Q3 2023 AptarGroup Inc Earnings Call
Okay.
Hello, and thank you for standing by welcome to the <unk> 2023 third quarter Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session.
Introducing today's conference call is Mrs. Mary Cathetus Senior Vice President Investor Relations and Communications. Please go ahead.
Thank you Hello, everyone and thanks for being with US today, joining me on today's call are stiff bond tender, president and CFO and Bob Kuhn Executive Vice President and CFO, Our press release and accompanying slide deck has been posted on our website under the Investor Relations page.
During this call we will be discussing certain non-GAAP financial measures.
These measures are reconciled to the most directly comparable GAAP financial measure in our press release, which was disseminated yesterday. Please refer to the press release as always we will post a replay of this call on our website I would now like to turn it over to Stephane tandem Stephane over to you.
Thank you Mary and good morning, everyone. We appreciate you joining us on the call today.
I'll begin my remarks by highlighting our results for the third quarter.
Later in the call Bob <unk>, our CFO, who will provide additional details starting on slide three for the third quarter. After achieved core sales growth of 2% and delivered double digit EPS growth of $1 39 per share due to continued strong demand for our proprietary pharma dosing and dispensing systems.
As well as our fragrance dispensing technologies we.
Spirit significant margin improvement in the quarter with an adjusted EBITDA margin of about 22% a four point increase over the prior year's quarter.
The margin improvement was driven by a strong focus on cost management across the company and the better mix from relatively faster sales growth in pharma and.
In quarter three robust demand continues for our proprietary pharma drug delivery systems, which grew across multiple therapeutic applications, including allergic rhinitis emergency medicine.
Joe nervous system therapeutics.
Sealing solutions.
I care, and cold and cough as well as asthma and COPD therapies in the last year. There has been a lot of focus from our shareholder base sales.
Sales of our Uni dose drug delivery dispensing system for Narcan and generic naloxone is this emergency medicine has gone over the counter or OTC.
We have certainly seen solid growth in this important lifesaving application.
In addition, we also want to highlight our proprietary by those dispensing system for J&J Spiro out, though which has also been a strong contributor to our growth this year.
<unk> the study published by the New England Journal of Medicine outlines the positive benefits for patients using <unk> this drug targeting treatment resistant depression in adults.
Is deliberate in the Bios liquid nasal spray system that underwent numerous human use studies to ensure optimal positioning and consistent dosages are deliberate with every administration the <unk>.
Unknown Attendee: Hello and thank you for standing by.
Unknown Attendee: Welcome to Aptar's 2023 third quarter conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session.
Madison is administered as a nasal spray this is absorbed by the lining of the nasal passages in into the bloodstream.
Mary Skafidas: Introducing today's conference call is Mrs. Mary Skafidas, Senior Vice President, Investor Relations and Communications. Please go ahead. Thank you. Hello, everyone, and thanks for being with us today. Joining me on today's call is Stephan Tanda, President and CFO and Bob Kuhn, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-gap financial measures. These measures are reconciled to the most directly comparable gap financial measure in our press release, which was disseminated yesterday. Please refer to the press release.
<unk> nasal delivery supports rapid and depreciable absorption into the bloodstream realm.
Relative to an IV formulation the nasal route of delivery provides a noninvasive.
And more convenient dosing option for patients and physicians and is associated with a reduced likelihood of dosing errors. We are proud of the role our dispensing systems play in helping making critical medication more easily administered.
Nasally delivered therapies for neurological diseases like depression is a growing area of focus for our customers.
Over the last few quarters, we've talked about our pharma service offerings. These are a small part of our overall revenue, but helped to position us as the partner of choice for pharma companies large and small we are very honored that our pharma service group has been awarded a new contract by the U S food and drug administration.
Unknown Attendee: As always, we will post a replay of this call on our website.
Stephan Tanda: I would now like to turn it over to Stephan Tanda, Stephan over to you. Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today.
Stephan Tanda: I will begin my remarks by highlighting our results for the third quarter.
Studying opportunities for our low global warming potential propellant solutions for metered dose inhalers. This contract recognizes and reinforces our thought leadership and expertise in the inhalation space and also highlights our focus on sustainability, which we know is a differentiator and competitive advantage.
Stephan Tanda: Later in the call, Bob Kuhn, our CFO will provide additional details. Starting on slide three for the third quarter, after achieved core sales growth of 2% and delivered double digit EPS growth of $1.39 per share, due to continued strong demand for our proprietary farmer dosing and dispensing systems, as well as our fragrance dispensing technologies. We experience significant margin improvement in the quarter with an adjusted EB Dom margin of about 22%, a four-point increase over the prior year's quarter.
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In our beauty segment, we saw continued healthy demand for our dispensing solutions for prestige and mass fragrance.
Demand for fragrance pumps continue to be driven by growth in Europe, and Latin America.
Sales for our fragrance sampling solutions also grew modestly in Europe.
Stephan Tanda: The margin improvement was driven by a strong focus on cost management across the company, and the better mix from relatively faster sales growth in farmer. In quarter three, robust demand continued throughout proprietary farmer drug delivery systems, which grew across multiple therapeutic applications, including allergic rhinitis, emergency medicines, central nervous system therapeutics, nasal saline rinse solutions, eye care, and cold and cough, as well as asthma and COPD therapies. In the last year, there has been a lot of focus from our shareholder base on sales of our unidose drug delivery dispensing system for Narcan and generic Naloxone, as this emergency medicine has gone over the counter or OTC.
Additionally, fusion phe food packaging solution provider in North America had strong growth in the quarter when compared to the prior year with its sales pipeline continues to build.
<unk> said that Judy North America overall continues to be substantially below 2019 volumes, especially in personal care. However.
However in recent weeks, we are starting to see a pickup in orders for some end markets as inventories approach normal levels for certain skus.
While recovery will not be linear we believe the worst is behind us and look forward to improving dynamics in North America in 2024.
Now turning to slide four I would like to highlight a few products and medications that launched in the quarter featuring our technology in pharma after seven year collaboration with Haley on led to the launch of a nasal spray technology with an innovative side push button to activate the spray this patented.
Stephan Tanda: We have certainly seen solid growth in this important life-saving application. In addition, we also want to highlight our proprietary BIDOS dispensing system for J&Js Sprowato, which has also been a strong contributor to our growth this year. Recently, a study published by the New England Journal of Medicine outlined the positive benefits for patients using Sprowato. This drug targeting treatment-resistant depression in adults is delivered in a BIDOS liquid nasal spray system that underwent numerous human use studies to ensure optimal positioning and consistent dosages are delivered with every administration.
Intuitive and more consumer friendly lateral control system technology by after a first of its kind features a shorter nozzle, which means more comfort when using the product.
While the one push button provides more accurate dosing.
In addition, after a metered dose inhaler valves is featured on the Rainier inhalation aerosol. The first FDA approved generic version of Symbicort in the European beauty market. After the fragrance and lotion pumps are featured an example, goodyear's divine brand products by a push in.
Stephan Tanda: The medicine is administered as a nasal spray. This is observed by the lining of the nasal passages and into the bloodstream. This nasal delivery supports rapid and appreciable absorption into the bloodstream relative to an IV formulation. The nasal route of delivery provides a non-invasive and more convenient dosing option for patients and physicians and is associated with a reduced likelihood of dosing errors. Our dispensing systems play in helping making critical medication more easily administered, nasally delivered therapies for neurological diseases like depression is a growing area of focus for our customers.
In Asia, our Airless technology is the refillable dispensing solution for new facial skincare product by the brand's Zubin.
Turning to sustainable solutions, we've expanded our sampling portfolio to include mono material paper fragrance airplane, which <unk> is now featuring four top fragrance brand.
Finally post consumer recycled resin pump is the dispensing technology for Este Lauder Mac brand Foundation in North America.
Foreclosures in North America Mccormick is now featuring our closure on their new Spice package in our snap top dispensing closure for inverted packaging is providing control dispensing for S. C. Johnson of insect Repellant lotion in Latin America.
Stephan Tanda: Over the last few quarters, we have talked about our pharma service offerings. These are a small part of our overall revenue but help to position us as a partner of choice for pharma companies large and small. We are very honored that our pharma service group has been awarded a new contract by the U.S. Food and Drug Administration, studying opportunities for low global warming potential propellant solutions for metered dose inhalers. This contract recognizes and reinforces our thought leadership and expertise in the inhalation space and also highlights our focus on sustainability which we know is a differentiator and competitive advantage.
As we mentioned at our recent Investor day, we have additional information to share around our focus on footprint rationalization and reduction of manufacturing costs.
To that end, we have started a second process without European in French labor Representatives to shutdown, our closure facility in <unk>, France.
As we have stated before these processes take time.
We will share more information with you as we can and expect to start realizing savings from this plant closure by mid to late 2024 and full run rate savings in 2025.
Stephan Tanda: In our beauty segment, we saw continued healthy demands for our dispensing solutions for prestige and mass fragrance. Demand for fragrance pumps continue to be driven by growth in Europe and Latin America. Sales for our fragrance sampling solutions also grew modestly in Europe. Additionally, Fusion PKG, a full packaging solution provider in North America had strong growth in the quarter when compared to the prior year with its sales pipeline continuing to build. Having said that, beauty North America overall continues to be substantially below 2019 volumes, especially in personal care.
Our SG&A as a percentage of sales is on track to be around 16% for the full year 2023.
Finally, I would like to touch on an ESG update.
Earlier. This month, we were recognized by three B, all media and by ISS ESG for our transparency and performance in categories such as climate change.
Stakeholders in society, human rights and ESG performance for the third consecutive year.
Ranked number 34 on the list of the 100 best corporate citizens.
I hand, the call over to Bob I also want to highlight that in September we added a new board member Sarah Glickman.
Stephan Tanda: However, in recent weeks we are starting to see a pickup in orders for some end markets as inventories approach normal levels for certain SKUs. While recovery will not be linear, we believe the worst is behind us and look forward to improving dynamics in North America in 2024.
F O of Creteil.
Sarah is a highly accomplished executive with more than 30 years of global financial and deep operational experience in diverse industries with such companies as Novartis, Honeywell and Bristol Myers Squibb and with that over to you Bob.
Stephan Tanda: Turning this slide forward, I would like to highlight a few products and medications that launched in the quarter featuring our technology. In Pharma, after a seven-year collaboration with Halion led to the launch of a needle spray technology with an innovative side push button to activate the spray. This patent that's intuitive and more consumer-friendly lateral control system technology by APTAR, at first of its kind, features a shorter nozzle, which means more comfort when using the product, while the one push button provides more accurate dosing.
Thank you Stefan and good morning, everyone.
Starting on slide five I would like to summarize the quarter our reported sales increased 7%.
When we neutralized for currencies and acquisitions, our core sales grew 2% and significant part due to strong demand for our proprietary drug delivery systems as well as solid demand for fragrance dispensing technologies, while the challenging environment for personal care and home care in North America continued in the third quarter.
As shown on slide six we reported third quarter adjusted earnings per share of $1 39.
Stephan Tanda: In addition, APTAR's meter dose inhaler valve is featured on the Brenna inhalation aerosol, the first FDA approved generic version of Cymbicord. In the European beauty market, APTAR's fragrance and lotion pumps are featured on Jean-Paul Goutier's Divine Brand products by Pouge. In Asia, our airless technology is the refillable dispensing solution for a new facial skin care product by the brand Zuban. Turning to sustainable solutions, we've expanded our sampling portfolio to include monomaterial paper fragrance sampling, which LVMH is now featuring for top fragrance brand.
This represents a 39% increase over prior year adjusted EPS.
We achieved adjusted EBITDA of 193 million, which was an increase of 26% from the prior year's third quarter, driven by strong operational performance and ongoing cost management.
Turning to some of the details by segment for the quarter, our pharma segments core sales increased 8%.
Approximately 6% of the continued growth came from increased volumes, especially for our proprietary drug delivery systems.
Looking at sales in the pharma segment by market.
Stephan Tanda: Finally, our post-consumer recycled resin pump is the dispensing technology for Estilator's Mac brand foundation in North America. For closures, in North America, MacCormack is now featuring our closure on their new spice package and our snap-up dispensing closure for inverted packaging is providing control dispensing for SD Johnson's off-insect repellent lotion in Latin America.
Prescription core sales increased 20%, primarily due to continued strong demand for dosing and dispensing technologies for allergic rhinitis emergency medicine, central nervous system therapeutics, and asthma and COPD therapies.
Consumer health care core sales increased 14% driven by higher sales for nasal saline rinse solutions eye care and cough and cold applications.
Stephan Tanda: As we mentioned at our recent investor day, we have additional information to share around our focus on footprint rationalization and reduction of manufacturing costs. To that end, we have started a second process with our European and French labor representatives to shut down our closure facility in Poincy, France. As we have stated before, these processes take time. We will share more information with you as we can and expect to start realizing savings from this planned closure by mid to late 2024 and full round rate savings in 2025. Our SNA as a percentage of sales is on track to be around 16% for the full year 2023.
When looking at our Injectables Division core sales increased 6%.
Turning to our active materials science solutions core sales decreased 23% of which 17% was due to less tooling revenue as well as a decrease in active vials used for our diabetes care products and decreased demand and sales of our products used on probiotics, which had experienced rapid growth in the prior year's quarter.
Farmers adjusted EBITDA margin was 35% for the quarter an improvement of about four points over the same period last year.
This also includes startup cost for the Injectables division capacity expansion of approximately $2 million.
We expect startup costs in the range of $2 million to $3 million in Q4.
Stephan Tanda: Finally, I would like to touch on an ESG update. Earlier this month, we were recognized by a 3BL media and by ISS ESG for our transparency and performance in categories such as climate change, stakeholders in society, human rights and ESG performance for this third consecutive year. We are ranked number 34 on the list of the 100 best corporate citizens.
Overall, our beauty segment's core sales increased 2% due to the ongoing challenges in North America.
Europe continues to perform solidly with sales and adjusted EBITDA margins well within our long term target range due to the increased demand for prestige fragrance.
And America saw healthy demand for mass fragrance solutions and Asia also saw slight growth in the quarter.
Fragrance solutions for the prestige and mass markets continued to perform well with core sales for these dispensing solutions growing double digits in the quarter.
Stephan Tanda: Before I hand the call over to Bob, I also want to highlight that in September, we added a new board member, Sarah Glickman, the CFO of Criteo. Sarah is a highly accomplished executive with more than 30 years of global, financial and deep operational experience in diverse industries with such companies as Novartis, Honeywell and Bristol Myerscript.
Looking at the beauty segment by market beauty core sales, which represents 64% of beauty segment sales increased 14% driven by higher tooling sales as well as higher sales in both prestige and mass fragrance.
Personal care core sales decreased 15% as lower demand in several end use categories in North America persisted.
Bob Kuhn: And with that, over to you Bob. Thank you, Stefan, and good morning everyone. Starting on slide 5, I would like to summarize the quarter. A reported sales increased 7%. When we neutralize for currencies and acquisitions, our core sales grew 2%, and significant part due to strong demand for our proprietary drug delivery systems, as well as solid demand for fragrance dispensing technologies, while the challenging environment for personal care and home care in North America continued in the third quarter.
Europe had modest sales growth, primarily due to sales of our products used in hair care and Sun care applications.
Homecare core sales decreased 24% due to lower sales in North America across several categories, including air care and surface disinfectants.
This segment's adjusted EBITDA margin for the quarter was about 13%. This is more than a half point improvement over the same period last year.
Bob Kuhn: As shown on slide 6, we reported third quarter adjusted earnings per share of $1.39. This represents a 39% increase over prior year adjusted EPS. We achieved adjusted EBITDA of $193 million, which was an increase of 26% from the prior year's third quarter, driven by strong operational performance and ongoing cost management. Turning to some of the details by segment for the quarter, our pharma segment's core sales increased 8%. Approximately 6% of the continued growth came from increased volumes especially for our proprietary drug delivery systems.
The closure segment core sales decreased 9% compared with the prior year's quarter.
Approximately 6% of the decrease for the current quarter is due to lower resin costs.
While product volumes improved in food and especially in beverage dispensing closures in the quarter, they could not fully offset the decline in volumes for personal care and home care.
Looking at the closure segment by market.
<unk> core sales decreased 11%.
The decline in sales was driven by lower tooling sales, which accounted for 8% of the decrease.
Bob Kuhn: Looking at sales in the pharmaceutical segment by market, prescription core sales increased 20%, primarily due to continued strong demand for dosing and dispensing technologies for allergic rhinitis, emergency medicine, central nervous system therapeutics and asthma and COPD therapies. Consumer health care core sales increased 14% driven by higher sales for nasal saline rinse solutions, eye care and cough and cold applications. When looking at our injectables division, core sales increased 6%. Turning to our active material science solutions, core sales decreased 23% of which 17% was due to less tooling revenue, as well as a decrease in active vials used for our diabetes care products and decreased demand in sales.
And pass throughs of lower resin costs.
Beverage core sales increased 3% due to strong sales in Europe, which is our largest beverage market and in North America.
In the quarter, we saw increased demand for bottled water and concentrates.
Personal care core sales decreased 24% due primarily to lower global demand.
And our fourth category, which includes beauty home care and health care core sales increased 24%, mainly due to tooling sales.
The segment's adjusted EBITDA margin was around 15%.
This represents a three point improvement over the same period last year, even with the decline in sales due to our continued focus on cost management as well as the effects of passing on lower resin costs.
Our total capex spend for the third quarter of 2023 was $76 million with the majority going to our pharma segment.
Bob Kuhn: Several of our products used on probiotics, which had experienced rapid growth in the prior years quarter. Farmers adjusted EBITDA margin was 35% for the quarter and improvement of about 4 points over the same period last year. This also includes startup costs for the injectables division capacity expansion of approximately 2 million. We expect startup costs in a range of 2 to 3 million dollars in Q4. Overall our beauty segments core sales increased 2% due to the ongoing challenges in North America.
The three large capital projects are winding down making up about 15% of our total capex spend for the quarter with the majority allocated to our injectables capacity expansion.
As a reminder, our injectables capacity expansion will come online in phases and be ready for commercialization at the beginning of 2025.
Reported depreciation and amortization expense increased 9% over the prior year quarter to approximately $63 million or 7% of sales.
Slide seven and eight cover our year to date performance and showed a 3% core sales growth and our adjusted earnings per share which were $3 57.
Bob Kuhn: Europe continues to form solidly with sales and adjusted EBITDA margins well within our long-term target range due to the increased demand for prestige fragrance. Latin America saw a healthy demand for mass fragrance solutions and Asia also saw slight growth in the quarter. Fragrant solutions for the prestige and mass markets continued to perform well with core sales for these dispensing solutions growing double digits in the quarter. Looking at the beauty segment by market beauty core sales which represent 64% of beauty segment sales increased 14% driven by higher tooling sales as well as higher sales in both prestige and mass fragrance.
Up 22% compared to $2 92, a year ago, including comparable exchange rates.
Year to date cash flow from operations was $356 million up from $306 million due to the improvements in earnings.
Moving to slide nine which summarizes our outlook for the fourth quarter, we anticipate our strong momentum to continue and expect fourth quarter adjusted earnings per share, excluding any restructuring expenses acquisition costs and changes in the unrealized fair value of equity investments to be in the range of $1 six to $1 14 per <unk>.
Bob Kuhn: Personal care core sales decreased 15% as lower demand and several end-use categories in North America persisted. Europe had modest sales growth primarily due to sales of our products used in hair care and sun care applications. Home care core sales decreased 24% due to lower sales in North America across several categories including air care and surface disinfectants. This segment to just the EBITDA margin for the quarter was about 13%. This is more than a half-point improvement over the same period last year.
Sure.
The estimated tax rate range for the fourth quarter is 24% to 26%.
As a reminder, in the fourth quarter, we expect to have a two to three <unk> impact and startup costs from our Injectables expansion program.
Additionally, we are expecting some currency tailwind compared to the prior year for example, the euro rate for the prior year fourth quarter was 102 and our guidance for the coming quarter is assuming a 106 euro rate. We have said that roughly for every one point move in the euro rate that equates to roughly <unk> <unk> per share.
Bob Kuhn: The closure segment core sales decreased 9% compared to the prior year's quarter. Approximately 6% of the decrease for the current quarter is due to lower-reson costs. While product volumes improved in food and especially in beverage dispensing closures in the quarter they could not fully offset the decline in volumes for personal care and home care. Looking at the closure segment by market food core sales decreased 11%. The decline in sales was driven by lower tooling sales which accounted for 8% of the decrease and pastures of lower-reson costs.
For the full year.
So for the coming quarter, we expect to be looking at approximately a <unk> <unk> currency benefit on earnings compared to the prior year due to the euro rate as well as other currency movements.
We currently estimate depreciation and amortization for 2023 to be between $240 million to $245 million.
Our capital expenditures in 2023 net of any government grants is estimated to be around $300 million, including a capacity expansion investment for our pharma proprietary drug delivery systems.
Bob Kuhn: Beverage core sales increased 3% due to strong sales in Europe, which is our largest beverage market and in North America. In the quarter we saw increased demand for bottled water and concentrates. Personal care core sales decreased 24% due primarily to lower global demand. In our fourth category, which includes beauty, home care, and health care, core sales increased 24% mainly due to tooling sales. The second suggested the dam margin was around 15%.
In closing we continue to have a strong balance sheet with a leverage ratio of one six at quarter end, which allows us to continue to invest in the business pursue strategic opportunities and continued to return value to shareholders in the form of dividends and share repurchases.
In addition to a cash dividend payment to shareholders, which totaled $26 $9 million in the quarter, we repurchased approximately 66000 shares for $8 3 million at this times defined will provide a few closing comments before we move to Q&A.
Bob Kuhn: This represents a three-point improvement over the same period last year even with the decline in sales due to our continued focus on cost management as well as the effects of passing on lower-reson costs. Our total cap expense for the third quarter of 2023 was $76 million with the majority going to our pharmaceutical segment. The three large capital projects are winding down making up about 15% of our total cap expense for the quarter with the majority allocated to our injectables capacity expansion.
Thanks, Bob.
In the first nine months of 2023, we have delivered very strong results and showed exceptional growth during our two biggest quarters quarter two in quarter three.
We expect quarter four we will continue our trend of double digit adjusted EPS growth over the prior year period, while quarter four tends to be a smaller quarter for us we expect our pharma and fragrance franchises to finish the year strong in the fourth quarter, we expect robust demand for our proprietary pharma drug delivery system.
Bob Kuhn: As a reminder, our injectables capacity expansion will come online in phases and be ready for commercialization at the beginning of 2025. Report of appreciation and amortization expense increased 9% over the prior year quarter to approximately $63 million or 7% of sales.
To continue.
Our fragrance dispensing solutions finished on a high note for 2023, and we look forward to an improving environment in North America, especially for our personal care dispensing solutions as we believe the worst of the Destocking will be behind us as we look ahead to 2024 proprietary.
Bob Kuhn: Slide 7 and 8 cover our year-to-date performance and show the 3% core sales growth and our adjusted earnings per share which were $3.57 up 22% compared to $2.92 a year ago, including comparable exchange rates. Year-to-date cash flow from operations was $356 million up from $306 million due to the improvements in earnings.
Drug delivery systems has seen significant growth some of that can be attributed to distribution channel refilling to more normal levels following destocking due to COVID-19.
Narcan and generic naloxone versions going over the counter has also helps for our <unk>.
<unk> this year.
While the launch of this new distribution channel will not repeat next year adoption of this life saving drug continues to expand we expect our proprietary pharma drug delivery systems to continue to grow in 2024 within the long term core sales target of 7% to 11% our injectable division.
Bob Kuhn: Moving to slide 9, which summarizes our outlook for the fourth quarter, we anticipate our strong momentum to continue and expect fourth quarter adjusted earnings per share, excluding any restructuring expenses, acquisition costs, and changes in the unrealized fair value of equity investments to be in the range of $1.06 to $1.14. The estimated tax rate range for the fourth quarter is 24 to 26%. As a reminder, in the fourth quarter, we expect to have a two to three-cent impact in startup costs from our injectables expansion program.
We'll be ramping up new capacity for higher value product through the end of 2024.
Over the past year, our dispensing devices for fragrances have also seen tremendous growth.
2023 has been a catch up year for the fragrance industry did postpone new launches for a number of years due to COVID-19.
Bob Kuhn: Additionally, we are expecting some currency tailwinds compared to the prior year. For example, the euro rate for the prior year fourth quarter was 102, and our guidance for the coming quarter is assuming a 106 euro rate. We have said that roughly for every one point move in the euro rate, that equates to roughly two cents per share for the full year. For the coming quarter, we expect to be looking at approximately a two-cent currency benefit on earnings compared to the prior year due to the euro rate as well as other currency movements.
We expect core sales in fragrance and continue to grow within our beauty long term targeted range of 3% to 6%.
Both beauty and closure segments will benefit from an improving environment in North America as we move post the unprecedented COVID-19 destocking.
Therefore, we are energized for the fourth quarter and for 2024.
You have seen measurable improvement in our SG&A as a percentage of sales and reduced manufacturing fixed costs.
Bob Kuhn: We currently estimate depreciation and amortization for 2023 to be between $240 to $245 million. Our capital expenditure is in 2023, net of any government grants is estimated to be around $300 million, including a capacity expansion investment for our pharma proprietary drug delivery system. In closing, we continue to have a strong balance sheet with a leverage ratio of 1.6 at quarter end, which allows us to continue to invest in a business, pursue strategic opportunities, and continue to return value to shareholders in the form of dividends and sharey purchases. In addition to our cash dividend payment to shareholders, which totaled $26.9 million in the quarter, we repurchased approximately $66,000 shares for $8.3 million.
Which we expect to continue in quarter four and into 2024, and we are excited about the growth opportunities across each of our segments for next year, taking advantage of our increased operating leverage as cost reduction efforts become more visible in the P&L with that and I would like to open the call for your questions.
Thank you if you would like to ask a question. Please press star one on your telephone keypad now.
If you would like to withdraw your question. Please press star two and.
In the interest of time and fairness to all participants please limit yourself to two questions and then come back into the queue. If you have more questions as time allows.
Our first question comes from George Staphos from Bank of America. Please go ahead.
Hi, everyone. Good morning, Thanks for taking my question.
Stephan Tanda: At this time, Stephan will provide a few closing comments before we move to Q&A. Thanks, Bob. In the first nine months of 2023, we have delivered very strong results and showed exceptional growth during our two biggest quarters, quarter two and quarter three. We expect quarter four will continue our trend of double-digit adjusted EPS growth over the prior year period.
The first one is Stefan and Bob can you talk to you mentioned that Youre excited about 24 are there any of your key end markets.
Our product lines.
That we should expect will be growing below your long term target range to the extent that you have any visibility.
Stephan Tanda: But quarter four tends to be a smaller quarter for us. We expect our farmer and fragrance franchises to finish the year strong. In the fourth quarter, we expect robust demand for our proprietary farmer drug delivery system to continue. Our fragrance dispensing solutions to finish on a high note for 2023, and we look forward to an improving environment in North America, especially for our personal care dispensing solutions, as we believe the worst of the de-stocking will be behind us.
And should we take from your comments recognizing that it's still early that you expect to see overall earnings growth in 2020 for.
The second question I had during your analyst day.
You cited not only are you going to be trying to reduce SG&A, but you have a goal for combined SG&A plus fixed costs within Cogs, where did you perform relative to that metric in the third quarter and how will you be updating us on your performance there. Thank you.
Stephan Tanda: As we look ahead to 2024, our proprietary drug delivery systems have seen significant growth. Some of that can be attributed to distribution channels refilling to more normal levels, following the stockings due to COVID. Narcan and generic Nellup zone versions going over the counter has also helped spur our growth this year. While the launch of this new distribution channel will not repeat next year, adoption of the life-staving drug continues to expand. We expect our proprietary farmer drug delivery systems to continue to grow in 2024, within the long-term core sales target of 7 to 11%.
Hey, George.
Thanks for the question I mean, obviously, we don't give guidance for 'twenty four but.
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What you just heard me say is that we are energized for 'twenty for you.
Think about it.
Prior to her dispensing devices yet.
<unk> double digit, but we expect them to continue to grow.
Within the target range next year injectable will not have the ERP.
Issue repeat.
For active materials.
The tough Covid comparison, you'll have washed out and we see excess materials returned to growth.
Stephan Tanda: Our injectable division will be ramping up new capacity for higher value products through the end of 2024. Over the past year, our dispensing devices for fragrances have also seen tremendous growth. 2023 has been a catch-up year for the fragrance industry that postponed new launches for a number of years due to COVID. We expect core sales in fragrance to continue to grow within our beauty-long-term target range of 3 to 6%. Both our beauty and closure segments will benefit from an improving environment in North America as we move post the unprecedented COVID destocking.
Digital health.
Still a drag that will be less of a drag in fragrance. We continue expect to continue to grow.
Albeit at lower rates.
The comparisons get tougher and we fully expect North America.
To normalize and we see some green shoots in the fourth quarter and China will.
China is.
Albeit slowly is growing again and progressing so that all adds up to certainly an expectation of.
Growth in line with our growth targets and yet given all the cost work that we do.
Stephan Tanda: Therefore, we are energized for the fourth quarter and for 2024. You have seen measurable improvements in our SGNA as a percentage of sales and reduced manufacturing fixed costs, which we expect to continue in quarter four and into 2024. And we are excited about the growth opportunities across each of our segments for next year, taking advantage of our increased operating leverage as cost reduction efforts become more visible in the P&L.
Yes.
With the increased operating leverage that shoot.
Result, and solid earnings growth without giving a guidance for next year.
On your on your second question.
The significant EBITDA margin expansion across the board all three segments have seen EBITDA margin expansion and that of course comes.
Unknown Attendee: With that, I would like to open the call for your questions. Thank you. If you would like to ask a question, please press star one on your telephone keypad mouse. If you would like to withdraw your question, please press star two. In the interest of time and fairness to all participants, please limit yourself to two questions and then come back into the queue if you have more questions as time allows.
From higher gross margins from lower fixed costs.
Okay.
In the factories and.
We have not done so what you see now is things that we started a year ago, starting to bleed into the P&L as we discussed.
Previously the actions in France, we started a year ago only are being implemented now and now we start the <unk>.
George Staphos: Our first question comes from George Staphos from Bank of America. Please go ahead. Hi everyone, good morning. Thanks for taking my question. The first one is Stephan and Bob. Can you talk to you mentioned that you're excited about 24? Are there any of your key end markets or product lines that we should expect will be growing below your long-term target range? To the extent that you have any visibility? And should we take from your comments recognizing that it's still early that you expect to see overall earnings growth in 2024?
Second tranche, which is the shutdown of the <unk> switch.
You will only see in the P&L.
Second half of next year.
These things take a long lead time, so we certainly expect to continue doing work.
Sure we have good operating leverage and.
Strong top line growth leads to even stronger bottom line growth.
So we're just kind of a quick follow on and I. Appreciate all of that from the analyst day deck. I think you said SG&A and fixed Cogs as a percentage of sales youre going to drop that about two points from 21 to 25, where does that ratio stand right now relative to the starting point.
George Staphos: The second question I had during your analyst day, you cited not only are you going to be trying to reduce SNA but you have a goal for combined SNA plus fixed costs within COGS. Where did you perform relative to that metric in the third quarter and how you'd be updating us on your performance there? Thank you.
Thanks, guys I'll turn it over.
This is not something we disclose externally what we disclosed externally as the SG&A ratio.
And that we expect.
A year at 16% quarter three was actually lower.
Given that we always have the equity and rewards in the first quarter. It averages out to 16% for the year 16, one through Q3, and we expect to be at 16 year to date by the time, we finished the year, but overall George I think we can say that we are we're tracking to where we expect it to be for the <unk>.
Stephan Tanda: Hi George, thanks for the question. I mean obviously we don't give guidance for 24 but to what you just heard me say is that we are energized for 24. I mean when you think about it, proprietary dispensing devices, yes, through double digit but we expect them to continue to grow within the target range next year. Injective will not have the ERP issue repeat for active materials, the tough COVID comparison will have washed out and we see active materials return to growth.
<unk> metric.
Okay I'll turn it over thank you guys.
<unk>.
Our next question is from Gabe Haiti from Wells Fargo Securities. Please go ahead.
The fine Bob Mary Good morning.
Maybe just two.
Dialing a little bit.
I was saying, giving them take a mile.
In the pharma segment.
Can you just remind us I think there was around if we include startup costs.
Stephan Tanda: Digital health is still a drug but there will be less of a drug and fragrance we expect to continue to grow. I'll be at lower rates as the comparisons get tougher and we fully expect North America to normalize and we see some green shoots in the fourth quarter and China will or China is, I'll be slowly is growing again and progressing so that all adds up to certainly an expectation of growth in line with our growth targets.
$25 million.
Of ERP and start up in 2023.
So is this all go away next year and then should we also assume contribution from.
The growth that we would get in injectables or anything else that we need to be mindful of.
And then given the I guess, the maybe a little bit more rich mix of of Rx versus.
Some of the other elements within pharma.
Would you expect I guess moderation adjusting for.
Stephan Tanda: And yes, given all the cost work we do that with the increased operating leverage that shoot results in solid earnings growth without giving a guidance for next year. Now on your second question, you see the significant EBITDA margin expansion across the board, all three segments have seen EBITDA margin expansion and that of course comes from higher growth margins from lower fixed cost in the factories and we are far not done. So what you see now is things that we started a year ago starting to bleed into the P&L that we discussed previously the actions in France that we started a year ago only are being implemented now and now we start the second branch which is the shut down of the Ponzi side which you will only see in the P&L second half of next year. These things have a long lead time so we certainly expect to continue to work and make sure that we have good operating leverage and strong top line growth leads to even stronger bottom line growth.
Those other startup costs and ERP.
Profitability in pharma or.
How should we think about that.
Yes, I mean.
On the first question clearly the ERP cost, especially in the first two quarters and especially in critical will not repeat now.
<unk> to build out.
We are going to be able to factory.
And that will have equipment and trial productions and labor President and no revenue for that so we will continue to have Q1 startup drag we don't quantify it yet.
When we do Q4.
It will be a bit less but still there will be something next year, but compared to the the ERP costs.
And much smaller.
Then on your on your mix question, Yes, it is injectables and active materials grow much faster compared to Rx and THC you will have.
A negative mix effect on the other side, which is that you will have costs that go away.
With the ERP system so.
We're not going to give you. The end result of that in advance here as it plays out plus we of course work.
Bob Kuhn: So, we're just kind of a quick fall on, and I appreciate all that, you know, from the analyst Adek, I think you said SG&A in six cogs of the percentage sales, you're going to drop that about two points from 21 to 25. Where does that ratio stand right now, relative to the starting point? Thanks, guys, I'll turn it over Well, this is not something we disclose externally, well, we disclose externally is the SG&A ratio, and that we expect to end the year at 16% quarter three was actually lower, but given that we always have the equity rewards in the first quarter, it averages out to probably 16% for the year.
Again across the board to do.
I don't know if off with anyone could add anything the only thing I would say is I think Gabe our number.
The Injectables ERP and startup costs for the year is probably closer to $20 million and I think you mentioned 25.
And we'll have another couple of pennies or $2 million $2 million to $3 million in Q4.
<unk> of this year.
Yeah.
Okay.
Then.
Switching gears, I guess to redeployment and lower cash generation.
You talked about Capex, starting to migrate back closer to DNA I, just want to kind of confirm that and then as you look across I mean, our model hasnt shaken out around.
Bob Kuhn: 16, 1 through Q&A, and we expect to be at 16 year-to-date by the time we finish the year. But, you know, overall George, I think we can say that we are tracking to where we expect to be for the combined metric.
1415 times Levered at the end of this year.
Anything in terms of the M&A pipeline.
George Staphos: Okay, I'll turn it over, thank you guys.
That we should be thinking about or.
Gabe Hady: Our next question is from Gabe Hady from Wells Fogger Securities. Please go ahead. Bethan Bob, Mary, good morning.
What is the preferred Avenue b kind of.
David and repo as we're looking at 24 and beyond.
So we're still a little bit above Gabe.
On the Capex for the quarter.
Gabe Hady: Maybe just to dial in a little bit, you know what I'm saying, give it and take a mile. In the pharma segment, can you just remind us, I think there was around, if we include startup costs, 25 million of ERP and start up in 2023. Does this all go away next year? And then should we also assume contribution from the growth that we get in injectables or anything else that we need to be mindful of?
Spent about 76 million most most of the amount above the DNA, which is about $63 million in the quarter is really coming from the run out of.
The three big projects, primarily the Injectables expansion.
Yeah.
And I would say obviously.
You see the growth that we have in pharma.
Those are not we will continue to make sure that we have capacity available, especially in life saving medicines.
Gabe Hady: And then given the, I guess the maybe a little bit more rich mix of Rx versus some of the other elements within pharma, would you expect a, I guess, moderation adjusting for those other startup costs in ERP in profitability in pharma, or how should we think about that? Yeah, I mean, on the first question, clearly the ERP cost, especially in the first two quarters and especially in the first quarter will not repeat.
Sure.
Not expand capacity to get to a certain capex numbers, especially in these areas that grow double digit at the moment and then I think on your comment on the.
The deleveraging by year end. So we're at about one six so we were able to take it down from the one eight.
And that's primarily due to.
Really strong cash generation free cash flow generation in the quarter, which was about $97 million compared to 55 last year in the third quarter. So year to date, we're about $1 24, and again, we're continuing to focus on working capital as well as the margin improvement that you've seen in Q.
Gabe Hady: Now, we continue to build out the global tool factory and that will have equipment and trial productions and labor present and no revenue for that. So we will continue to have, if you want to start up draft, we don't quantify it yet. And give that when we do Q4, it will be a bit less, but still there will be something next year. But compared to the ERP cost, it's obviously much smaller.
Three.
Now with respect to your M&A question.
<unk> to have an active M&A pipeline and look at opportunities.
Along the lines that we have done before technology geographic opportunities.
Venturing type of investments so we continue our M&A.
Gabe Hady: Then on your mix question, yes, if injectables and active materials grow much faster compared to Rx and CHC, you will have a negative mix effect on the other side, which is sad. You will have cost that is go away with the ERP system. So we're not going to give you the end result of that in advance here as it plays out plus we have cost work again across the board. I don't know if I've got anyone to add anything.
Activity on the basically for every 10 deals you study or work on maybe one happens.
Clearly the high interest rates against the sponsors of the pause.
Which may help us a little bit.
Because we never looked at these high leverage ratios on the other hand, we also recognized the data across the capital has gone up.
With the higher interest rates, so we continue to be disciplined.
Later in this game.
Thank you.
Gabe Hady: Yeah, the only thing I would say is I think gave our number on the injectables, ERP, and startup costs for the year is probably closer to 20 million than I think you mentioned 25, and we'll have another couple pennies or two million, two to three million in Q4 of this year. Okay.
Our next question comes from Ghansham Panjabi from Baird.
Please go ahead.
Good morning, everybody.
On the Rx growth of 20% in OTC up 14% and <unk> at.
At least part of that seems to be driven by new products and related inventory build for products such as Narcan can you help us dimensionalize the potential headwind from a volume standpoint, as you cycle through the inventory build comparisons thinking out to 2024 or do you not see that as material at this point.
Bob Kuhn: And then, butch and gears, I guess, to redeployment and their cast generation. I think you talked about CAPEX, starting to migrate back closer to DNA. I just want to kind of confirm that. And then, as you look across, I mean, you know, our model has you shaken out around 1.4, 1.5 times weathered. At the end of this year, anything in terms of the M&A pipeline that we should be thinking about or would the preferred avenue be kind of dividend and repo as we're looking at 24 and beyond?
Well certainly we don't see.
We will keep growing at these rates on the other hand there.
Not a day that goes by where we don't pick up.
Personally.
Reports of.
The non traditional channels continuing to expand whether it's <unk>, whether it's communities.
Its fire department so.
Yes, the OTC channel has added has added pipeline fill but.
Bob Kuhn: So we're still a little bit above Gabe on the CAPEX. So for the quarter, we spent about 76 million. Most of the amount above the DNA, which is about 63 million in the quarter, is really coming from the run out of the three big projects, primarily the injectables expansion. Yeah. And I would say, obviously, you see the growth that we have in FARMA. Those are not, we will continue to make sure that we have capacity available, especially in lifesaving medicines, who will not not expand capacity to get to certain CAPEX numbers, especially in these areas that go double digit at the moment.
Narcan.
Is increasingly pervasive and.
There, we see continue some growth there plus.
Given.
The nasal delivery route.
The increasingly seen as an attractive shortcut to the brain if you want.
We also see the piping pipeline continued to fill so yes of course, those those double digit or high double digit growth rates will not continue.
We also don't see a significant.
Had decline or anything like that but more in line with our pharma growth rate.
Okay and then for my second question on personal care, which seems it seems awfully weak across the board is there a category or customer mix issue that is weighing on this end.
Bob Kuhn: Yeah. And then I think on your comment on the de-leveraging by year end, so we're about 1.6. So we were able to take it out from the 1.8. And that's primarily due to a really strong cash generation, free cash flow generation in the quarter, which was about 97 million dollars, compared to 55 last year in the third quarter. So year to date, we're about 124. And again, we're continuing to focus on working capital, as well as the margin improvement that you've seen in Q3.
Segment for you and then for fragrance, which the whole supply chain ecosystem has called out as strong how sustainable do you think this is in context of uneven consumer spending that we're seeing in so many other categories.
Well.
Completely different dynamics and personal care.
Predominantly the U S destocking issue.
Sure.
And.
We see that.
Bob Kuhn: Now with respect to your M&A question, we continue to have an active M&A pipeline. And look at opportunities along the lines that we've done before, technologies, geographic opportunities, venturing, typing investments. So we continue our M&A activity unabatedly for every 10 deals you study or work on, maybe one happens. Clearly, the high interest rate gives the sources of pause, which may help us a little bit, because we never look at these high leverage ratios. On the other hand, we also recognize that our capital has gone up with higher interest rates. So we continue to be a discipline player in this game.
Running its course.
Several anecdotes or customers Hey, we're still fine leave us alone and then the next week the call Callout that Oh, My God, we ought to start to this item. Please we need it tomorrow.
Unknown Attendee: Thank you.
That hasnt happened in the past few quarters.
Now so it seems to me that.
Things will return.
I think we've said before certainly in personal care closures.
The closures, we had some share loss on the other hand.
Other categories had share gains, but certainly.
North America, whether it's personal care home care closures or person home care, that's still accounted for in beauty.
It has been a challenge for us on.
On the other hand would be signaling from what everything we see that will have run its course by the end of the year.
On fragrance is a completely different dynamics fragrance is really driven by launches.
Ghansham Panjabi: Our next question comes from Ghansham Panjabi, from bed. Please go ahead.
And then flankers and clearly brands are eager to continue to get their franchises out there. We also have.
Ghansham Panjabi: Good morning, everybody. You know, on the RX growth at 20% at OTC of 14% and 3Q, you know, at least part of that seems to be driven by new products and related inventory bill for products such as Narcan. Can you help us dimensionize the potential headwind from a volume standpoint as you cycle through the inventory build comparisons, thinking after 2024? Or do you not see that as material at this point?
Gain some share there and.
Without.
China really getting back into direction and we see that happening also now so again, we see a normalization of growth.
Okay.
Going the other way.
Thank you.
Stephan Tanda: Well, certainly we don't see that we will keep growing at these rates. On the other hand, there's not a date that goes by where we don't pick up personally reports of the non-traditional channels, continuing to expand, whether it's school, whether it's communities, whether it's fire departments. So yes, the OTC channel has added pipeline fill, but Narcan is increasingly pervasive. And the VC continue some growth there, plus, given that the nasal delivery route is increasingly seen as an attractive shortcut to the brain if you want.
Our next question is from Daniel Rizzo.
Jefferies.
Please go ahead.
Yeah.
Good morning, you mentioned the strength in prestige fragrances I was wondering if you have significant exposure to prestige beauty and if that is holding up well or its less exposure or it's just not doing as well as fragrances.
If you're referring to.
Prestige skin care.
Did grow there, but the majority of our growth there came from some tooling sales that we had in the quarter, but overall product sales were still very very good.
Okay.
And then you.
You mentioned that you are working to close the plant in France, and I know, it's kind of a process, but I wonder once that process complete have you quantified what the savings will be on an annual basis at the end of 'twenty four 'twenty five or whenever it is complete.
Stephan Tanda: We also see the pipeline continue to fill. So, of course, those double digit or high double digit growth rates will not continue, but we also don't see a significant decline or anything like that, but more in line with our farmer growth rates.
No we have not been for the simple reason that that would be detrimental to the negotiation process.
So again this is.
Unique in the world as far as I know process.
Ghansham Panjabi: Okay, then for my second question on personal care, which seems, it seems awfully weak across the board. Is there a category or customer mix issue that is weighing on this segment for you? And then for fragrance, you know, which the whole supply chain ecosystem is called that is strong. How sustainable do you think this is in context of uneven consumer spending that we're seeing in so many other categories?
Very demanding on everybody in the process.
And I can only give you the answer once it's done and agreed and signed.
The only comfort I would take it.
As compared to the previous process, where you need to negotiate both.
The future state and the way to get there in the different steps and how are you.
Stephan Tanda: Well, it's really completely different dynamics. And in personal care, it is predominantly the US stalking issue. And we see that running, of course, several anecdotes or customers say, you know, we're still fine. We can leave us alone. And then the next week they call out and say, oh, my God, we are out of stock to decide in a place we needed tomorrow. That hasn't happened in the past. A few quarters is happening now.
You get there is through voluntary processing voluntary process and the treatment and so on.
When you close the plant the future state is not much to be negotiated so it's more of how you're going to treat the employees.
That's right.
We think by mid next year, you will you will see the benefits of that closure.
But it's the only.
Closures facility that we have in France.
Stephan Tanda: So, it seems to me that things will return. I think we've said before, certainly in personal care closures, home care closures, we had some share loss on the other hand and other categories that share gains. But certainly North America, whether it's personal care home care closures or personal home care that still accounted for in beauty, has been a challenge for us.
Alright, Thank you very much.
As a reminder for any further questions. Please press star one on your telephone keypad now.
Yes.
As we have no further questions on Nicole I will hand, it back to Mr. Tim That's a wrap up.
Stephan Tanda: And on the other hand, we're signaling from what everything we see that will have run its course by the end of the year.
Great. Thanks. Thanks for your question, let me just reiterate.
Stephan Tanda: On Fredland, it's a completely different dynamics. Fredland is really driven by launches and then flankers and clearly brands are eager to continue to get their branches out there. We also have gained some share there, without China really getting back into direction and we see that happening also now. So again we see a normalization of growth but not going the other way.
Before as well as for 2020 for.
Unknown Attendee: Thank you.
Many of the measures we have taken over the past years are now progressively coming to fruition.
And you are starting to see them in our results.
Whether it's the much stronger execution.
<unk> much.
More capable and modernized inefficient asset base.
Growing pipeline.
And customers who are returning.
Not.
Being very exciting about our innovation capability.
And last not least the.
Very vigorous in multi year systematic cost focus.
Daniel Rizzo: Our next question is from Daniel Rizzo at Jeffries. Please go ahead.
All of these improvements.
The improved operating leverage that you see in the.
Daniel Rizzo: Good morning. You mentioned the strength in prestige fragrances. I was wondering if you have significant exposure to prestige beauty and if that's holding up well or it's less exposure or it's just not doing as well as fragrances. If you refer to the prestige skin care, we did grow there but the majority of our growth there came from some tooling sales that we had in the quarter but overall product sales were still very, very good.
Double digit EPS growth trajectory.
No.
As you look into the future.
Are you thinking about all the puts and takes we've talked about some of them. The proprietary drug dispensing systems will continue to grow.
After a period of double digit growth.
But will remain inside our growth targets for pharma overall to the best of our knowledge.
Injectable ERP story of course, we will not repeat that's up and running and we see a strong pipeline and the growing capacity in injectables.
Stephan Tanda: Okay. And then you mentioned that you know you're working to close the plant in France and I know it's kind of a process but I wonder once that process complete have you quantified what the savings will be on an annual basis at the end of the 24 or 25 or whatever it's complete. No, we have not been put a simple reason that that will be detrimental to the negotiation process. So again this is unique in the world as far as I know process that is very demanding on everybody in the process and can only give you the answer once it's done and agreed and signed.
The active material business.
Covid difficult.
Comparison is rushing out and we see that business returning to growth.
And lastly in pharma the digital health business is becoming less of a drag over time.
Fragrance will continue to grow.
Not a double digit but in line with our beauty.
Overall growth targets and the drag from North America will abate, both for beauty and foreclosures and let's not forget that the largest market for beauty China is recovering.
Coming back.
At the same time SG&A is coming down as a percentage of revenue.
Stephan Tanda: The only comfort I would take is it compared to the previous process where you need to negotiate both the future state and the way to get there and the different steps and how you get there is the voluntary process in the process and the treatment and so on. When you close the plant, the future state is not much to be negotiated so it's more of a how you're going to treat the employees. That's why we say we think by mid next year you will see the benefits of that closure but it's the only closures facility that we have in France.
<unk>.
Giving you a view on the further cost actions and of course, there are additional activities ongoing boosting our global talent centers.
<unk> taken care of cost differentials.
Having said all that that'd be true everywhere, especially in the U S. A good Thanksgiving.
And everybody else a good rest of the year and relaxing holiday season, and we see all of you on the road. Thank you.
Yeah.
This concludes today's conference call. Thank you very much for joining you may now disconnect your lines.
[music].
Unknown Attendee: Thank you very much. As a reminder for any further questions, please press the star one on your telephone keypad now.
Sure.
Stephan Tanda: As we have no further questions on the call, I will hand it back to Mr Tanda to wrap up. Great. Thanks for your questions.
Stephan Tanda: Let me just reiterate, as well as for 2024, many of the measures we have taken over the past years are now progressively coming to fruition and you are starting to see them in our results. Whether it's the much stronger execution, they are much more capable and modernized in the efficient asset base, growing pipeline and customers who are returning, it's not being very exciting about our innovation capability. Very vigorous and multi-year systematic cross focus, all of these improvements are behind the improved operating leverage that you see and the double due to EPS growth trajectory.
Stephan Tanda: So as you look to the future, when you think about all the puts and takes, we talked about some of them, the proprietary drug dispensing systems will continue to grow after a period of double-digit growth, but will remain inside our growth targets for farmer overall to the best of our knowledge. Injective ERP story, of course, will not repeat, that's up and running, and we see a strong pipeline and a growing capacity in injectables.
Stephan Tanda: The active material business, the COVID, the difficult COVID comparison is washing out, and we see that business returning growth and lasting farm of a digital health business is becoming less of a drag over time. Fraggans will continue to grow, not a double digit, but in line with a beauty overall growth targets and the drag from North America will abate both for beauty and for closures. And let's not forget that the largest market for beauty China is recovering and is coming back.
Stephan Tanda: At the same time, as GNA is coming down as a percentage of revenue, and begin you review on the further cross-sections, and of course there are additional activities ongoing, boosting our global talent centers, and taking care across different levels.
Stephan Tanda: With having said all that, I wish everyone especially in the US, a good Thanksgiving, and everybody else a good rest of the year, and the relaxing holidays season, and we see all of you on the road. Thank you.