Q4 2024 AptarGroup Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to Aptal's 2024 fourth quarter and annual results conference call. At this time all participants are in a listen-only mode.
Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during the earnings call.
As always we will post a replay of this call on our website I would like to now turn the conference call over to Stefan Stefan over to you.
Stefan: Thank you Mary and good morning, everyone. We appreciate you joining us on the call today.
Speaker Change: We'll begin my remarks by highlighting our fourth quarter results as well as our performance for the full year later in the call Vanessa <unk>, our CFO will provide additional details on key drivers for the quarter.
Speaker Change: Starting on slide three for the fourth quarter I am pleased to report that <unk> achieved core sales growth of 2%.
Speaker Change: Delivered adjusted earnings per share of $1 52.
Speaker Change: We exceeded the top end of our guidance range due to both.
Speaker Change: Better than expected operational performance and the lower than anticipated effective tax rate.
Speaker Change: The positive results in the quarter were driven by strong ongoing demand for our pharma proprietary drug delivery systems, especially for allergic rhinitis emergency medicine, and central nervous system therapeutics as well as royalty revenues and increased demand for our food closure technologies. In addition, we benefited from productivity.
Speaker Change: Any gains across the entire company.
Speaker Change: This quarter <unk> adjusted EBITDA margin was at the top end of our long term range at 23%.
Speaker Change: Vanessa will give you more details on the quarter. So now I will focus on the full year.
Speaker Change: Pharma segment achieved 8% core sales growth within it raised long term target range.
Speaker Change: Additionally, pharma achieved an adjusted EBITDA margin for the year of approximately 35%.
Speaker Change: Given by increased sales of higher value products and royalties.
Speaker Change: Often been asked about farmers future growth potential and my answer it's clearly that pharma is a pipeline driven business and the continued expansion of our pipeline over the last five years is the major reason.
Speaker Change: We raised our core sales long term target in 2023% to 7% to 11% and we see the pipeline continuing to grow.
Speaker Change: Farmer performance. This year was driven by continued growth in emergency medicine, allergic rhinitis and central nervous system therapeutics.
Speaker Change: Our proprietary drug delivery business.
Speaker Change: Core profit engine of our pharma segment, creating and manufacturing innovative safe and highly reliable technologies that support our customers and improve the lives of patients around the world.
Speaker Change: We anticipate continued strength for this important franchise.
Speaker Change: Injectables business, we saw growth in.
Speaker Change: Thrombotic GOP, one drugs small molecules and vaccines and.
Speaker Change: Injectable components sales grew 10% in 2024, but.
Speaker Change: But the growth was offset by lower tooling.
Speaker Change: And service revenues.
Speaker Change: The team has done a tremendous job of completing a large capacity expansion project and industrializing, our higher value offerings boding well for the future active materials sales were up 13% for the full year 2024, due to increased demand for diabetes diagnostics probiotics and all solid.
Speaker Change: Those solutions.
Speaker Change: Since we acquired <unk> in 2018, the sales of that business have grown at a compound annual growth rate of almost 10%.
Speaker Change: Looking at our beauty segment for the year, we had good growth across a number of end markets, including personal care.
Speaker Change: Masstige beauty and home care.
Speaker Change: However growth in these end markets could not offset the decline in prestige beauty.
Speaker Change: <unk> segment saw unit growth in 2024 and sales of personal care technologies grew nicely overall core sales declined however, due to the unfavorable mix.
Speaker Change: Beauty remains a highly regional business Europe, our largest region maintained its adjusted EBITDA margin within the segments long term target range.
Speaker Change: North America continued to recover progressively with indie brands, leading the growth.
Speaker Change: China remained challenge for most of the year, however towards the end of the year.
Speaker Change: Country had a better than anticipated 11, 11, which is China's equivalent to black Friday, and we see some green shoots with local brands we.
Speaker Change: We saw good growth in India, albeit from a low base.
Speaker Change: Looking ahead, new project activity is encouraging across most regions and we anticipate progressive improvement for this segment in 2025.
Speaker Change: In the second half of the year, our closures segment returned to its core to your long term target range driven by increased demand around the world for food and beverage dispensing.
Speaker Change: And food protection technologies.
Speaker Change: A focus on converting and market to higher value dispensing closures and the reinvigoration of innovation globally help to improve top line sales.
Speaker Change: The segment's increased margins were also positively affected by the higher value mix as well as a consistent focus on reducing costs and the steady improvement in plant utilization supported in part by the midyear closing over loss, making plant in France. The segment improved its plant utilization by over 12% in 2000.
Speaker Change: 24.
Speaker Change: Adjusted EBITDA margins were also within the long term target range in the second half of the year and improved by more than 110 basis points for the full year now turning to slide four we are very proud of our long record of returning capital to shareholders over the last five years, we have returned nearly $800 million to shareholders through dividend.
Speaker Change: And share repurchases.
Speaker Change: 2025 is expected to Mark our 30 <unk> consecutive year of paying an annually increasing dividend.
Speaker Change: Now I would like to highlight our product and technologies on slide five.
Speaker Change: Which feature examples from both the year and the quarter that exemplify our focus on innovation and the value that we bring to our customers and their end users.
Speaker Change: In pharma and you've heard us talk about our needle by those system for Jonathan Johnson robot the medication to treat treatment resistant depression.
Speaker Change: Recently, the FDA approved <unk> as a mono treatment, meaning it can now be used alone and not requiring additional oral solid dose drugs.
Also as shared during our last earnings call, the FDA and European Medicines Agency approved messy and Euro Nafie Nasally delivered epinephrine, which is now in the market.
Speaker Change: In consumer healthcare, we continue to increase capacity for our previously highlighted patented lateral control system technology with a one push button dosage activation providing convenience.
Speaker Change: <unk> relief.
Speaker Change: And ease of use for helium attribute nasal mist.
Speaker Change: We also continue to grow our pharma innovation pipeline as previously mentioned during the year, we acquired all technology assets from Sip notes, increasing our proprietary portfolio of intranasal delivery platforms. We also entered into an exclusive agreement with Cambridge health care innovations for its quadri dry powder in.
Speaker Change: Taylor platform, where we see opportunity for this platform and delivering larger amounts of medication to the lungs.
Speaker Change: In addition, our agreement regarding <unk> kohli non propellant liquid inhaler platform will further strengthen our leadership in the respiratory space.
Speaker Change: And after digital health the migraine body App continues to be the number one migrating app with a community of over 3 million users.
Speaker Change: The latest release of the App Optimizes the way users can share migraine reports with doctors, including sleep records and more.
Speaker Change: Finally enacted materials sciences.
Speaker Change: Our <unk> technology, which is part of the Fda's Emergency technology program delivered in active packaging based solutions to mitigate the risk of Nitrosomine impurities.
Speaker Change: Our technology can enable pharma companies to meet the Fda's August 2025 deadline for full compliance with Nitrosomine regulations, while avoiding costly and time consuming reformulation processes.
Speaker Change: Turning to beauty highlights from the year, our new prestige fragrance dispensing technology.
Speaker Change: <unk> features the more lightweight design and gentle actuation and is the dispensing solution prolonged course refillable version of the.
Speaker Change: Papa.
Speaker Change: We also adapted our pump technology to meet the growing demand for alcohol free fragrances.
Speaker Change: Cohort three fragrances are typically oil and water base, making the formulation and more difficult to dispense.
Speaker Change: Our pump entirely compatible with these formulations, providing consumers with the same optimal gentle mist fragrance experience and he is now featured on gallows, Chris alcohol free fragrance.
Speaker Change: Also in 2024 are accustomed beauty plant in Oregon, a false supported the launch of a major.
Speaker Change: Beauty customers reformulate, its patient CRM product, which features our patented.
Speaker Change: Fuel pump technology, and locking feature using post consumer recycled resins.
Fusion <unk> beauty turnkey packaging solution business supported indie brands, <unk> and unless Asia with full <unk> solutions.
Speaker Change: In our fourth quarter, Amit selected our prestige fragrance pumps for each line of Bohemia profiles and <unk> brands.
Speaker Change: Is featuring our e-commerce capable locking pump with components made from post consumer recycled resin.
Speaker Change: No over cap is required.
Turning to closures throughout the year, we continue to partner with a major dish care brands on their east, Greece inverted packaging with flow control.
Speaker Change: Lying for single hand operation without any leakage positive consumer feedback has led to major category expansion Puget is innovation.
Speaker Change: If you are planning to watch the big game in the U S. This weekend.
Speaker Change: We'll see commercials for condiments that feature <unk> solutions, including our simply squeeze valve and closure.
Speaker Change: We continue to bring convenience and cleanliness to consumer product.
Speaker Change: That line the grocery store shelves.
Speaker Change: During the quarter, our custom Flip-top was featured as the dispensing solution from economies grill mates spices and holiday sugars in the U S.
Speaker Change: Finally in the Asia, Mr introduced the new <unk> powered milk products, featuring a lighter weight custom closure.
Speaker Change: Now turning to recognitions on slide six we recently received confirmation that we.
Speaker Change: We've secured a place of the prestigious climate a list with the global environmental nonprofit CVP for our leadership and corporate sustainability and environmental transparency and efforts to tackle climate change based on our 2020 for disclosures.
Speaker Change: Also during 2024 after was named the world's top companies for women by Forbes for the fourth consecutive year and is ranked 41 out of the 400 companies who were evaluated in three categories, including employer brand public opinion and leadership.
Speaker Change: For the sixth consecutive year, we were named one of America's most responsible companies by Newsweek ranked number 71 out of 600 companies. We are proud to continuously raise the bar on sourcing renewable energy certifying sites landfill free through our internal program and developing product.
Is there more recyclable reusable refillable and incorporate more sustainable materials.
Speaker Change: I would like to turn the call over to Vanessa.
Vanessa: Thank you Stefan and good morning, everyone.
Vanessa: Let me begin by summarizing the highlights for the quarter.
Vanessa: Starting on slide seven.
Vanessa: Our reported sales increased 1%, which included a foreign currency translation headwind of approximately 1%.
Vanessa: Therefore core sales grew 2% primarily due to continued demand for farmers proprietary drug delivery system.
Vanessa: As well as healthy growth in closure technology for both the food and beverage market.
Vanessa: We achieved adjusted EBITDA of $195 million, an increase of 9% from the prior year and adjusted EBITDA margin of 23% compared to 21, 4% in the prior year.
Vanessa: Driven by expanding margins in the pharma and closure segment and the impact of cost mitigation measures executed across the business.
Vanessa: These strong margins combined with a lower effective tax rate translated into adjusted diluted earnings per share of $1 52 as shown on slide eight.
Vanessa: At 27% increase over the prior year at comparable exchange rates.
Vanessa: The effective tax rate for the fourth quarter was 13% compared to 23% in the prior year due primarily to the realization of deferred tax assets, which were previously not recognized as well as increased tax benefits from stock based compensation.
Vanessa: Now turning to some of the details by segment.
Vanessa: Our pharma segment's core sales increased 4%.
Vanessa: That down by market, starting with our proprietary drug delivery system.
Vanessa: Prescription core sales increased 15%, primarily due to continued strong demand for dosing and dispensing technologies for allergic rhinitis emergency medicine, and central nervous system Therapeutics.
Vanessa: Consumer healthcare core sales decreased 17% driven by decreased demand for nasal decongestant nasal saline wind solutions as well as cough and cold medicine, that's a week or 2023, 2024, cold and flu season and inventory management at the customer level.
Vanessa: The healthy growth in Q4, our product sale for ophthalmic and dermal treatments could not offset this decline.
Vanessa: Injectable core sales decreased 8% due to lower service revenue and tooling.
Vanessa: Injectable component sales were up slightly led by healthy <unk> growth.
Vanessa: And for our active material science solutions core sales increased 35% aided by a large tooling sales in the quarter.
Vanessa: Demand for our products used in probiotics and diabetes diagnostics also contributed to the positive results.
Vanessa: Adjusted EBITDA margin for the quarter was 35, 7% 860 basis point improvement from the prior year.
Vanessa: The margin improvement was driven by increased sales of higher value products and services, including royalties and cost efficiency initiatives executed.
Vanessa: Moving to our beauty segment.
Vanessa: Core sales decreased 3% in the quarter.
Vanessa: With lower tooling sales contributing about a third of the decrease.
Vanessa: Looking at the beauty segment by market fragrance.
Vanessa: Fragrance facial skincare and color cosmetics core sales decreased 9% due largely to lower sales of higher value prestige product, particularly in EMEA, which more than offset increased demand for masstige product.
Vanessa: Personal care core sales increased 3% with continued demand for body care and hair care applications across several regions.
Vanessa: Homecare core sales increased 15%, primarily due to continued growth of air care applications in North America.
Vanessa: This segment's adjusted EBITDA margin for the quarter was 12, 4% at 230 basis point decline, primarily due to the topline shortfall, particularly in higher priced prestige product.
Vanessa: Additionally, you may recall that this segment has received a one time insurance claim settlement that benefited the prior year's margin.
Vanessa: The impact of this nonrecurring item from prior year Q4, overshadowed the impact of operational efficiencies execute it successfully within the segment.
Vanessa: Moving onto the closure segment core sales increased by 7% compared with the prior year driven by increased demand across a number of end markets and across all regions.
Vanessa: When looking at the market feels foreclosure car food sales increased 9%.
Vanessa: The increase in sales was driven by solid growth across all regions led by strong continued demand for sauces and condiments in North America, our largest food market.
Vanessa: <unk> core sales increased 10% fueled by healthy demand for bottled water and sports drinks.
Vanessa: Personal care core sales decreased 5% due to lower demand across several regions, while our other category, which includes beauty home care and health care core sales increased 12% driven by higher sales for <unk> and laundry care solution.
Vanessa: This segment's adjusted EBITDA margin was 16, 1%, representing a 260 basis point improvement over the same period last year, primarily due to volume expansion and cost and productivity management.
Vanessa: Our total Capex spend for Q4 was $66 million with the majority going to our pharma segment.
Vanessa: Now moving onto the full year results slide nine and 10 cover our year to date performance and showed 3% core sales growth, which includes the impact of an $11 million decline in Chile.
Vanessa: Our gross margins expanded by 160 basis points due to top line growth favorable mix towards higher margin revenue stream as well as productivity and cost efficiency measures executed across the business.
Vanessa: These cost efficiency measures benefited both cost of sales and SG&A.
Vanessa: Offsetting the cost reductions in SG&A, where increased investments in R&D, particularly for pharma to support our innovation.
Vanessa: And higher noncash share based compensation expense.
Vanessa: As a result, SG&A as a percentage of net sales remained relatively consistent year on year.
Vanessa: Adjusted EBITDA margins expanded by 130 basis points to 21, 6%. Indeed, all of our segments expanded EBITDA margins on a full year basis, including our beauty segment.
Vanessa: While our adjusted earnings per share, which were $5.64 were up 18% compared to $4.79 a year ago, including comparable exchange rates.
Vanessa: Turning to slide 11.
Vanessa: And at 2024 with a 12, 5% return on invested capital, which was our second consecutive year of increased ROIC driven by our increased earnings and realization of returns on our capital investment.
Vanessa: Cash flow from operations was $643 million up from $575 million in the year ago period.
Vanessa: Capital expenditures for the year were $276 million.
Vanessa: Down from $312 million in the prior year.
Vanessa: The reduction in capital expenditure signifies the completion of a large capital project.
Vanessa: Slide 12 shows our capital allocation over the last several years with the majority going to pharma.
Vanessa: Free cash flow of $367 million for the year up from $263 million in 2023, due largely to our increased earnings.
Vanessa: Our strong cash flow has allowed us to neutralize any impact of our interest expense coming from rising interest rates by paying down a portion of our debt that had come due.
Vanessa: And increased the amount we returned to shareholders.
Vanessa: Speaking of which in 2024, we returned $183 million to shareholders in the form up $114 million in dividends and $69 million in share repurchases.
Vanessa: Up in combined total by 20% from 2023.
Vanessa: Finally, we ended the year with a strong balance sheet, reflecting a cash balance of $224 million as of December 31.
Vanessa: Net debt of $800 million.
Vanessa: Which was down $116 million from the prior year and a leverage ratio of one point or <unk>.
Vanessa: Now moving on to outlook.
Vanessa: Slide 13 summarizes our outlook for the first quarter.
Vanessa: We anticipate first quarter adjusted earnings per share, which as a reminder, excludes any restructuring expenses acquisition costs and changes in the unrealized fair value of equity investments to be in the range of $1 11 to $1 19 per share, which includes approximately a 7% headwind for currency effect compared to the prior year quarter.
Vanessa: Sure.
Vanessa: Our effective tax rate range for the first quarter is 25% to 27% due in part to an anticipated increase in the French corporate tax rate, which is an <unk> <unk> headwind compared to the prior year quarter.
Vanessa: At this point in time, we expect to have an approximately 50 impact due to currency impact compared with the prior year quarter.
Vanessa: Currency impacts are driving a larger headwind in the first quarter than typical because of the U S dollars renewed strength against many currencies, which for US includes the euro the Brazilian real the Mexican and Colombian peso amongst others.
Vanessa: While our rule of thumb on currency impact is that for every one movement in the euro there is a <unk> <unk> annualized impact on earnings per share. Please keep in mind that we are subject to other currencies. Besides the euro some of which I just highlighted.
Vanessa: In closing, we're pleased with our strong operational performance for 2024 and are looking forward to the ample opportunity by 2025 will bring.
Vanessa: As I mentioned earlier, we ended the year with a very strong balance sheet and the leverage ratio that will provide us with significant optionality.
Stefan: At this time Stefan will provide a few closing comments before we move to Q&A.
Speaker Change: Thank you Vanessa.
Stefan: We fully anticipate 2025 to be another strong year for <unk>, having said that for the first quarter, we expect softer demand in certain end markets, such as dispensing technologies for prestige fragrance and skin care as well as for nasal saline and B congestion.
Stefan: Results in the first quarter will also be negatively impacted by significant foreign currency effects and the higher effective tax rate compared to the prior year quarter.
Vanessa: This is Vanessa data the impact in Q1 will be about a <unk> 15 headwind on EPS.
Vanessa: Additionally, we are seeing healthy demand for our higher value elastomer components, but in this debate and more gradual beginning to the year, especially as the new capacity comes online and is being validated.
Vanessa: Looking ahead.
Vanessa: We will continue to be the main driver growth without proprietary drug delivery systems, and emergency medicine, and central nervous system therapeutics, leading the way.
Vanessa: We expect demand for injectable divisions higher value products to continue to grow throughout the year and are seeing strong interest for our premium coat and ready to field solutions.
Vanessa: Injectables is a strong pipeline and order book and we are ramping up new capacity for our higher value product cautiously to ensure the quality of our products continue to meet the stringent regulatory requirements.
Vanessa: The active and the Geoscience business has returned to growth and is poised for a solid 2025.
Vanessa: <unk> top line will improve as the year progresses.
Vanessa: Beauty is a nicely building project pipeline that has made significant structural improvements.
Vanessa: Over the last four years beauty has reduced its plant count by 10.
Vanessa: Over the last two years has reduced its workforce by 11%.
Vanessa: <unk> cost as an ongoing effort and while there is always more work to be done. These changes should continue to positively impact the bottom line is the topline improves.
Vanessa: Closures has made great progress on several fronts, including reigniting innovation engine, improving plant utilization rates and ongoing cost management efforts.
Vanessa: Innovations help customers win market share and there is tremendous interest in the dispensing technologies that we're developing.
Vanessa: When adjusting for currency effects and tax impacts we anticipate 2025, we will continue to deliver solid earnings growth and increase shareholder value.
Vanessa: That I would like to open up the call for questions.
Candace: Thank you Ms Candace.
Vanessa: We will now begin the question and answer session.
Speaker Change: If you would like to ask a question. Please press star followed by one on your telephone keypad.
Speaker Change: And if any reason you would like to repeat that question. Please press star followed by <unk>.
Speaker Change: In the interest of time and furnished to all participants please limit yourself to two questions and then come back into queue. If you have any more questions as time allows.
Speaker Change: Just a quick reminder, that if you are using a speaker phone. Please remember to pick up the handset before asking a question.
Speaker Change: We will pause briefly whilst questions all participate.
Speaker Change: The first question will have on the phone lines comes from George Staphos with Bank of America. Your line is open.
George Staphos: Hi, everyone. Good morning can you hear me okay.
Mary: Mary Good morning, Vanessa welcome.
Speaker Change: My two questions first of all can you talk a little bit about the green shoots that you are seeing in China.
Mary: And what.
Mary: What momentum what impact that might be able to have to generate.
Mary: For 2025.
Mary: The second question, recognizing it's tough to call.
Mary: If you held currency rates, where they're at.
Mary: Taxes do what you expect them.
Mary: Do you expect that earnings per share will grow in 2025 off of a very tough comparison in 'twenty four would that be too difficult and maybe a different way to handle the question.
Mary: If we exclude those effects.
Mary: How would you define.
Mary: Solid earnings per share growth. Thanks, guys. Good luck in the quarter.
George Staphos: Hi, George.
Mary: Great.
Speaker Change: Let me take the first one the higher may ask the second one.
Speaker Change: Mr handle.
Mary: Look.
Mary: As you know.
Mary: The beauty market in China in general is still the largest.
Mary: Country market for beauty.
Mary: Particular emphasis on skincare.
Mary: And all of our customers have waited for for that market to show.
Mary: Additional or renewed vitality.
Mary: And some of our larger customers.
Mary: <unk> been struggling with that we see is that clearly local brands.
Mary: Gained share.
And continue to gain share versus the multinationals.
Mary: You all noticed story over one U S based large multinational.
But in General 11, 11 was pretty solid.
Mary: The beginning of the year was pretty solid.
Mary: So, but it is more with local brands and of course ultimately.
Mary: Who serves the consumer.
Mary: Sure.
Mary: Neutral to that so I'm quite hopeful that we will see China building over the year end.
Mary: That will benefit particular, our skincare business fragrance is also growing but it's still very small in China that's growing.
Mary:
Mary: <unk>.
Mary: Uh huh.
Mary: That's about it.
Mary: Minder.
Mary: We serve in region for region. So all this speculation about.
Mary: Terrorists for us is not that meaningful and what we really looking for is where is the Chinese consumer.
Mary: Anecdotally, we also see the Chinese consumer traveling more internationally again at the high end and I think that should also bode well for the beauty business in.
Mary: In general.
Vanessa Hey: And I'll hand over to Vanessa Hey, George.
Vanessa Hey: It's right that you called out the tax and FX headwinds that we haven't seen the kind of headwinds.
Vanessa Hey: In the recent past.
Vanessa Hey: The top headwinds being driven by you know a lot of what we talked a lot about the French tax legislation that just came or is in the process of coming into effect.
Vanessa Hey: <unk>.
Vanessa Hey: Look when you normalize for FX and normalized for tax we are cautiously optimistic that we will have another potential double digit EPS growth for 2025, a lot of the drivers <unk> talked about it is prepared remarks.
Vanessa Hey: We've done a lot of.
Vanessa Hey: Walk around cost reductions are those cost reductions will accrete up to EBITDA and EPS in 2025. So we are cautiously optimistic about what the normalized for consistency in FX and tax we'll have another strong EPS growth here.
Speaker Change: But NASA does the tax is it only a <unk> effect or does it impact the whole of the year. Thank you sorry for that and again good luck in the quarter.
Speaker Change: Yes, no that's okay. It impacts the whole year it impacts the whole year, so really what happened in the market, but you may recall George. This is we thought this was going to happen in Q4, because it was heavily reported by the French media it didn't happen in Q4.
Speaker Change: It's happening now is top both the lower and upper.
Speaker Change: Chambers of Parliament that we think it's going to be an uptick in that.
Speaker Change: Coming days, it will be a full year impact.
Speaker Change: And so we've built the Q1 effects into our Q1 guidance.
Speaker Change: Alright, thanks, so much and congrats on the underwriting revenues across the segments as well.
Speaker Change: Yeah.
Speaker Change: Awesome. Thank you George we'll take it.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: We now have the next question is from.
Speaker Change: Jim Pam Jb's. Please thank you.
Speaker Change: You May proceed.
Speaker Change: Yes. Thanks, good morning, everyone. So just following up on George's question on.
Speaker Change: The EPS bridge items, so if currency holds at current levels.
Speaker Change: What sort of year over year headwind would that be on EPS. The same with tax and then incorporate <unk> was quite a bit lower than.
Speaker Change: The trend line from <unk>.
Speaker Change: Previous quarters, how should we think about that as a variance for 25 versus 24.
So in for Q there.
Speaker Change: There are a couple of things if it's up year over year or would talk versus guidance of year over year. We did get some tax benefits from our tax planning I called out in my prepared remarks that we were able to recognize some deferred tax assets.
Speaker Change: Loss carryforwards that we had not previously been able to recognize that the results of some of our ongoing tax planning. So that did result in sort of the wins that youre seeing in Q4.
Speaker Change: Year over year.
Speaker Change: We're not there is the <unk>.
Speaker Change: They'll set the guidance so that win was actually built into our guidance. The delta the guidance was really the French tax impacts that we had built into our guide in Q4 that did not materialize.
Speaker Change: Now, we're seeing that come into effect in Q1 of this year.
Speaker Change: You asked what is the impact in Q1, we called it out <unk> 15 for the two factor combined so I'm not I'm not clear on what incremental impact you might be looking at for 2025 versus 2024 to 2024 as the baseline EPS of $5.64.
Speaker Change: So as for FX <unk> and corporate.
Speaker Change: Yes, so we're not guiding for the full year, we're not flying.
Speaker Change: I'll find it hard to give guidance on ETR for example, independent of guiding on income just because we know that logistics and mix of earnings can be a pretty significant impact what I will say is that at this point in time, given what we know, especially with what's happening on defense practice, we expect the ETR to be higher in 2025 versus 2024.
Speaker Change: We haven't gotten into <unk>.
Speaker Change: Actually what the number will be will guide us in the quarter progressed.
Speaker Change: The FX headwinds I mean, it's pretty significant.
Speaker Change: In Q1 with the <unk>.
I expect that to continue for the rest of the year now depending on which forecast you are watching we are seeing or hearing the commentary around perhaps the FX environment, improving as the year progressed.
Speaker Change: But based on what we see now we expect this double digit impact to continue.
Speaker Change: Yeah.
Speaker Change: Okay, and then the corporate below trend line for <unk>, what was that due to.
Speaker Change: So there werent any sort of unusual items there in Q4, what I will call out is typically as you get to the end of the year you typically have your year end true up.
Speaker Change: Which includes you know.
Speaker Change: Adjustments for bonuses in short term incentive accruals.
Speaker Change: Have pockets of the business, where we didn't hit our targets.
Speaker Change: A modest reversal of accruals got reversed so thats, probably what youre seeing that maybe what youre seeing in the corporate line in Q4, nothing more unusual than that.
Speaker Change: Primary driver Okay got it.
Speaker Change: Thank you for that and in terms of just second question I guess in terms of.
Speaker Change: The destocking that you're seeing in cold and flu and the.
Speaker Change: The timeline for that to sort of normalize and then also in prestige you called out weakness I think in the EMEA region as well.
Speaker Change: Just based on some of the customers that have reported it seems like volumes seem relatively.
Speaker Change: Stable across the board.
Speaker Change: From a customer level standpoint, so what do you think is going on there specific doctor.
Speaker Change: Yes.
Speaker Change: So, let's take consumer healthcare first.
Speaker Change: We see some bottoming out and in fact, the last two months, we saw sequential increases again, a lot will depend again on how the flu season.
Speaker Change: Im wine.
Speaker Change: Just heard this morning that we might have another peak in the U S.
Speaker Change:
Speaker Change: And so sequentially I think it will start to go up again, but we still face tough comparables in quarter one into quarter two now on the beauty side.
Speaker Change: I pointed out that unit volume actually.
Speaker Change: Was up in beauty slightly so what you're really seeing is the mix effect is most of these fragrances picked up significantly in the high end luxury prestige.
Speaker Change: Launches did not repeat so that it's more of a mix effect as opposed to an underlying volume effects.
Speaker Change: Thanks, so much.
Speaker Change: The next question.
Speaker Change: Come from Matt Roberts with Raymond James Please go ahead.
Speaker Change: Hi, Stefan Vanessa and good morning.
Speaker Change: Stefan you noted that.
Stefan: You're expecting a more gradual ramp up in Injectables I believe last quarter, you said that that business could potentially be high single digit to low single digits based on G. O P M biologics growth.
Speaker Change: Albeit stopping short of any official guide there.
Speaker Change: But based on the new ramp up expectations do you have better visibility or comfort and firming, what that Injectables core sales growth number could look like in 2025.
Speaker Change: Or given the strong underlying growth rates in those drugs, what factors could dictate other coming in above or below any expectation.
Speaker Change: Yes, I Wouldnt change my answer there.
Speaker Change: Pipeline looks good the order buildup looks good.
Speaker Change: <unk>.
Speaker Change: There will be quarter to quarter variance also in terms of a ramp up and when we get to the pieces of equipment validated.
Speaker Change: It's always you know after you.
Speaker Change: Moment customers want it they want it in the islands involved now and they need to get this done.
Speaker Change: So overall the demand picture is good or we're being a bit cautious.
Speaker Change:
Speaker Change: Exactly matched it in the first quarter, but.
Speaker Change: Right bullish about that business.
Speaker Change: Okay. That's helpful. Thank you and then maybe on the proprietary delivery systems side.
Speaker Change: 2024 had continued strong performance and you noted that category will lead the pharma segment. So they like the 25 what type of growth do you think is achievable there and as we've heard positive commentary on.
Speaker Change: Some of the newer drugs, you've had whether that's provided broadening or naphtha coming out of the gate and <unk> would you say that 2025 growth in proprietary as Morris are dependent on further new drugs coming to the market or more so underlying secular trends for nasal delivery and drugs that are already on the market. Thanks again for taking the questions.
Speaker Change: Sure Matt.
Speaker Change: Fundamentally that core engine of pharma is fully humming.
We feel very good that both the continued growth there.
Speaker Change: We were at Jpmorgan earlier in January.
Speaker Change: And those are the J&J C C you called out the Provost, though.
Speaker Change: M. Erez was there so we see continued good growth.
Speaker Change: In the emerging.
Speaker Change: St Mary.
Speaker Change: Central nervous system drugs as well as the underlying allergic rhinitis.
Speaker Change: Franchise continuing.
Speaker Change: As we just discussed the cold and cough is a little wobbly.
But I think where we're at the other end of the trough.
Speaker Change: Great. Thank you again.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: A question.
Speaker Change: Thank you Whitney with Jefferies. You May proceed.
Good morning, everyone and thank you. Thank you for taking my question.
Speaker Change: First I wanted to ask you about is tariffs obviously, it's a very fluid situation that I don't expect you to have any is what's going to happen, but I was wondering what happened last time.
Speaker Change: There were tariffs on Chinese products, if it hadn't even affect you guys at all.
Speaker Change: Or not necessarily you directly but also on your your customer demand or customer order trends.
Speaker Change: Yeah look obviously, it's not in our guidance.
Speaker Change: For the most part we produce in region for the region.
Speaker Change: And.
Speaker Change: As I said about China so.
Speaker Change: There of course.
Speaker Change: Special situations in those cases, we passed it on or will pass it on and have to pass it on.
Speaker Change: Hum.
Speaker Change: It's a commercial negotiation.
Speaker Change:
Speaker Change: But out of all the things you worry about the parity is not one that I worried terribly about.
Speaker Change: Okay.
Speaker Change: And then you had a pretty solid improvement in ROIC over the last couple of years I was wondering what and maybe you mentioned this in October is something that I forgot what the goal is if you can get this up to I don't know, 15% or if there is there is a gold.
Speaker Change: For that for that metric.
Speaker Change: Yeah, we're not in the habit of changing our long term targets on the quarterly calls we have our investor day coming up I think in September.
Speaker Change: If we revise it we would do it then but clearly.
Speaker Change: The increased operational performance.
Speaker Change: The more distant.
Speaker Change: Yeah.
Speaker Change: Acquisition of <unk>.
Speaker Change: And continued discipline in Capex.
Speaker Change: Helping our ROIC and we will take a look at that as we get into September and we'll update you then.
Speaker Change: Alright, Thank you very much.
Speaker Change: Yeah.
Speaker Change: Thank you.
Speaker Change: Just a quick reminder, that Stefan if I wanted to ask a question.
Speaker Change: And we now have Matt <unk> with William Blair. Please go ahead.
Matt Roberts: Hi, Good morning, you talked a little bit about that cough and cold side of the injectable side.
Matt Roberts: Farm I wanted to ask about royalties, obviously, that's something that you said mentioned more on the call in the last year or so.
Matt Roberts: And I presume as a driver of some of the margin improvement from 24 was there anything sort of one time in nature and even in a quarter or the year or are they all structured as royalties rather than milestones and how should we think about the contribution.
Matt Roberts: Moving forward in 'twenty five and beyond.
Speaker Change: Sure Yeah look first and foremost is the recognition of the value we add during the development process of a drug product that can be a decade or longer.
Matt Roberts: Sometimes.
Matt Roberts: Excuse me.
Times, if we're dealing with really small companies and the bulk of the service fees then we get some.
Matt Roberts: On the backend.
Matt Roberts: And what we call out royalties is indeed that there might be some.
Matt Roberts: Smaller milestone payments, but it's fundamentally a royalties on finished product sales there.
Matt Roberts: MP, but.
Matt Roberts: Make it bigger part of our overall revenue base, but still you know you're talking a few tens of millions for.
For the company.
Matt Roberts: Okay.
Matt Roberts: Okay, and then I did want to just follow up on an injectable is obviously that was up significantly Q1, 24, so a tough comp that was down in the last three quarters. When you say a slow ramp to the year I guess, we should think about that being maybe down in the first quarter and then.
Matt Roberts: Growing from there.
Matt Roberts: Yes.
Matt Roberts: Yes.
Speaker Change: We're not guiding by the individual business line, but you know.
Speaker Change: Too far away from the commentary we gave.
Speaker Change: Yeah.
Speaker Change: Okay. Thanks, but having said that unit unit volume continued to grow throughout the year. There were some other things in the Injectables every report like services revenue.
Speaker Change: There is more lumpy.
Speaker Change: Okay. Thanks, Tom.
Speaker Change: Thank you.
Speaker Change: We now have.
Speaker Change: With Haiti.
Speaker Change: With Wells Fargo. Please go ahead.
Speaker Change: Stefan Good morning, Vanessa welcome.
Speaker Change:
Speaker Change: I wanted to focus on on the capital allocation side of the business.
Speaker Change: You talked about wrapping up a couple of big investments as we know.
Speaker Change: <unk> and Injectables and.
Speaker Change: I think it's a good thing, but it still seems you guys are kind of guiding to 80 to 300 for.
Speaker Change: For capital you all.
Speaker Change: Gave us a slide where you're showing a lot of your internal investments are directed at your pharma segment. So I think all in we interpret that as a positive signal.
Speaker Change: But just any color.
Speaker Change: That you can provide in terms of what options are you seeing them for investment internally.
Speaker Change: I'm, sorry, Dave why don't I take that and Stefan please add any incremental color.
Speaker Change: So again the capital allocation policy.
Speaker Change: <unk> been a pretty healthy balance.
Speaker Change: On the capital.
Speaker Change: I can call out have been largely geared towards primarily not exclusively but largely so M&A dividends and share buybacks and I think as we get into 2025 Youll.
Speaker Change: Youll see a level of continuation of that and you did call out our capex expected investments in 2025 from level once again get a big piece of that.
Speaker Change: From an M&A perspective, I'm, not foreshadowing anything imminent, but we do regularly evaluate potential M&A candidates, where we see strong strategic fit and accretion potential and you're correct Stefan talk about that in the past and that again multi axle select format, but not exclusively sell so I think that would continue in terms of the evaluate.
Speaker Change: It's in process and then from a dividend perspective, we just ended August 30 <unk>.
Speaker Change: As a stefan called out in his prepared remarks of increasing dividend.
Speaker Change: I would expect that also to continue in 2025.
Speaker Change: And then lastly, just on the share buyback.
Speaker Change: The board.
Speaker Change: Approved daily fresh Papa Dalian buyback program in October and that is the more discretionary component.
Speaker Change: Our capital allocation.
Speaker Change: We're already active in the market with the repurchases and it's a lever that we have.
Speaker Change: Would expect that to also continue in 2025.
Speaker Change: And if you want to add.
Speaker Change: Perfect.
Speaker Change: And any particular projects are discrete things that are in that capital.
Speaker Change: You guys would want to call out.
Speaker Change: No not really.
Speaker Change: Got it.
Speaker Change: Three disrespectfully cold boxes.
Speaker Change: And in France, and Italy in a state of the art facility in China, and the Injectables now, we really are creeping investment and gradually growing capacity not only those relocations, but everywhere and I think the single largest investment for us is $5 million.
Speaker Change: And that $300 million.
Speaker Change: It is a 300 million of envelope. So it's a lot of just good organic growth investments maintenance investments capacity creep investments across the company.
Speaker Change: Okay.
Speaker Change: And then I guess.
Switching gears, a little bit you guys have been pretty active I think you called out closing.
Speaker Change: Apologize if I misheard 10 facilities.
Speaker Change: And beauty.
Speaker Change: But just you know we're.
Speaker Change: We're kind of on the other end of what was a multiyear kind of efficiency.
Speaker Change: <unk>.
Speaker Change: Initiatives across the organization.
Speaker Change: And again I know, you're not only you're not done you're always trying to get better but.
Speaker Change: As we look forward do you see anything else that you need to do from a footprint standpoint or cost reduction.
Speaker Change: Yes, just to clarify what we said beauty reduced its flipped count or the site count by 10 right now.
Speaker Change: We built in which we reduced by 10.
Speaker Change: And also over the last two years reduces head count by 11%.
Speaker Change: And as you rightly said you're never done we have some ideas nothing where.
Speaker Change: It is imminent here.
Speaker Change: And.
Speaker Change: Productivity is increasingly.
Speaker Change: Coated in our DNA and I'm very encouraged with the productivity plans all three businesses have brought to the table for this year and be tracking that closely.
Speaker Change: On that.
Speaker Change: Really nothing to report at the moment.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Thank you I would now like to conclude the question answer session and hand, it back to Mr. Ken Zaslow, some closing comments.
Speaker Change: Wonderful. Thank you. So let me end by assuming I hope as usual quarter.
Speaker Change: Four was a solid finish to a very strong year.
Speaker Change: 2024, and top of a very strong year 2023, we delivered back to back double digit earnings per share growth for both years and followed through on our raised margin targets.
Speaker Change: Driving productivity as I've, just said is increasingly friendly coded into the DNA of the company. In addition to innovation and sustainability that remain alive and well looking at 25, we are excited to continue that journey.
Speaker Change: Customers are taking very much notice of our increased focus on competitiveness and are meeting their needs more rapidly and flexibly with our much upgraded footprint.
Speaker Change: We are back on the front foot project pipelines across the company in very good shape and the pipelines continue to grow.
Speaker Change: Having said all that as we discussed the operating against the more challenging macro, especially was foreign exchange and the anticipated higher French corporate income tax rate.
Speaker Change: Doesn't mean that our tax planning activities are done.
Speaker Change: You always look for ways to abate.
Speaker Change: Debate impacts like that.
Speaker Change: <unk> had a good start of the year.
Speaker Change: But faced some spots of tough comparable that we discussed in fragrance consumer health care.
Speaker Change: But both of these are fully expected to be transitory.
Speaker Change: Gentle reminder, I know, we all focus on the quarter, but.
Speaker Change: Several of you were able to look under the Hood so to speak just a few.
Speaker Change: Four months ago. When you visited some of our facilities. We are still the same company that you saw four months ago.
Speaker Change: Good evening, a slowing economy, if you're confident enough.
Speaker Change: Future trajectory, given the resilience of our product portfolio and the strength of our pipeline.
Speaker Change: Just the balance sheet, we are on track for a 32nd year paying annually, increasing dividend and our balance sheet affords us a lot of strategic flexibility.
Speaker Change: Thank you for joining the call and we look forward to discuss more on the road.
Speaker Change: Thank you all for joining the <unk> fourth quarter annual results conference call attendance on todays call has now concluded. Thank you for your participation and you may enjoy the rest of your day.
Speaker Change: [music].