Q1 2024 AptarGroup Inc Earnings Call
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Operator: Attention everyone: Thank you for your patience. Please remain holding as the call will begin shortly. Once again, please remain holding. The call will begin shortly. Thank you. 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 Skafidas, Senior Vice President, Investor Relations and Communication. Please go ahead.
Speaker Change: Attention everyone. Thank you for your patience. Please remain holding of the call will begin shortly once again, please remain holding the call will begin shortly thank you.
Speaker Change: [music].
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to <unk> 'twenty 'twenty four first quarter conference call.
Mary Skafidas: The 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-GAAP financial measures. These measures are reconciled to the most directly comparable gap financial measure, and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable gap measures discussed during this earnings call. As always, we will also post a replay of this call on our website. Now, I would like to turn the conference call over to Stephan.
Speaker Change: At this time all participants are in a listen only mode.
Speaker Change: Later, we will conduct a question and answer session.
Speaker Change: Introducing today's conference call is Mrs. Mary Skid fetus Senior Vice President Investor Relations and Communications. Please go ahead.
Speaker Change: Thank you Hello, everyone and thanks for being with US today, joining me on today's call are Stephane tender, President and CEO 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.
Stephan B. Tanda: Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our first quarter results. Later in the call, Bob Kuhn, our CFO, will provide additional details on key drivers for the quarter. Starting on slide three, for the first quarter, I am pleased to report that Aptar achieved core sales growth of 5% and delivered adjusted EPS of $1.26, a more than 30% increase over the prior year quarter.
Speaker Change: During this call we will be discussing certain non-GAAP financial measures.
Speaker Change: These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for a reconciliation of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call.
Speaker Change: As always we will also post a replay of this call on our website.
Speaker Change: Now I would like to turn the conference call over to Stephane.
Stephan B. Tanda: Thank you Mary and good morning, everyone. We appreciate you joining us on the call today.
Stephan B. Tanda: Strong demand for our pharma segment's proprietary drug delivery system and improved performance for the injectables unit, as well as the recovery in North American consumer end markets contributed positively to our quarterly results. Our pharma segment continued to see robust sales of our proprietary drug delivery system with high single-digit core sales growth in the quarter, following more than 30% core growth in the first quarter of 2023. Demand was broad-based, with growth in every region and across several market categories, from emergency medicines to allergy treatments and central nervous system therapeutics.
Stephan B. Tanda: I'll begin my remarks by highlighting our first quarter results.
Stephan B. Tanda: Later in the call Bob <unk>, our CFO, who will provide additional details on key drivers for the quarter.
Stephan B. Tanda: Starting on slide three for the first quarter I'm pleased to report that.
Stephan B. Tanda: <unk> core sales growth of 5% and delivered adjusted EPS of $1 26, and more than 30% increase over the prior year quarter.
Stephan B. Tanda: Strong demand for our pharma segment proprietary drug delivery system.
Robert W. Kuhn: And improved performance for the Injectables unit as well as the recovery in North American consumer end market contributed positively to our quarterly results.
Stephan B. Tanda: As a reminder, our proprietary portfolio of drug delivery systems is expected to grow within our 7 to 11 long term core sales range target this year after strong double-digit core sales growth in 2023. The injectables unit saw a marked improvement over the prior year quarter as the ERP system implementation headwind from the first quarter of 2023 did not repeat, and demand for elastomeric components for the biologics market continued to grow nicely.
Robert W. Kuhn: Our pharma segment continued to see robust sales of our proprietary delivery system with high single digit core sales growth in the quarter following more than 30% core growth in the first quarter of 2023.
Robert W. Kuhn: Demand was broad based with growth in every region and across several end market categories from emergency medicine through allergy treatments and central nervous system Therapeutics.
Robert W. Kuhn: As a reminder, our proprietary portfolio of drug delivery systems is expected to grow within our 711 long term core sales range target also this year after strong double digit core sales growth in 2023.
Stephan B. Tanda: 2024 continues to be a busy year for injectables as the final phases of the capacity expansions announced in 2020 for France and the US come online and are expected to be validated for commercialization in early 2025.
Robert W. Kuhn: The Injectables unit, so a market improvement over the prior year quarter as the ERP system implementation headwind from the first quarter of 2023 did not repeat and demand for a less generic components for the biologics market continues to grow nicely 2024 continues to be a build out year.
Stephan B. Tanda: In our beauty segment, first quarter core sales growth was basically flat year over year with a challenging comparison of a strong first quarter 2023 that was driven by exceptional sales in Europe for fragrances and, As a reminder, last year Marpigros was driven by a boom in fragrance launches post-COVID. As previously mentioned, we expect continued growth for fragrance dispensing solutions for the year, but at a more measured pace. Even as sales in Europe normalized, adjusted EBITDA margins for the region were well within the beauty segment's long-term EBITDA margin range, turning out to North America, while some markets remain soft. Overall, the region is showing clear signs that widespread de-stalking is coming to an end.
Robert W. Kuhn: For Injectables.
Robert W. Kuhn: Are there any pieces of the capacity expansions in 2020 for France, and the U S come online and are expected to be validated through commercialization in early 2025.
Robert W. Kuhn: Beauty segment first quarter core sales growth was basically flat year over year with a challenging comparison off a strong first quarter 2023 that was driven by exceptional sales in Europe for fragrances.
Robert W. Kuhn: As a reminder, last year market growth was driven by a boom in fragrance launches post COVID-19 as.
Robert W. Kuhn: As previously mentioned, we expect continued growth for fragrance dispensing solutions for the year, but at a more measured pace.
Robert W. Kuhn: Even though sales in Europe normalized adjusted EBITDA margin for the region, we are well within the beauty segments long term EBITDA margin range.
Robert W. Kuhn: Turning now to North America, but some end markets remained soft.
Robert W. Kuhn: Overall, the region is showing clear signs that the widespread destocking is coming to them and we continue to expect that recovery will not be linear and will be different end market by end market across our beauty enclosure segments.
Stephan B. Tanda: We continue to expect that recovery will not be linear and will be different end market by end market across the beauty enclosure segment. Our focus on footprint rationalization and reducing fixed costs will remain the top priority in 2024. Over the last several quarters, we have improved margins. As a reminder, since 2022, we have initiated formal cost reduction programs in several European countries, including two social plans in France. We are reducing the beauty segment's European workforce by about 5%.
Robert W. Kuhn: Our focus and footprint rationalization and reducing fixed costs remains a top priority in 2024.
Robert W. Kuhn: Over the last several quarters, we have improved margins as a reminder, since 2022, we initiated formal cost reduction programs.
Robert W. Kuhn: Several European countries, including to social plans in fragrance.
Robert W. Kuhn: We are reducing the beauty segments European workforce by about 5% and as previously mentioned the closing of a facility in France.
Stephan B. Tanda: And as previously mentioned, the closing of a facility in France that serves closures is expected to be finalized by mid-year. This is in addition to the facility that was closed last year in North America. Additionally, quarter over quarter, we have reduced selling general and administrative SG&A as a percentage of sales by 50 basis points.
Robert W. Kuhn: <unk> closures is expected to be finalized by midyear.
Robert W. Kuhn: This is in addition to the facility that was closed last year North America. Additionally.
Robert W. Kuhn: Additionally quarter over quarter, we have reduced selling general and administrative openness G&A.
Robert W. Kuhn: As a percentage of sales by 50 basis points.
Stephan B. Tanda: Looking ahead in the second half of the year, we plan to close our manufacturing operations in Argentina for beauty and for closures but maintain our pharma manufacturing operations in the country. We will continue to review and streamline our footprint to increase operational leverage while meeting market demand. Moving to slide four, highlighting recent corporate awards and recognition. We firmly believe operating in a sustainable manner and developing more sustainable product solutions is an important competitive advantage for Aptargroup.
Robert W. Kuhn: Looking ahead in the second half of the year.
Robert W. Kuhn: We plan to close our manufacturing operations in Argentina for beauty and closures, but maintaining our pharma manufacturing operations in the country.
Robert W. Kuhn: We will continue to review and streamline our footprint to increase operational leverage while meeting market demand.
Robert W. Kuhn: Now moving to slide four highlighting recent corporate awards and recognitions.
Robert W. Kuhn: We firmly believe operating in a sustainable manner and developing more sustainable product solution is an important competitive advantage for <unk>.
Stephan B. Tanda: As a reflection of our progress during the quarter, we were named one of Barron's most sustainable U.S. companies for the sixth consecutive year, ranked number 29 out of 100 companies for 2024. CDP, formerly known as the Carbon Disclosure Project, also named us as a supplier engagement leader for the fourth consecutive year due to our contributions to emission reductions throughout the value chain, a recognition that is highly valued by many of our customers. Lastly, Capital Magazine identified Aptar as one of the 2024 Best Employers in France, where we are now number 14 in the healthcare and pharmaceuticals category.
Robert W. Kuhn: Is it a reflection of our progress during the quarter. We were named one of Barron's most sustainable U S companies for the sixth consecutive year.
Robert W. Kuhn: Number 29 out of 100 companies for 2024.
Robert W. Kuhn: CDP, formerly known as the carbon disclosure project also mean, the supply engagement leader for the fourth consecutive year due to our contributions to emission reduction throughout the value chain.
Robert W. Kuhn: Condition that is highly valued by many of our customers.
Speaker Change: Lastly, Kathy.
Speaker Change: Capital magazine identified out there as one of the 2024 best employers in France, where we are in a number of 2014 into healthcare and pharmaceuticals category.
Stephan B. Tanda: Before I turn the call over to Bob to share further details on quarter one, I want to speak about innovation and highlight recent technologies and product launches, as shown in slide five. Starting with several launches in our pharma segment, our airless plus system is a drug delivery solution used to treat rosacea, which was recently approved by the National Medical Products Administration in China. Our proprietary ophthalmic squeeze dispenser is used for Apri's Refresh brand of an over-the-counter lubricant eye drop treatment in the U.S. Next, Pure Hail Technology is used to dispense Frida Baby's Ultrafine Natural Sterile Sealing Mist for children's cough and cold.
Speaker Change: Before I turn the call over to Bob to share further details in quarter, one I want to speak about innovation and highlight recent technologies and product launches as shown on slide five.
Robert W. Kuhn: Starting with several launches in our pharma segment, our <unk> plus system is the drug delivery solution used to treat rosacea.
Robert W. Kuhn: Can be approved by the National Medical products administration in China.
Our proprietary ophthalmic squeeze dispenser is used for athletes refresh brand of an over the counter lubricant eyedrop treatment in the U S.
Robert W. Kuhn: Next a pure health technology is used to dispense freed up babies ultrafine natural sterile saline mist and children's cough and cold.
Robert W. Kuhn: Finally in Turkey, our nasal spray pump is used to deliver.
Stephan B. Tanda: Finally, in Turkey, our nasal spray pump is used to deliver a new allergic rhinitis treatment. Cody's New Marc Jacobs Daisy Wilde Fragrance, and Green Collared Diptoo. Aptar's recyclable airless dispensing system is the delivery solution for Avene's Dermacosmetic Rosacea Ocean. Our reloadable airless technology is featured on a skin care launch by Chinese beauty brand Zubin, and our fully recyclable lotion pump is featured on a new men's skin care line in the U.S. Moving to closures, our sports cap is the dispensing solution for PepsiCo's new Gator Finally, our temper evidence snap top closure that features a customizable in molded scoop is featured on Nutrafarm's protein supplement in Latin America. Now, I would like to turn the call over to Bob.
Robert W. Kuhn: New allergic rhinitis treatment.
Robert W. Kuhn: Turning to beauty <unk>, new Marc Jacobs Daisy wealth fragrant features our fragrance pump customer World Cup.
Robert W. Kuhn: Green colored dip too.
Robert W. Kuhn: At first recyclable airless dispensing system as the delivery solution for.
Robert W. Kuhn: Dermal cosmetic gross Asia Ocean.
Robert W. Kuhn: Our reloadable Airless technology is featured on our skin care launch, where Chinese beauty brands Zubin.
Robert W. Kuhn: Fully recyclable lotion pump is featured on a new men's skin care line in the U S.
Robert W. Kuhn: Moving to closures are sports cap is the dispensing solution for pepsico's, new Gatorade border.
Robert W. Kuhn: And our motor material tamper evident closure is featured on the line of Voss water. Both fund here in the U S. A fully.
Robert W. Kuhn: Fully recyclable choked up is used for unilever's, St Ives brands' skin scrubbed.
Robert W. Kuhn: Finally, our timber evidenced snap top closures that features a customizable embolden featured a mutual firms protein supplement in Latin America.
Robert W. Kuhn: Now I would like to turn the call over to Bob.
Robert W. Kuhn: Thank you, Stephan, and good morning, everyone. Starting on slide six, I would like to summarize the quarter. Our reported sales increased 6%, and this included a currency translation benefit of approximately 1%. Therefore, core sales grew 5% primarily due to strong growth in pharma's proprietary drug delivery systems and improved injectable sales, as well as in recovering North American markets. As shown on slide 7, we reported a first quarter adjusted earnings per share of $1.26, which is a 31% increase over the prior year's adjusted EPS.
Robert W. Kuhn: Thank you Stefan and good morning, everyone Star.
Robert W. Kuhn: Starting on slide six I would like to summarize the quarter.
Robert W. Kuhn: Our reported sales increased 6%.
Robert W. Kuhn: This included a currency translation benefit of approximately 1%.
Therefore core sales grew 5% primarily due to strong growth in farmers proprietary drug delivery systems and improved injectable sales as well as in recovering North American market.
Robert W. Kuhn: As shown on slide seven we reported first quarter adjusted earnings per share of $1 26.
Robert W. Kuhn: Which is a 31% increase over the prior year's adjusted EPS.
Robert W. Kuhn: During the quarter, we achieved adjusted EBITDA of $179 million, which increased from the prior year's first quarter by 16%, driven by expanding margins in all three segments. Improved operational performance and a lower tax rate led to a higher earnings per share result versus the range provided in our outlook. Turning to some of the details by segment for the quarter, our pharma segment's core sales increased 13% due to volume growth, especially in our proprietary drug delivery systems and elastomeric components.
Robert W. Kuhn: During the quarter, we achieved adjusted EBITDA of $179 million, which increased from the prior year's first quarter by 16% driven by expanding margins in all three segments.
Robert W. Kuhn: Improved operational performance and a lower tax rate led to a higher earnings per share result versus the range provided in our outlook.
Robert W. Kuhn: Turning to some of the details by segment for the quarter, our pharma segments core sales increased 13% due to volume growth, especially in our proprietary drug delivery systems and elastomer components.
Robert W. Kuhn: Looking at sales in the pharma segment by market, we will start breaking out our proprietary drug delivery systems, which performed extremely well in the quarter. Prescription core sales increased 10%, driven by strong sales of allergic rhinitis, asthma, central nervous system therapeutics, and emergency medicine. Core sales for consumer healthcare increased 2% due to higher demand for nasal saline and nasal decongestant solutions, which more than offset the decline in dermal. Injectable course sales increased 54% over the prior year quarter, which was adversely impacted by an ERP system implementation, affecting operations and shipping days, which did not repeat.
Robert W. Kuhn: Looking at sales in the pharma segment by market, we will start breaking out our proprietary drug delivery systems, which performed extremely well in the quarter.
Robert W. Kuhn: Prescription core sales increased 10% driven by strong sales of allergic rhinitis asthma central nervous system therapeutics and emergency medicines.
Robert W. Kuhn: Core sales for consumer healthcare increased 2% due to higher demand for nasal saline and nasal decongestant solutions, which more than offset the decline in dermal.
Injectable core sales increased 54% over the prior year quarter, which was adversely impacted by an ERP system implementation affecting operations and shipping days, which did not repeat.
Robert W. Kuhn: We saw increases in several end markets, including elastomeric components for biologics and small molecules. Core sales for our active material science solutions improved in the quarter, increasing 2% with returning demand for our products used in probiotics and oral solid dose applications. Farmers' adjusted EBITDA margin was 32%, a more than one point improvement from the prior year's quarter.
Robert W. Kuhn: We saw increases in several end markets, including Alaska America components for biologics and small molecules.
Robert W. Kuhn: Core sales for our active materials science solutions improved in the quarter, increasing 2% with returning demand for our products used on probiotics and oral solid dose applications.
Robert W. Kuhn: Farmers adjusted EBITDA margin was 32%.
Robert W. Kuhn: More than one point improvement from the prior year's quarter.
Robert W. Kuhn: Turning to our beauty segment, core sales decreased 1% in the quarter. As anticipated, sales of our fragrance dispensing solutions slowed after a period of rapid growth in 2023. Volume growth for beauty increased, but was offset by resin. Overall, difficult comparisons for Prestige and Mass Fragrance dispensing solutions in the prior year quarter contributed to the muted results.
Robert W. Kuhn: Turning to our beauty segment core sales decreased 1% in the quarter as anticipated sales of our fragrance dispensing solutions slowed after a period of rapid growth in 2023.
Robert W. Kuhn: Volume growth for beauty increased but was offset by resin pass throughs.
Robert W. Kuhn: Core sales for the beauty market were flat in the quarter.
Robert W. Kuhn: Overall difficult comparisons for prestige and mass fragrance dispensing solutions in the prior year quarter contributed to the muted results.
Robert W. Kuhn: Regionally, sales in North America showed signs of recovery with strong facial skin care sales. However, core sales for the personal care market decreased 4% due to widespread market softening, primarily due to a decline in sun care application. Homecare core sales increased 2%, driven by sales in North America and Europe. This segment's adjusted EBITDA margin for the quarter was approximately 13%. The margin improvement was due to improved operational performance, along with our continued focus on cost management.
Robert W. Kuhn: Regionally sales in North America showed signs of recovery with strong facial skincare sales.
Robert W. Kuhn: Core sales for the personal care market decreased 4% due to widespread market softness primarily due to decline in sun care applications.
Robert W. Kuhn: Home care core sales increased 2% driven by sales in North America and Europe.
Robert W. Kuhn: This segment's adjusted EBITDA margin for the quarter was approximately 13%.
Robert W. Kuhn: The margin improvement was due to improved operational performance along with our continued focus on cost management.
Robert W. Kuhn: The closure segment's core sales increased by 1% compared with the prior year's quarter due to an improving North American market with increased personal care and home care sales. However, the positive impact from the improving North American market was offset by lower beverage sales in Europe as customers continued to transition to a new environmentally friendly closure. When looking at sales by market foreclosures, food court sales increased 3%. This includes strong tooling sales in North America for food closure capacity expansions in the first quarter.
Robert W. Kuhn: The closure segment's core sales increased by 1% compared with the prior year's quarter due to an improving north American market with increased personal care and home care sales.
Robert W. Kuhn: A positive impact from the improving North American market was offset by lower beverage sales in Europe as customers continue to transition to new environmentally friendly closure.
Robert W. Kuhn: When looking at sales by market for closures food core sales increased 3%.
Robert W. Kuhn: This includes strong tooling sales in North America for food closure capacity expansions in the first quarter.
Robert W. Kuhn: Strong growth in our dry spices and food protection products contributed positively to the results, while North America and Europe led regionally. BeverageCorp sales decreased 4% primarily due to market timing around customer conversions to tethered caps in compliance with European regulations.
Robert W. Kuhn: Strong growth in our dry spices and food protection products contributed positively to the results, while North America and Europe led regionally.
Robert W. Kuhn: Beverage core sales decreased 4%, primarily due to market timing around customer conversions to tether caps in compliance with European regulations.
Robert W. Kuhn: Core sales for personal care closures increased 2% after an extended period of decline. Regionally, rebounding demand in North America and Latin America had a positive impact on the quarter. In our fourth category, which includes beauty, home care, and health care, core sales decreased 5% due mainly to a decrease in beauty closures.
Robert W. Kuhn: Core sales for personal care closures increased 2% after an extended period of decline.
Robert W. Kuhn: Regionally rebounding demand in North America, and Latin America had a positive impact on the quarter.
Robert W. Kuhn: And our fourth category, which includes beauty home care and health care.
Robert W. Kuhn: Core sales decreased 5% due mainly to a decrease in beauty closures.
Robert W. Kuhn: The segment's adjusted EBITDA margin was 15% for the quarter, a slight increase over the same period last year. In Q1 2024, cash flow from operations was approximately $92 million. Free cash flow was approximately $17 million for the quarter. In the first quarter of 2024, we had capital expenditures of approximately $76 million, the majority of which were in our pharma segment for capacity expansions in North America, Europe, and Asia. Reported depreciation and amortization expense increased 9% over the prior year quarter to approximately $64 million, or 7% of sales.
Robert W. Kuhn: The segment's adjusted EBITDA margin was 15% for the quarter, a slight increase over the same period last year.
Robert W. Kuhn: In Q1, 2024 cash flow from operations was approximately $92 million free cash flow was approximately $17 million for the quarter.
Robert W. Kuhn: In the first quarter of 2024, we had capital expenditures of approximately $76 million. The majority of which were in our pharma segment for capacity expansions in North America, Europe and Asia.
Robert W. Kuhn: Reported depreciation and amortization expense increased 9% over the prior year quarter to approximately $64 million or 7% of sales.
Robert W. Kuhn: Moving to slide 8, which summarizes our outlook for the second quarter, we anticipate our strong momentum to continue and expect second 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 $1.30 to $1.38 per share. The estimated tax rate range for the second quarter is 22 to 24 percent.
Moving to slide eight which summarizes our outlook for the second quarter, we anticipate a strong momentum to continue and expect second 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 30 to $1 38 per share.
Robert W. Kuhn: The estimated tax rate range for the second quarter is 22% to 24%.
Stephan B. Tanda: We are expecting currencies to have a small positive impact compared to the prior year quarter. We currently estimate depreciation and amortization for 2024 to be between 260 and 270 million dollars. We expect our capital expenditures in 2024, net of any government grants, to be between $280 and $300 million, with the majority of capital allocated to our pharma segment. In closing, we continue to have a strong balance sheet with a leverage ratio of approximately 1.4, which allows us to continue to invest in the business, pursue strategic opportunities, and continue to return value to shareholders in the form of dividends and share repurchases.
Robert W. Kuhn: We are expecting currencies to have a small positive impact compared to the prior year quarter. We currently estimate depreciation and amortization for 2024 to be between $260 million to $270 million.
Robert W. Kuhn: We expect our capital expenditures in 2024 net of any government grants to be between 280 and $300 million with the majority of capital allocated toward our pharma segment.
In closing we continue to have a strong balance sheet with a leverage ratio of approximately $1 four which allows us to continue to invest in the business pursue strategic opportunities and continue to return value to shareholders in the form of dividends and repurchases.
Stephan B. Tanda: In addition to our cash dividend payments to shareholders, which totaled approximately $27 million in a quarter, we repurchased about 86,000 shares for approximately $12 million. At this time, Stephan will provide a few closing comments before we move to Q&A. Thanks, Bob.
Robert W. Kuhn: In addition to our cash dividend payments to shareholders, which totaled approximately $27 million in the quarter, we repurchased about 86000 shares for approximately $12 million.
At this time Stefan will provide a few closing comments before we move to Q&A.
Stefan: Thanks, Bob in closing following a very strong start in quarter, one we see our momentum continuing in quarter, two and the balance of the year.
Operator: In closing, following a very strong start in quarter one, we see our momentum continuing in quarter two and the balance of the year. Demand for our proprietary drug delivery systems will continue in the second quarter as will demand for elastomeric components for biological. As a reminder, we expect our proprietary duct delivery systems to grow within our long-term core sales target range of 7 to 11% for the full year. We see demand for our consumer dispensing, especially for our closures technology, to build in quarter two as the North American market continues to recover from this tough. Improving EBITDA margins through cost management and operational performance continues to be a strong focus. With that, I would like to open the call up for your question.
Stefan: Demand for our proprietary drug delivery systems will continue in the second quarter as well demand for elastomer components for biologics.
Stefan: As a reminder, we expect our proprietary delivery systems to grow within our long term core sales target range of 7% to 11% for the full year.
Stefan: We see demand for our consumer expensing, especially for a closure technology to building quarter two as the North American market continues to recover from Destocking.
Speaker Change: Improving EBITDA margins through cost management and operational performance continues to be a strong focus with that I would like to open the call up for your questions.
Operator: We will now begin the question and answer session. 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. The first question comes from a line from George Staphos with Bank of America. George, please go ahead.
Speaker Change: We will now begin the question and answer session.
Speaker Change: 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.
Speaker Change: The first question comes from the line of George Staphos with Bank of America. Deutsche. Please go ahead.
George Leon Staphos: Thanks. Hi everyone. Good morning. I hope you can hear me okay.
George Leon Staphos: Thanks, Hi, everyone. Good morning Hope you can hear me okay.
Stephan B. Tanda: Thanks for the details. Stephan, you mentioned again that you expect pharma to grow in its normal core growth range of 7 to 11 percent, and that's terrific given the comparisons, obviously saying and doing two different things, but taking that at face value, how should we expect the various end markets or product categories to really trend this year within that 7 to 11 percent? That's my first question. Second question to you both, in terms of the timing issues that you mentioned in terms of beverage closures in Europe.
George Leon Staphos: Thanks for the details.
George Leon Staphos: Stephane you mentioned again that you expect pharma to grow and its normal core growth range of 7% to 11%.
George Leon Staphos: And that's that's terrific given the comparisons.
George Leon Staphos: Saying and doing it are two different things.
George Leon Staphos: That at face value, how should we expect the various end markets or product categories really to trend this year within that 7% to 11%.
My first question second.
George Leon Staphos: Second question.
George Leon Staphos: You both in terms of the timing issues that you mentioned in terms of beverage closures in Europe.
Stephan B. Tanda: Should we be worried at all about what the implications are longer term for plastics and beverages in Europe? Yes, you're benefiting from the tethered closure, but, you know, is the tide going out to sea, so to speak? And that's something else you're going to have to worry about longer term. Thank you.
George Leon Staphos: Should we be worried at all about what the implications are longer term for plastics and beverages in Europe, yes sure.
George Leon Staphos: Benefiting from the tethered closure, but is the tide going out to sea so to speak and that's something else you have to worry about longer term. Thank you.
Speaker Change: Thanks, George and we could hear you just fine.
Speaker Change: Look.
Stephan B. Tanda: Thanks, George. And we could hear you just fine.
Speaker Change: Within pharma.
Speaker Change: The proprietary.
Stephan B. Tanda: Look, within pharma, the proprietary Drug Dispensing Solutions are growing really, really nicely, and we don't see that changing for the year. And then, of course, in biologics, we are rebounding from the situation last year. Plus, we see continued good growth. For us, the COVID hangover was not significant in injectables, so we just benefit from real growth. Now, the year-over-year comparisons for every quarter are going to be a bit screwy; sorry for the technical term.
Speaker Change: Drug dispensing solutions are growing really really nicely and we don't see that to change.
Speaker Change: For the year and then of course in biologics.
Speaker Change: We are rebounding from the situation with last year.
Speaker Change: Plus we see continued good growth.
Speaker Change: As the Covid hangover was not significant in an injectable.
Speaker Change: So we just benefited from real growth now the year over year comparisons for every quarter is going to be a bit.
Speaker Change: Screwy, sorry for the technical term, but overall, we see good growth in the Injectables as well same for active material solutions.
Stephan B. Tanda: But overall, we see good growth in injectables as well, and the same for active material solutions which are returning to growth. So it's really... and the other is the one that is led by proprietary drug dispensing solutions, and that obviously bodes well for the business. Now in terms of beverages, look, right now everybody is transitioning to tethered caps. There is some inventory effect; there is some technical effect of getting machines adjusted to the new caps.
Speaker Change: Returning to growth so it's really.
Speaker Change: Broad based.
Speaker Change: Led by the proprietary drug dispensing solutions and that obviously bodes well for the business now in terms of beverage.
Speaker Change: Right now everybody is transitioning to the debit caps theres some.
Speaker Change: The inventory effect there is some technique.
Speaker Change: The effect of getting machines adjusted to the new caps, but overall, we don't see any.
Stephan B. Tanda: But overall, we don't see any concern for the beverage business. I think we are past the plastic peak panic. Even in Europe now, that might not be true for some capitals. But overall, the reality of carbon footprint and total lifecycle analysis, I think prevails. You saw Unilever also pushing out their goals to 2030. I think there's just a general pragmatism that returns.
Speaker Change: Concern to the beverage business.
Speaker Change: I think we have passed.
Speaker Change: <unk>.
Speaker Change: Peak panic.
Speaker Change: Even in Europe.
Speaker Change: It may not be true for some capitals, but overall.
Speaker Change: The reality of carbon footprint in total lifecycle analysis, I think prevails you saw unit labor.
Speaker Change: Also pushing out their goal is to 2030 I think there's just a general pragmatism that returns.
Speaker Change: Thank you Stefan.
Speaker Change: Yeah.
Operator: The next question comes from the line of Ghansham Panjabi with Baird. Your line is now open.
Speaker Change: The next question comes from the line of Ghansham Panjabi with Baird. Your line is now open.
Ghansham Panjabi: Hey guys, good morning. You know, obviously, very, very strong growth in pharma. And I know the reasons for that in terms of the base effect from last year. Did the operating margins come in in line with what you thought they would? I'm just asking because last year, you know, in the first quarter, obviously, margins were down on a year over year basis, and you've built up very nice operating leverage at that level.
Ghansham Panjabi: Hey, guys good morning.
Ghansham Panjabi: Obviously, very very strong growth in pharma and I know the reasons for that in terms of the base effect from last year.
Ghansham Panjabi: Operating margins came in in line with what you thought they would just asking because last year in the first quarter, obviously margins were down on a year over year basis.
Ghansham Panjabi: You built up very nice operating leverage over that level, but I just thought that would be a little bit more meaner version, just given the extent of growth and maybe maybe apparel question is that mix related just because of injectables, having that sort of outsize growth.
Ghansham Panjabi: But I just thought there would be a little bit more mean reversion just given the extent of growth. And maybe, maybe a parallel question is, is that mixed related just because of injectables, having that sort of outside influence?
Robert W. Kuhn: Hi Ghansham, yeah, I would say it is pretty much in line with expectations. Remember that when injectable grows much faster, and 50% is much faster, that has a negative mixed impact on overall pharma. And therefore, you don't see a bigger expansion than you might have liked. So overall, this is fully in line. The other point I would make is that if there's one business we keep reinvesting in, including cost, it is, of course, pharma; we keep reinvesting in innovation in new business development. So the margins are in line with what we expect.
Speaker Change: Hi, Ghansham I would say pretty much in line with expectations.
Ghansham Panjabi: Remember that.
Ghansham Panjabi: When injectable growth.
Ghansham Panjabi: Fast, 50%, it's much faster.
Ghansham Panjabi: It has a negative mix impact on the overall pharma and therefore.
Ghansham Panjabi: You don't see it.
Ghansham Panjabi: Bigger expansion than you might've Mike.
Ghansham Panjabi: So overall this is.
Ghansham Panjabi: Fully in line the other point I would make.
Ghansham Panjabi: There is one business, we keep reinvesting in including cost which of course pharma, we keep reinvesting in innovation and new business development.
So.
Ghansham Panjabi: Margins are in line with what we expected.
Ghansham Panjabi: Okay, sure. Thank you.
Speaker Change: Okay sure. Thank you and then for fragrance.
Stephan B. Tanda: And then for fragrance, you know, just expand on your sort of outlook for the rest of the year. I mean, obviously, comparisons are going to be difficult. We've talked about that in the past.
Just expand on your sort of outlook for the rest of the year I mean, obviously comparisons are going to be difficult as we've talked about that in the past.
Stephan B. Tanda: Are you expecting growth to still remain positive for that segment? What's the customer sentiment at this point specific to that market? Yeah, sentiment remains positive.
Speaker Change: Are you expecting growth to still remain positive for that segment.
Speaker Change: Customer sentiment at this point specific to that market.
Speaker Change: Yeah.
Speaker Change: Yes, Sir.
Stephan B. Tanda: Yeah, sentiment remains positive. Of course, the comparison quarter one, in particular given the boom of launches last year, is difficult, but we would expect fragrance to continue to end the year somewhere in the three to six percent range. We see the regions continuing to perform well, and as a reminder, what we sell in Europe ends up all over the world, especially in this segment, and we also have some good strength in Latin America. So overall, I think the three to six makes sense.
Speaker Change: Main positive of course, the comparison quarter one in particular given the.
Speaker Change: Boom of launches last year is difficult, but we would expect fragrance to continue to end the year somewhere in the 3% to 6% range.
Speaker Change: We see the regions continuing to perform well and good.
Speaker Change: A reminder, what we.
Speaker Change: We sell in Europe ends up all over the world, especially in this segment.
Speaker Change: And also some good strength in Latin America. So overall I think the three years to six makes sense.
Speaker Change: Yeah.
Speaker Change: Perfect. Thank you so much.
Operator: you. The next question comes from the line of Daniel Rizzo with Jeffries. Daniel, please go ahead.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Daniel Rizzo with Jefferies.
Please go ahead.
Daniel Dalton Rizzo: Good morning. Thank you for taking my question. You mentioned that the capacity expansions in Pharma are coming to an end. I was just wondering, you know, post that, what your capacity utilization would be in those segments and, I don't know, at what point you would think you would have to expand further? Like what we can expect, I guess, over the next five years.
Daniel Dalton Rizzo: Good morning. Thank you for taking my question, you mentioned that the capacity expansions and pharma are coming to an end I was just wondering.
Daniel Dalton Rizzo: Post that what's your capacity utilization would be when those segments and I don't know.
At what point you would think you would have to expand further like what we can expect.
Daniel Dalton Rizzo: Over the next five years.
Stephan B. Tanda: Yeah, I think we are, done with big new buildings and again if you come on the trip with us later this year you will see it i mean it's a phenomenal state-of-the-art new building we're done with that kind of uh but within the building we can further create capacity so certainly we have ample capacity um as this new capacity is being validated and then the capacity increments uh if they need it down the road in the five-year period they will be more of a smaller increment as we increase cavity counts as we further automate within the existing building I mean, we may add another wing in Congress, but that's nothing like what we had to do in Congress.
Speaker Change: Yeah, I think we are.
Speaker Change: Done with big New buildings and again, if you can.
Speaker Change: The trip with US later this year you will see.
Speaker Change: It's a phenomenal state of the art New building, we're done with that kind of.
Speaker Change: But within the building we can further creep capacity. So certainly we have ample capacity.
Speaker Change: <unk>.
Speaker Change: This new capacity is being validated and then capacity increments.
Speaker Change: The needed down the road in the prior year period, they will be more of a.
Speaker Change: Smaller increments as we increase cavity counts as we further automate within the existing building.
Speaker Change: I mean, we may add another ring in Congress, but thats nothing like what we had to do in Colombia.
Stephan B. Tanda: When you do the expansions within the facility, is it easier in terms of getting approval or making sure to do specific inspections? Of course, every new tool has to be validated. Every new machine has to be validated, but it is in the context of an ecosystem where the crew is fully up to speed. And that can be happening in the ordinary course; it's not a massive, Unknown Attendee, Gael Touya, Marc Prieur, Bhavana Balakrishnan, Aptargroup Inc. And then, I'm sorry folks, I think I only allowed two questions. I'll get back in the queue.
Speaker Change: When you do the expansions within the facility is it easier or in terms of getting.
Speaker Change: <unk> approval or making sure it makes pet specialty.
Speaker Change: Inspections.
Speaker Change: Okay.
Speaker Change: Of course every new tool has to be validated.
Speaker Change: Every new machine has to be validated but it is in the context of an ecosystem, where the crew is fully.
Speaker Change: Up to speed.
Speaker Change: And that can be happening in the ordinary course, it's not massive.
Speaker Change: Big investment like the new going into facility I mean, we've made investments all along we didn't make a big deal out of it.
Speaker Change: We upgraded let's see as we upgraded.
Speaker Change: One.
Speaker Change: The Colombian two is really massive.
And then I'm, sorry, folks I think only allowed two questions I'll get back in queue.
Operator: The next question comes from the line of Matt LaRue with William Blair. Your line is now open.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: The next question comes from the line of Matt Larew with William Blair. Your line is now open.
Matthew Richard Larew: Hi, good morning. I wanted to circle back on injectables and just get your updated thoughts on participation rate. And really, now that we've emerged from the pandemic, your assessment of how customers in the space view preferring sole-source or multi-source arrangements and perhaps within multi-source, if there's a greater preference for spreading, volume, and to the extent your participation rate has improved, just how important your expanding global footprint has been to those
Matthew Richard Larew: Hi, Good morning, I wanted to circle back to Injectables.
Matthew Richard Larew: Just to check gated thoughts participate participation rate and really now that leif emerge from the pandemic your assessment of how customers in this space.
Matthew Richard Larew: No preference <unk> sole source or multi source arrangements and perhaps within multi source.
Matthew Richard Larew: Greater preference to spread volte.
Matthew Richard Larew: Volume.
Matthew Richard Larew: And to the extent your participation great Hasnt proved just how important you are expanding global footprint has been to those discussions.
Stephan B. Tanda: Yeah, we could spend hours on that question. Look, fundamentally, just to back up. You have six. Basic SKUs, you have plungers, you have stoppers, you have needle shields, and they can be coated or uncoated. There are many more, depending on the level of quality assurance and the level of data that you provide. So, as we said, the pandemic has really helped us to demonstrate to the industry that our capabilities are equivalent to the market leader.
Yes.
Speaker Change: We could spend hours on that question.
Speaker Change: Look fundamentally just to back up.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Six basic Skus, you have plunger's human stoppers, you've needle shields and they can be coated uncoated now.
Speaker Change: There are many more depending on the <unk>.
Speaker Change: Neville a quality assurance the level of data that you provide so.
Speaker Change:
Speaker Change: As we said.
Speaker Change: Mick has really helped us to two.
Speaker Change: Demonstrate to the industry that our capabilities are equivalent to the market leader.
Stephan B. Tanda: That allows us to participate in every new project. Now, in a new molecule, long-term biological project, people don't start having dual sourcing. They pick the horse they're going to ride. If you have a massive, big product, like we were with the COVID vaccines, people did want to have a second source just for security of supply. You don't want to run out of COVID vaccine. That's all behind us.
Speaker Change: Allows that we participate in every new project.
Speaker Change: And a new molecule long term biologic project people don't start.
Speaker Change: <unk> dual sourcing the peak divorced they're going to write.
Speaker Change: And massive big product like we were with the Covid vaccines people didn't want to have a second source just for security of supply you don't want to run out.
Speaker Change: With vaccine that's all behind us.
Stephan B. Tanda: In general, I can say our product pipeline for biologics is very strong and keeps building. And whether people choose us or other providers has a lot of factors. Technical capability obviously is an important one that's almost a qualifier, but then it has to do with geographic footprint. , Marc Pruer, Bhavana Balakrishnan, Aptargroup Inc, Ghansham Panjabi, Stephan Diaz, Marc Prieur, Customers prefer to deal with somebody who's not competing with them. So those all play a factor, and absolutely having the ability to supply in region for region is critical.
Speaker Change: In general I can say.
Speaker Change: The pipeline for biologics is very strong and keeps building.
Speaker Change: And whether people choose us or other providers has a lot of factors technical capability. Obviously is an important one that almost a qualifier, but then it has to do with geographic footprint.
Speaker Change:
Speaker Change: <unk> ability to provide the support for a particular buyer.
Speaker Change: Biologic molecule or a vaccine in a particular geography.
Speaker Change: And then we'll talk about that much but also very important business model.
Speaker Change: We fundamentally have a business model that some other people.
Getting into the auto injector business.
Matthew Richard Larew: Okay, thank you. As a follow-up, I just wanted to check on emergency medicine. And if you've seen any sort of change in demand for the Narcan product, would be one and, and then obviously there's maybe an opportunity for the nasal delivery of epinephrine, which could start to develop in the back half of the year. So just curious about your assessment of what that opportunity might look like. Sure, let's talk about Narcan first.
Speaker Change: We're not competing with our customers and sometimes.
Speaker Change: Customers prefer to deal with somebody who's not competing with them. So those all play a factor in absolutely having.
Speaker Change: The ability to supply in region for region.
Speaker Change: It's critical.
Speaker Change: Okay. Thank you.
Speaker Change: Follow up.
Speaker Change: I just wanted to check on emergency medicine, and if you've seen any sort.
Speaker Change: Any change in demand for our product would be one and then obviously if there is maybe an opportunity.
Speaker Change: On the nasal delivery of epinephrine.
Speaker Change: But you could start to develop in the back half for you. So just curious for your assessment on what that opportunity might look like.
Stephan B. Tanda: Sure, let's talk about NARCAN first. We've spoken before about the importance of over-the-counter approval.
Speaker Change: Sure, Let's talk Narcan first we've spoken before about the importance of the over the counter approval.
Stephan B. Tanda: Now, it turns out it's not so important for people walking into a CVS or Walgreens or Rite Aid and picking up a NARCAN. The business is not so meaningful, but what it has allowed is for states to make bulk purchases of Narcan and then distribute that in the states to harm reduction agencies, schools, police stations, and so on, and disperse the settlement money each state has received and will be receiving for the next 10 to 20 years.
Speaker Change: Now.
Speaker Change: It turns out.
Speaker Change: Not so important for <unk>.
Speaker Change: People are walking into a cvs or walgreens or right date and picking up in Oregon.
Speaker Change: [laughter] businesses, not so meaningful but what it has allowed us for states to make bulk purchases of narcan.
Speaker Change: And then to distribute that.
Speaker Change: In the states to harm reduction agencies to schools police stations and so on.
Speaker Change: In dispersed the settlement money each states has received and will be receiving for the next 10 to 20 years. So it has greatly facilitated much broader distribution.
Stephan B. Tanda: So it has greatly facilitated much broader distribution into schools, into communities. Who knows, maybe one day we all have a set of NARCAN in our homes, so that's really helping NARCAN distribution. On epinephrine, we're all very excited about it, but I would caution, at the end, product launch is day one, and no single product changes the game for us. But of course, in totality, they start to build. A lot will depend on what the reimbursement philosophy of the health insurers and the payers is. But certainly, we think this product makes a ton of sense, and if patients are really excited about it, eventually, it should receive good reception.
Speaker Change: In two schools into community centers into prime responders.
Speaker Change: Who knows maybe one day, we all have a set of marketing our homes. So.
Speaker Change: Right.
It's really helping the marketing and distribution.
Speaker Change: On epinephrine, we're all very excited about it but I would caution and year end.
Speaker Change: Product launches day one.
Speaker Change: No single product.
Speaker Change: Changes the game for us.
Speaker Change: Of course in totality they start to build a lot will depend on what is the reimbursement philosophy of.
Speaker Change: The health insurers and the payers.
Speaker Change: Certainly we think this product mix at <unk>.
Speaker Change: If patients are really excited about it eventually should receive good reception.
Speaker Change: Okay. Thank you.
Speaker Change: Q.
Operator: The next question comes from the line of George Staphos with Bank of America. Your line is now open.
Speaker Change: The next question comes from the line of George Staphos with Bank of America. Your line is now open.
George Leon Staphos: Hi, thanks for taking my follow-up question. Bob, just looking at net cash from operations, it was down a touch from first quarter 23. You know, there probably were just some timing effects here, but could you remind us what was going on in terms of CFO being a little bit lower this first quarter versus last quarter? And then, could you talk, you know, more broadly about your goals for SNA as a percentage of sales? You know, this year, if you care to update us on progress in the first quarter, what should we expect this year? Thank you, and good luck in the quarter.
George Leon Staphos: Hi, Thanks for taking my follow on question, Bob just looking at.
George Leon Staphos: Net cash from operations it was down a touch from first quarter 2003.
George Leon Staphos: There probably was just some timing effects here, but could you remind us what was going on in terms of CFO being a little bit lower this first quarter versus <unk>.
Last quarter and then.
George Leon Staphos: If you could talk more broadly about your goals for SG&A as a percentage of sales.
George Leon Staphos: This year, if you care to update US obviously, good progress in the first quarter, what should we expect for this year. Thank you and good luck in the quarter.
Speaker Change: Thanks George.
Robert W. Kuhn: Thanks, George. The slight decrease in the cash flow from operations was primarily due to more working capital, in particular in some of the inventory areas and also in receivables. Remember, the first quarter was a little bit strange because you had the holiday weekend right at the quarter end, so our receivable balance was a bit higher than what we'd normally expect, but then all those were collected once we got into April, so I wouldn't look too much into that. And then, um...
Speaker Change: The slight decrease in the cash flow from operations I think it was.
Speaker Change: Yeah.
Speaker Change: Primarily due to a.
Speaker Change: More working capital in particular, and some of the inventory areas and also in receivables remember the first quarter was a little bit strange because you had the holiday weekend right at quarter end. So our receivable balance was a bit higher than what we'd normally expect but then all of those.
Speaker Change: Were collected once we got into April so I wouldn't I wouldn't look too much into that and then.
Robert W. Kuhn: When we look at SG&A as a percentage of sales, we haven't really changed our target. We expect to be at a run rate of 15.1% by the fourth quarter. That's not for the full year, of course. That's the kind of run rate we want. And we haven't really modified, you know, where we stand on that.
When we look at the SG&A as a percentage of sales we haven't really changed our target we expect to be at a run rate of 15, 1%.
Speaker Change: By the fourth quarter, that's not for the full year of course, that's that's kind of run rate going out.
Speaker Change: <unk>.
Speaker Change: And we haven't really modified.
Speaker Change: Where we stand on that.
George Leon Staphos: Thanks very much.
Speaker Change: Thanks, very much good luck in the quarter.
George Leon Staphos: Thanks very much. Good luck in the quarter.
Speaker Change: Thank you.
Speaker Change: Thank you.
Operator: The next question comes from the line of Gabe Hady with Wells Fargo. Gabe, please go ahead.
Speaker Change: The next question comes from the line of Gabe Haiti with Wells Fargo.
Gabrial Shane Hajde: Please go ahead.
Gabriel Hajde: Thank you, Stefan, Bob, Mary. Good morning. Just two quick ones. I remind you again, you guys are carrying one to two cents of the commercialization startup costs and pharma associated with the injectables ramp. Is that true? And then when we see that flip next year or go away, I guess maybe it will heat up.
Gabrial Shane Hajde: Thank you Stefan.
Gabrial Shane Hajde: Good morning.
Gabrial Shane Hajde: Just.
Gabrial Shane Hajde: Two quick ones.
Speaker Change: Remind me again, you guys are carrying one or two.
Speaker Change: Commercialization startup costs and pharma associated with the Injectables ramp is that is that true and then.
When we see that flip next year.
Speaker Change: Or go away I guess, maybe how to think about that.
Robert W. Kuhn: Yeah, I think you got it right. One to two cents is kind of where we're looking at for this year, and yeah, in theory, then you'll have that go away, and then we'll have to see where we are from a fixed cost absorption and a new plant as business comes in for next year.
Speaker Change: Yes, yes.
Speaker Change: Got it right.
Speaker Change: Yep.
Speaker Change: One to two <unk> is kind of where we're we're looking at for this year.
Speaker Change: And yes in theory, then you'll you'll have that go away and then we will have to see where we are from a fixed cost absorption in our new plant as business comes in for next year.
Gabriel Hajde: Okay, um, and then one I recently sent, there's been a lot of ground covered on the CapEx side, but maybe a bigger picture looking out over the next few years. Can you remind us what maintenance capex kind of looks like? I have a note here in our model 125 to 150.
Speaker Change: Okay.
Speaker Change: And then one night we sense.
Speaker Change: There's been a lot of ground covered on the Capex side, but.
Maybe bigger picture looking out over the next few years.
Speaker Change: Can you remind us what maintenance capex kind of looks like I have a note here on our model of 125 to $1 50.
Gabriel Hajde: You mentioned adding some pharma capacity, I think in three key regions. And so I guess as kind of the Targeted Spend this year. Can you break out what's still the injectables investment carryover versus maybe what's new in pharma?
Speaker Change: You mentioned, adding some pharma capacity I think in three key regions.
Speaker Change: And so I guess as it.
Speaker Change: The.
Speaker Change: The targeted spend this year.
Speaker Change: Can you break out what's still the injectables.
Speaker Change: <unk> carryover versus maybe what's new.
Gabriel Hajde: And thank you. Okay, I don't know if I have...
Pharma: And pharma and thank you.
Robert W. Kuhn: Okay, I don't know if I have in front of me what the runout is on the injectables rollout, but on your maintenance number 125 to 150, I think, as we talked before, it's sometimes difficult for us to really categorize between a maintenance of investment and call it a productivity improvement or cost savings, right? Very rarely will we invest like for like, meaning that if we're replacing an old mold or replacing an old assembly line, we're typically doing it with a more efficient, higher output type of thing.
Speaker Change: I don't know if I have in front of me what the run out is on the Injectables.
Speaker Change: Rollout, but on your maintenance number 125 to 150, I think as we've talked before it's sometimes difficult for us to really categorize.
Speaker Change: Between our maintenance of investment and call today.
Speaker Change: Productivity improvement or cost savings right very rarely will we invest like for like meaning that if we're replacing an old mall to replacing an old Assembly line, we're typically doing it with a more efficient higher output type of thing so.
Robert W. Kuhn: So, you know, we would say that between true maintenance of business and some of those in-betweeners that cover also productivity cost savings, 45 to 50% of total capex would be in the ballpark. So I think your 125 to 150 is in the right range.
Speaker Change: We would say that between true maintenance of business and some of those inbetweeners.
Speaker Change: That cover also productivity cost savings, 45% to 50% as of.
Speaker Change: Of total Capex would be in the ballpark. So I think <unk> hundred 25 to 150.
Speaker Change: As in the us in the right range.
Speaker Change: Okay.
Gabriel Hajde: and some of the discrete projects that you have going on this year. I heard you say not on injectables, but the capacity expansions. Is it just safe to say that maybe everything you're spending above that $150,000 this year is mostly pharma related?
Speaker Change: And some of the discrete projects that you have going on this year.
Speaker Change: If I heard you say non injectables, but the capacity.
Speaker Change: The expansions.
Speaker Change: Is it just safe to say that maybe everything that you are spending above that 150 this year.
Speaker Change: Mostly pharma related.
Gabriel Hajde: Yeah, I mean, we've talked a little bit. We do have some capacity increases in some other isolated areas. But yeah, I think that's a fair bet that a lot of the excess above the big rollouts are predominantly in the pharma area. Just to build on that, if you, if you look at the growth and
Speaker Change: Yes, I mean, we've talked a little bit we do have some we do have some capacity increases in some other isolated areas, but yes, I think that's a that's a fair bet.
Speaker Change: That a lot of a lot of the excess above the big Rollouts are predominantly in the pharma area.
Stephan B. Tanda: Yeah, just to build on that, if you look at the growth in proprietary drug dispensing systems, it's so strong. And obviously, think about a product like Narcan. You don't want to run out of capacity. So you need to expand ahead of the curve and have a keen look in there and do not hesitate to expand capacity.
Speaker Change: Just to build on can I have a few.
Speaker Change: <unk>.
Speaker Change: If you look at the growth in proprietary drug dispensing system.
Speaker Change: So strong and obviously thinking about the product like Narcan, you don't want to run out of capacity. So you need to.
Speaker Change: Expand ahead of the curve.
Speaker Change: Having a keen looking there and do not hesitate to expand capacity.
Speaker Change: Thank you.
Operator: There are currently no additional questions registered, so I would now like to pass the conference back to Stephan Tanda for any closing comments.
Speaker Change: There are currently no additional questions registered.
Speaker Change: I would now like to pass the conference back to Stefan Panda for any closing comments.
Stephan B. Tanda: Great. Well, thanks for the questions.
Stefan Diaz: Great well thanks for the questions.
Stephan B. Tanda: As you see, we are fully executing on the ambitious plans that we shared with you last September at Investor Day, with a strong focus both on the top line and on delivering structural and ongoing productivity gains. This is all to ensure our bottom line grows faster than our top line, and you have seen that play out throughout 2023.
Stefan Diaz: As you see we are fully executing on the ambitious plans that we shared with you last September at the Investor Day.
Stefan Diaz: With a strong focus both on the top line and on delivering structural and ongoing productivity gains.
Stefan Diaz: This is all to ensure our bottom line grows faster than our top line.
Stefan Diaz: Youre seeing that play out throughout 2023, and we're not off to a very strong start in the 'twenty 'twenty four and we see that momentum continuing into quarter, two and the balance of the year.
Stephan B. Tanda: And we're now off to a very strong start in 2024, and we see that momentum continuing into quarter two and the balance of the year. Our order books and project pipelines remain strong, our customers engaging very positively with our innovations and the overall value that we can bring to their brands, and drug products, including our overall sustainability contribution, a significant number of productivity and cost reduction efforts are well on the way in all regions.
Stefan Diaz: Our order books and project pipelines remained strong.
Stefan Diaz: Customers engaging very positively with our innovations and the overall value that we can bring to their brands.
Stefan Diaz: And drug products, including our overall sustainability contributions.
Stefan Diaz: A significant number of the productivity and cost reduction efforts are well underway in all regions. We mentioned a few on the call.
Stephan B. Tanda: We mentioned a few on the call, and they will keep adding to the bottom line throughout 2024 and 2025. In addition, our teams are energized to find additional productivity opportunities. This is becoming a point of pride in the company and is taking root in our culture. We are increasing the competitiveness of our regional footprints with all the actions in Europe, Asia, and North America, and now you've also heard about Argentina, and we are expanding capacity in Mexico.
Stefan Diaz: And they will keep adding to the bottom line throughout 2024 and 2025.
Stefan Diaz: In addition, our teams are energized to find additional productivity opportunities. This is becoming a point of pride in the company and taking route into our culture.
Stefan Diaz: We are increasing the competitiveness of our regional footprint with all the actions in Europe Asia and North America.
Stefan Diaz: And now you've also heard about Argentina.
Stefan Diaz: And capacity in Mexico as.
Stephan B. Tanda: As Bob said, our Strength Balance Sheet allows us to continue to invest in growth and productivity, and we're also fans of bold-sized acquisitions and partnerships and have a solid track record of delivering value for shareholders. So when you consider all the puts and takes for the coming period, proprietary drug delivery systems will continue to grow. Even after a year of double-digit growth, we expect them to remain inside our overall farmer target growth rate.
Stefan Diaz: As Bob said, our strength balance sheet allows us to continue to invest in growth productivity and we're also fans of both sides.
Stefan Diaz: <unk> and partnerships and have a solid track record of delivering value for shareholders.
Stefan Diaz: So when you consider all the puts and takes for the coming period proprietary drug delivery systems will continue to grow.
Stefan Diaz: Even after a year of double digit growth in.
Stefan Diaz: We expect them to remain inside our overall pharma target growth.
Stefan Diaz: Target.
Stephan B. Tanda: Injectables has a strong pipeline, and as additional capacity is coming online and validated through the year, we'll be able to serve this demand. Digital health, we haven't talked about, but is continuing to improve with Project WINS. Fragrance will continue to grow after a year of double-digit growth, albeit at a lower rate. The stocking in North America for beauty enclosures is coming to an end, and our Latin America team is executing very well against a generally very positive economic background, but, of course, with the exception of Argentina, which we are addressing.
Stefan Diaz: Injectables has a strong pipeline in this additional capacity is coming online and validated through the year will be.
Stefan Diaz: To serve this demand digital health, we havent talked about.
Stefan Diaz: <unk> to improve.
Stefan Diaz: With project wins for.
Stefan Diaz: Fragrance will continue to grow after a year of double digit growth, albeit at a lower rate.
Stefan Diaz: Talking in North America.
Stefan Diaz: For beauty enclosures is coming to an end.
Stefan Diaz: And our Latin America team is executing very well against actually are generally very positive economic background, but of course with the exception of Argentina, which we are addressing.
Stephan B. Tanda: We haven't talked about Asia, but China is gradually recovering, and India is pulling very strongly. And as we talked, SG&A expenses and overall manufacturing fixed costs as a percentage of sales are coming down. So all of this makes us very energized for 24. And we're looking forward to discussing more with you on the road.
Stefan Diaz: We've been talking about Asia, but China is progressively recovering in India is pulling very strongly.
Stefan Diaz: And as we talk to SG&A expenses, and overall manufacturing Frisco fixed cost as a percentage of sales are coming down. So all of this makes us very energized for 'twenty four and we're looking forward to discuss more with you on the road.
Operator: This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.
Speaker Change: This concludes today's conference call. Thank.
Speaker Change: Thank you all for your participation.
Speaker Change: You may now disconnect your lines.