma project pipeline can you just elaborate on that a little bit more and maybe highlight the opportunities you're most excited about in the foreseeable future.
Yes.
We really cannot disclose individual project.
We tried to give you a sense that both the number of opportunities.
Risk weighted value of the pipeline keeps going up.
We talked earlier that clearly.
Urgent treatment and central nervous system is a great growth driver. In addition to allergic rhinitis in the prescription area.
In consumer healthcare, it's really all of the above we have.
The congestion may have ophthalmic durable treatment.
And.
Significant geographic growth opportunities in consumer healthcare.
Jack Injectables.
<unk> biologics is really driving the pipeline we are now close to 40%.
Net sales in the Injectables being biologics and climbing.
And in active material solutions.
It appears that keeps surprising us.
Terms of.
Problems, we can solve for customers, including for oral solid dose drug deliveries, especially drugs that a bit more sensitive to.
Uh huh.
Being exposed to ARPA general moisture.
Depending on the drug.
So all of these things go in the pipeline and the fact that we have now a much more.
Capable service capability, including trainers training devices allows us to engage much earlier in the development cycle with our customers to make money on the services and then obviously be.
The device of choice. The other one we are continue to be excited about it.
Digital therapies, so we see.
<unk> being in the pipeline contracts being signed.
It's a drag on earnings at the moment.
We see that reversing over the coming years.
I appreciate that detail. Thank you so much.
Our next question comes from Gabriele <unk> of Wells Fargo Securities.
Please go ahead.
Bob Good morning, Matt Echo what everyone else has said pleasure working with you.
Thanks Gabe.
I haven't heard much about the <unk>.
<unk> facility in France.
And I was curious if you can kind of give us an update of where that sits and maybe remind us.
On kind of the objective there I know it was going to enable you.
Better service your customers on time.
Full delivery stuff like that.
Maybe expand some of your capabilities there, but just.
Your ability I think there was a little bit of a plant consolidation going on there too so just where we're at with that.
When we can expect that could contribute to commuting home.
Yes, good morning Gabe.
Yes.
<unk>.
And.
A project that really.
It's unprecedented.
And that part in that region, where we add five very small facilities grouped around the village.
Where we make this.
No.
Hi, and decorating.
Production with a lack of a better word.
That you see in high end product and this is really cool.
Olive garden are doing is the cross buy side shipping.
Second for us in the back end of a land so to speak.
Through the market just isn't efficient and contemporary so consolidate consolidating that into a state of the art facility that will open in the spring of next year.
Customers are very excited about it they see the potential in it.
I would even leaned out the window thing some of the win rates that you see people Theres really.
Jumping on the next generation here.
And committed to in addition to the very sustainable facility is a much lower carbon footprint.
Then of course five individual facilities, both the transportation so it kind of.
Picking up there.
Next innovation way for us.
Yes, it is significant investment.
We are very confident that it will pay off.
Alright. Thank you and then I was curious there have been some articles out there on nasally delivered.
Vaccines I think in the past you guys really haven't talked about that much in the way in terms of opportunity for you Im just curious if theres anything.
And the development pipeline that is different today than it was before.
Or we should just not get very excited about it.
Like everything in pharma I think to take many many years.
A lot of these are in early stage clinical trials using.
Sometimes very rudimentary devices.
They have nothing to do with it.
Eventually we would get commercialized.
So yes, if you are in that part and you finally have a candidate that moves to phase III.
It looks good you kind of look for.
Commercialization in the industrial Park and it's got experience in this field. So we.
Where are these.
I cannot get into where we are participating in but clearly that will be very exciting.
Prospect.
Great. Thank you.
Yes.
Our next question comes from Angel Castillo of Morgan Stanley . Thank you. Please go ahead.
Hi, Thanks for taking my question just wanted to quickly circle back to a discussion around.
Recession since you mentioned off exchange for the portfolios from restructuring as well as kind of being data in a number of end markets, perhaps being closer to it.
The low end of what it should be so as you think about recession planning or just.
Our analysis internally.
How would you kind of frame.
Potential downside to sales or EBITDA from current levels based on everything that we have.
Yes.
What we've said basically if you look at how we did in 2008 I think.
It is a good guidance with the one.
Exception did back then farm it used to be 20% of what the company now it's 40% of the company topline.
And of course, we don't know much more bottoms.
Bottom line.
So.
The things that.
In a classical downturn.
You will see down trading and we've talked about this earlier in the call.
Especially.
In the food area.
Two more club stores to maybe less premium format that really impact us a little bit.
If masstige fragrances are more impacted.
People travel a lot less you will see impact on beauty.
Question about it but it will be a muted impact.
And that's something where the overall company.
Manage.
The Covid downturn, if you can call. It certainly wasn't a typical pullback because it's almost like a rifle shot targeted at our prescription business, our consumer healthcare business.
And that is behind us.
Those things will keep going in a normal recession.
Everybody takes their drugs.
At breakfast lunch and dinner.
Fairly resilient now having said that we're not complacent.
Very much looked at cost.
While we can pull further corporate services into shared service centers.
Streamline the back office further.
Invest in automation to lower cost and the <unk>.
Plants and so on so we are not done with that at all.
And we are very aware of what's coming.
Potential flow of demand plus the higher cost that we again discussed earlier.
And.
Working hard to find the productivity to mitigate some of this impact.
Got it that's helpful. Thank you and then I wanted to touch on sustainable solutions I'm wondering if you could give us an update on what.
How are you seeing the uptick from a consumer standpoint in terms of.
Are your customer standpoint in terms of loss activity.
Sustainable solutions in particular, if you've seen any shifts.
That dynamic as we get closer to three years, I think that targets for us, but at the same time, perhaps customers being more price sensitive.
With ongoing inflation. So curious what you are saying that.
Yeah.
Okay.
Yes, it's really not the one answer I mean first of all we're very much focused and proud of the work we're doing with our own operations.
And.
You see that in our sustainability report and the recognitions in ratings we get.
We will continue to drive that and that is very important because it.
Not only the right thing to do we could but most of our branded customers.
Got it your on the table are real.
Courtney partner to us because you get it in.
When we need to think about our scope three emissions, we can't count on that to help us with that.
That's number one number two clearly.
Recycle content Recyclability.
Sure.
PCR.
It is important, but we're in which country to which brand varies greatly.
Won't surprise you that in some European countries. This is more of a hot topic.
It is in some other countries. So it varies greatly but we are at the ready having products with up to 100.
<unk>.
PCR content, having product to the amount of material.
These are very much in demand for example, ammonia material problem.
And.
I will not high sometimes we're a bit disappointed that people think that Glenn.
They make their primary container recyclable and.
Dispensing cap or a pump then it doesn't get as much attention, but clearly.
If customers are serious about the commitments they've made.
Also has picked up more of the sustainable.
Sensing devices.
But.
We're ready to go here and continue to make investments in those innovations.
Thank you and wishing you all the best Matt. Thanks.
Great. Thanks, Neil.
Our next question comes from Daniel Rizzo of Jefferies. Daniel Please go ahead.
Hi, just just to talk a little bit more sustainable solutions.
Is it mostly outside of pharma I mean, our pharma products using recycled material or sustainable products as well.
Yes.
A great example, where.
We leverage things across the whole company clearly.
Initially this was a big topic for our branded consumer goods, but it has migrated and is migrating into pharma and you would not be surprised it's the first place. It is a consumer health care consumer.
Consumer health care customers.
More and more.
Demanding fully recycled materials solutions, so which of course, we have it already because we did.
Develop them for the consumer product already.
But also in prescription drugs.
There will be.
In the next few years shifting propellant from the current generation to one that has an even lower greenhouse gas and ozone depleting impact.
Which is very important to our customers. So I would say is.
It started on the consumer side, but it is rather rapidly.
Moving into the final phase.
Okay and then.
Seeing a restocking tailwind.
Or are customers being a little more cautious given the volatility, particularly in Europe .
So through the first half we do not see.
Significant restocking.
It might be situation here or there.
Clearly given the order books, we have and the lead times we have.
Customers kind of build this out as soon as they get it until it.
Weather.
So I don't see the demand for the second half of the year. He will go through more normalization, we'll see but currently.
We cannot say that we see significant restocking.
Sure.
Okay.
Alright, Thank you very much.
Yes.
We have no further questions on the line, so I'll hand back to Mr tender.
Yes.
Very good thanks for all your questions. We look forward to see you on the road.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
[noise].