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Edited Transcript of ATR earnings conference call or presentation 28-Apr-17 1:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Aptargroup Inc Earnings Call

CRYSTAL LAKE May 2, 2017 (Thomson StreetEvents) -- Edited Transcript of Aptargroup Inc earnings conference call or presentation Friday, April 28, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Matthew DellaMaria

* Robert W. Kuhn

AptarGroup, Inc. - CFO, EVP and Secretary

* Stephan B. Tanda

AptarGroup, Inc. - CEO, President and Director

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Conference Call Participants

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* Adam Jesse Josephson

KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst

* Christopher D. Manuel

Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst

* Deborah A.. Jones

Deutsche Bank AG, Research Division - Director

* George Leon Staphos

BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research

* Ghansham Panjabi

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Jon Robert Andersen

William Blair & Company L.L.C., Research Division - Partner

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Philip H. Ng

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2017 First Quarter Conference Call. (Operator Instructions)

Introducing today's conference call is Mr. Matt DellaMaria, Vice President, Investor Relations. Please go ahead, sir.

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Matthew DellaMaria, [2]

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Thank you, and welcome, everyone. Participating on the call today are Stephan Tanda, President and Chief Executive Officer; and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Stephan will begin our call with a brief overview of our quarterly performance. Bob will then discuss a few financial details and we'll open it up for questions.

Information that will be discussed on today's call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to Aptar's SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. We will post a replay of this conference call on our website. Aptar undertakes no obligation to update the forward-looking information contained therein.

I would now like to turn the conference call over to Stephan.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [3]

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Thank you, Matt, and good morning, everyone. Over the past 90 days, I've had the privilege to engage with many of you, our stakeholders, customers, investors and employees at our facilities around the world, to better understand how we can further build on Aptar's pillars of strength.

We really have great people, excellent technologies and the industry's broadest portfolio of dispensing and sealing solutions. We are seen by many of our customers as a trusted partner to help them grow their business. Our overall business strategy is sound, even though there is work to be done to assure we protect and grow our existing market positions and that we aggressively seek out and win new business.

One of our top priorities is to evaluate and realign our sales and marketing efforts to ensure we become even more customer-focused and driven to earn their business at every turn. For example, in our Beauty + Home segment, where we have struggled to grow sales in recent quarters, we are making several leadership changes.

In North America, we are replacing the regional commercial leadership. In addition, in Europe, we recently hired a new Vice President of Sales and we are strengthening our talent base in Asia. We are also reinforcing our key account management by adding new talent and we are refreshing our sales process to improve the targeting and execution of our new business development within each business segment.

I will briefly comment on our results before I turn it over to Bob for some additional details. We grew the top line 3% on the core basis, driven by excellent growth in our Pharma segment and modest growth in our Beauty + Home segment, and the comparable earnings per share increased 9%.

Looking at our segment results. Beauty + Home's core growth during the quarter was partly due to increased sales due to the personal care market in Europe and Asia. However, we continue to face challenging conditions in the U.S. personal care and beauty markets, where sales declined.

During the quarter, we participated in several global beauty product launches including Estée Lauder's new revitalizing eye gel, global beauty -- excuse me -- Estée Lauder's revitalizing eye gel, which features our Skin Master cool touch applicator. We continue to expand into the growing color cosmetics market, and our dispensers were selected for 2 new global liquid foundations by Coty and LVMH. In Europe, L'Oreal selected our airless serum dispenser for a new professional hair care product. And the Miracle-Gro brand is using our dispensing pump for a line of plant care products.

Moving to Pharma. Strong demand across our portfolio of devices, particular for devices used for allergy treatment, decongestions and ophthalmics; and for our components sold to the injectables market drove the excellent results.

Early in the quarter, we announced that our ophthalmic squeeze dispenser was the very first and only U.S. FDA-approved multi-dose delivery system for prescription eye treatment formulations without any preservatives. Also, our nasal spray pump was featured on the launch of another generic prescription allergy treatment in the U.S. In addition, we received the first order for our integrated electronic nasal Lockout device, which is the first such device approved by the European Medicines Agency, following a multi-year development with Takeda Pharmaceuticals.

We also entered into partnership with Kali Care to develop real time medication management technology using digital [monitoring] systems. As we announced last year, we are also partnering with Propeller Health to develop a fully integrated connected metered dose inhaler. These investments and partnerships reinforce our commitment to developing groundbreaking new technologies for health care.

Now turning to Food + Beverage, this segment was again impacted by lower beverage sales volumes in China. Partially offsetting this beverage weakness, we grew in the food market in the condiment category as well as the coffee creamer and granular coffee categories, which was partly helped by the launch of International Delight's One Touch Latte.

Pepsi's LIFEWTR, a new premium bottled water in North America, and the new format of Pepsi's G Active enhanced water in Mexico are both featuring Aptar's sports closure. In Latin America, our pour spout closure is found on an updated package of McCormick's Mayonnaise. Finally, in China, we helped the infant nutrition producer, [Feher], to upgrade another infant formula package with our resealable closure and molded-in scoop.

Looking ahead to the second quarter, our project [outlook] with customers remained strong. I'm optimistic that we will continue to grow our business by executing on these customer projects and developing new business. We remain committed to cost containment across our business segments, while focusing on the key areas such as innovation, sales, marketing and new business development.

In closing, I am excited about our opportunities for the future and look forward to continuing to meet our stakeholders around the world.

At this time, I will turn it over to Bob, who will review some of our financial details.

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [4]

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Thank you, Stephan, and good morning, everyone. I'll briefly cover a few details and then we will turn it over for questions.

In looking at how our business segments performed in the quarter, I'll start with Beauty + Home segment. As you saw in our press release, core sales, excluding Mega Airless and keeping currency constant, increased 1%, primarily due to growth in the beauty market. Mega Airless added approximately 3% to Beauty + Home's reported sales in the quarter.

When we look at profitability, I'm going to be speaking about EBITDA margins. And in the quarter, our Beauty + Home segment achieved an EBITDA margin of 13%, which was slightly less than the prior year. Beauty + Home margins were negatively impacted by approximately $1.5 million of expenses related to an environmental remediation at one of our Brazilian facilities and approximately $0.5 million related to higher resin costs.

Looking at sales growth by market on a constant currency basis, sales in beauty markets were up 6% over the prior year; sales to the personal care market increased 3%; while sales to home care market decreased 2% from the prior year.

Our Pharma segment had another excellent quarter, achieving core sales growth of 10% and an EBITDA margin of 35%. Sales to the prescription market increased 8%, primarily driven by increases in demand for our delivery devices for allergy. Sales to the consumer health care market increased 18%, driven by strong demand for decongestants and ophthalmic products. Sales to the injection market increased 10% on broad-based global demand.

It was a challenging quarter for our Food + Beverage segment, which is impacted by lower sales volumes in the Chinese beverage market, and core sales decreased 1%. Our EBITDA margin decreased from 18% a year ago to 16%, and about half of that decline is due to the higher resin costs and partially due to product and customer mix.

Looking at each market. Sales to the food market increased 2%, primarily due to sales in the condiment and coffee creamer categories, while sales to the beverage market decreased 7% due to lower beverage sales volumes in China.

Capital expenditures were approximately $35 million in the quarter, and our free cash flow was approximately $6 million compared to a negative $12 million a year ago. The primary reason for the increase in free cash flow relates to profit growth and an improved working capital situation.

Looking at our balance sheet capitalization for the quarter. We repatriated from Europe approximately $260 million, which was primarily used to pay down U.S. revolving credit facilities. On a gross basis, debt to capital was approximately 39%, while on a net basis it was approximately 29%. And we remain slightly over 1x levered compared to our trailing 12-months adjusted EBITDA.

For the full year 2017, we continue to expect depreciation and amortization to be approximately $160 million, and that our net capital expenditures will be approximately equal to that amount.

Lastly, we expect our effective tax rate for the remainder of the year to be in the range of 26.5% to 27.5%, which includes an estimate for a potential tax benefit related to the new stock-based compensation accounting method. For reference, the tax benefit related to this subject in the first quarter of 2017 was approximately $2.7 million and this compares to approximately $3.6 million had we adopted in the first quarter of 2016. The full year tax benefit for 2016 would have been approximately $8 million.

At this time, Stephan and I will be glad to answer any of your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question or comment comes from the line of George Staphos from Bank of America Merrill Lynch.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [2]

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I'll ask a few questions and turn it over. I guess, the first question I had relates to the beverage market and trends you're seeing in Asia. Can you put a little bit more color in terms of fundamentals you saw in the first quarter? And the degree to which this destocking or competitive factor we've been talking about, I guess, the last 2 quarters or so prior, is behind you or still in effect for the second quarter? And then I have a couple follow-ons.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [3]

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Yes. Thanks, George. Basically, the visibility on this particular situation is still rather limited. Clearly at some stage, it will have run its course. The customer is qualifying or has qualified a second source. So at some stage, it's going to be out of the comparables, but I suspect it will still be with us for the year.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [4]

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Okay. Second question I had related to some of the new product initiatives that you mentioned. Can you talk about the eLockout device for nasal products? Can you size it all, what the ramp on something like this might look like over the next couple of years? Do you share the benefits with any partners, whether it's Takeda or somebody else? And similar line of questioning with Kali Care, and do you have the opportunity here to take your stake up from 20%? I'll turn it over with that.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [5]

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Yes, I think in both cases, it's early days. So it certainly would not be sensible to kind of speculate on the ramp up. When you think about the eLockout, I mean, any kind of drug that -- where you face the danger of overdosing, whether it is via nasal or via inhalation, can benefit from such an eLockout so that you can only get the certain dose within a 24-hour period or whatever time period is indicated by the drug. And I think it is a quite attractive solution. There are quite a number of drugs that are facing potential abuse and this is one way to deter that abuse.

And on Kali Care, this is even earlier days. I mean, basically, when you look at how our customers try to ensure patient compliance, there are different approaches, but by being able to electronically monitor not only whether or not the patient has taken a drug or administered the drug but whether it has been administered correctly, like the situation with Kali Care, that is of enormous value, first, initially of course, in the clinical trial setting, but later on in routine patient care. And you can even speculate that it will make outpatient treatment more feasible and ultimately could even contribute to lowering health care costs. So there are a lot of opportunities out there, but it is early days. There is a land grab, if you want, going on in this whole digital space. And we're just taking a position so that we are a meaningful partner with our clients and make sure we integrate that with our technologies.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [6]

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I know it's early days, but just some things I'd ask. Do you have the chance over time to take the 20% stake up? Or are you pretty much limited there? And are there any sizable partners on either of these new areas where, let's say it does get to be a large product category in both cases where you're giving up a fair amount of the benefit to partners?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [7]

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Yes. Let me, at this stage, not comment about the ins and outs of the agreement. Clearly, we'll be very conscious that we get our share fair of the -- fair share of the value.

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Operator [8]

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Our next question and comment comes from the line of Ghansham Panjabi from Baird.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

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So first off, on Beauty + Home, even sort of adjusting for the 2 items you called out, margins were down sort of -- even with core sales being up a bit. Can you help us bridge the rest of the decline? Is it acquisition dilution or some sort of mix issue? And then just given the top line weakness seems to persist for the segment, can you just update us on your cost initiatives there?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [10]

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I can take the margin deterioration, Ghansham. As you know, we're organized regionally, and when you have one region which is not performing as expected, like we had in this quarter with North America, you end up with basically some under-absorbed overhead. So that was probably the -- one of the biggest contributing factors beyond the 2 items that were called out on the resin and the environmental accrual.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [11]

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Maybe I would -- well, let me first add on the sales leadership side. Clearly, you have, if I can use an analogy, what is the weather like if you're on a boat and how do you navigate the weather? Clearly in personal care, we have a difficult market environment, especially in North America. But we can also set the sails a little stiffer. And so we're clearly addressing the sales execution, new business development execution, while we continue to drive operational excellence in some of the performance in the plants.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [12]

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Got it. And then on pharmaceuticals. You seem to be sort of pushing towards evolving your footprint towards one that basically embeds more technology within its products. How should we think about margin evolution, both initially as you ramp up these investments and then also long term? And do you sort envision this as being the fourth segment within Pharma over time?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [13]

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Ghansham, I would expect, over the short to medium term, that the margin will be -- stay fairly consistent, because there will be investments as we go along, both in people and in technologies. And for example with the Kali Care, we had about $1 million of due diligence and legal costs involved just with that minority transaction. So I think we're going to be trading off between building the proper resources to grow this business and getting additional revenue streams at the same time.

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Operator [14]

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Our next question or comment comes from the line of Mark Wilde from BMO Capital Markets.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [15]

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I wondered if we can go back to kind of Beauty + Home, what you're seeing that's kind of led you to take kind of a cautious view of the second quarter in both North America and in Brazil?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [16]

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Well, if you think about North America, clearly we're coming off a couple of weak quarters. So I would not expect a complete reversal overnight. Also as you've seen, consumer data, it's not too strong in the U.S. At Brazil, we have faced some particular competitive issues. So there, we see the economy improving somewhat, hopefully getting to grow next year but still declining this year. So you have a not overly growing marketplace and continued competitive issues. So -- we just wanted to flag that we would rather pick on the cautious side.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [17]

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Okay. And at this point, Stephan, are you still comfortable with kind of the 3% to 6% longer-term growth target in this segment?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [18]

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Yes. Look, the growth target was the result of a pretty detailed strategy exercise of the leadership team. Looking at our overall portfolio, there's no reason why we shouldn't grow in the mid-single digits. Sometimes, you have a little tougher weather that you need to navigate and sometimes you have some tailwinds. But I don't think we're -- there's a big revision to be done.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [19]

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Okay. And then secondly, I just wondered in terms of M&A pipeline, if you can give us a little color on how that looks right now. And whether we're likely to see a little bit of a pause in activity here as you kind of get yourself situated and maybe we do a little reevaluation of where you want to deploy capital going forward.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [20]

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I would say the M&A activity continues to be quite active, if I can say it that way. And the team around me continuing to look at deals and have gotten up to speed pretty quickly, I think. At the same time, a deal needs to make sense, needs to create value for our shareholders. So don't expect us to be trigger-happy, especially at current valuations.

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Operator [21]

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Our next question or comment comes from the line of Adam Josephson from KeyBanc Capital Markets.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [22]

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On the quarter, excluding the tax benefit, you guys were at the high end of what you had guided to. Presumably, the strength was in Pharma relative to your initial expectations. Can you just highlight what exactly was at the high end of your expectations, presumably in Pharma, in the quarter?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [23]

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Well, I mean, in Pharma, we had some tooling sales that, as we mentioned before, we're never quite sure exactly what quarter some of those are going to fall into. So I mean, there was a pretty good sales of tooling in the quarter. But we also had some negatives also that were not anticipated. As I mentioned in my remarks, we weren't anticipating the $1.5 million on Brazil environmental impact. And the resin impact actually came in slightly higher than what we had thought. So there's -- I think, throughout the whole thing, and that's the beauty of the diversified business model, we had both positives and negatives kind of hitting us. So I think overall, it was a good quarter if we look through across the broad product segments.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [24]

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Okay. And just one more for you, Bob, on FX. What are your assumptions for the quarter?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [25]

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For second quarter?

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [26]

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Yes.

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [27]

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Right now, we're forecasting at $1.07 for the euro, which is the spot rate kind of when we pulled together the transaction.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [28]

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Right. Okay. And Stephan, can you just talk about your aspirations for expanding over time? Which regions are most compelling to you to get [bigger in] over time, and why?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [29]

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Well, I think it's quite simple when you look at the demographics in the world and our exposure, 6%, 7% in Asia and then where the demographics are going and where particularly growth increments are going. We have some additional work to do in Asia. And that will certainly be a focus while we, of course, continue to build on the positions we have in the, if you want, western world. I would just leave it at that.

When you then get into the segments, each segment is a little bit different. I mean, just as an example, the beverage segment in the Middle East is growing quite rapidly and that it's probably over-expressed there. It also has a little bit to do with the climate. And so in beverage, you might look more in the Middle East. And Pharma, you might look a little bit more aggressively in India and so on. So that then -- but by and large, to make sure that we are really looking hard at every opportunity that is out there to develop more business and to expand our footprint across Asia and really the high-growth economies. So I think you would agree with me that in the long run, makes a lot of sense for us.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [30]

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And what is -- and just along those, what do you think your competitive position in Asia is at the moment? I mean, do you have enough scale and do you have enough resources to have some advantage over time? As we all know, many packaging companies have struggled mightily in China. So can you just talk about the competitive position there that you have?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [31]

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I mean, in China as your question, I was quite impressed looking at our facility in Suzhou. We have about 1,000 people there active across all 3 segments. So we have the ability to execute. We have the ability to be relevant with both the multinationals and, in my view, increasingly important, the local companies, whether that's a Petron or whether that's a Yili or that's a [Feher]. These companies are rapidly growing and we have the capability to do that.

When it comes to Southeast Asia, there are a few countries where we have a slight footprint, but maybe there's some improvement opportunities. And certainly, one question that is on my mind but will be much harder to remedy, if at all, is Japan. It's still a very large economy and we have some presence in Pharma but not in the other segments. But certainly, we know how to get things done. We have the talent to get it done. And we certainly have a differentiated technology that will help us to make sure we also earn good money with that top line growth.

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Operator [32]

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Our next question or comment comes from the line of Phil Ng from Jefferies.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [33]

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Question for you, Stephan, I guess, bigger picture. Can you provide a little more color on the management changes you've made and how your approach on the commercial front will be different? Did you just essentially deploy more resources on the sales effort and then just realign compensations? Any color would be helpful.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [34]

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Well, in the end, every function has kind of a way of doing things and doing things well or world-class, and that's no different on sales and marketing excellence. So basically, we are just taking a look kind of [versus] best practice from very basic things and how we're segmenting -- how is running the sales force, the opportunity pipeline is reviewed, what kind of performance-ing tools you have, to the incentive plan and so on. And the, if you want, state of the art in sales force and commercial management has advanced, and we want to make sure that we are as close to that excellent position as possible. And we certainly have room for improvement there. And that also means that you have leaders in place that can manage the organization, too -- in that direction.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [35]

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Will there be any, like, ERP implementation kind of accelerate that process? Just asking, because that's typically kind of tricky at times.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [36]

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Sorry, I didn't acoustically hear the first part of your question.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [37]

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Yes. Will there be any, like, system-wide or ERP implementation in general as well? Just because those have generally been a little tricky for most companies we cover.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [38]

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Not really. I think we have a good road map for our SAP implementation. And I mean, we also have a good -- reasonably good CRM system that can be expanded. So there is no big bang IT system needed here. This is more about management prisms and doing things with the right cadence.

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Philip H. Ng, Jefferies LLC, Research Division - Equity Analyst [39]

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Got you. And I guess on the margin front, you guys called out higher raw materials. Was any of that tied to metal as well? I know you flagged resin. And just going forward, would you be able to offset that and pass it through in the second quarter? And do you have some cost takeout initiatives in the back half to offset some of these headwinds?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [40]

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Phil, I'll take that one. Yes, there was a little bit of metal increases as well, but by far, the biggest piece of our raw material increase was on the resin side. As we typically do on the resin side, we'll be able to pass that through with a delay. But unfortunately, we're still seeing resin prices increasing in the first part of the second quarter. So we're actually anticipating a bigger headwind in the second quarter on increased resin effects compared to what we had in the first quarter.

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Operator [41]

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Our next question or comment comes from the line of Debbie Jones from Deutsche Bank.

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Deborah A.. Jones, Deutsche Bank AG, Research Division - Director [42]

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I wanted to start with a question on Pharma. You had just mentioned pretty strong consumer health care injectables volumes. I just wanted to get a sense if there was anything onetime in nature there and kind of if that growth is sustainable going forward this year.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [43]

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Yes, Debbie. Really can't give you a lot more color. I think the growth was pretty much across the board. Both of the segments that you talked about grew at a pretty good clip. And we expect continued good performance for the remainder of the year. I don't know, Bob, if you...

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [44]

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Yes. In the consumer health care specifically, I mean, we had -- it was very strong in North America, very strong in Eastern Europe. Good, I would say, our core applications field, like nasal decongestant and things like that. So I mean, it was really -- it was just a good, solid performance across our core therapies.

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Operator [45]

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Our next question or comment comes from the line of Chris Manuel from Wells Fargo.

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Christopher D. Manuel, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [46]

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A couple of questions for you. First, repurchase. Did you do any repurchase in the quarter?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [47]

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We did. We had about 210,000 shares repurchased in the quarter.

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Christopher D. Manuel, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [48]

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All right. I know that the window in first quarter is usually a little smaller than what it is in others. But is there, in the interim, as you're continuing to look at deals, is there any reason, perhaps as the year progresses here, you don't continue to be pretty active on that front?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [49]

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We're going to be pretty consistent, Chris, as we've been in the past. I mean, we like kind of our dollar cost leveraging approach. And as you mentioned, we're typically less in the first quarter due to the extended blackout period. So I mean, I think we'll be in the markets as we have been in the past, a little bit more in the second, third, fourth compared to the first.

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Christopher D. Manuel, Wells Fargo Securities, LLC, Research Division - MD and Senior Analyst [50]

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Okay, that's helpful. The next question I had was kind of bigger picture. As you look at -- or maybe look historically and then thinking about going forward with the Pharma segment, that segment always kind of ran at 25% to 30% EBIT margin, that was a long-term target for a number of years. When you had bought Stelmi, I think that business was closer to the 20% range, and that was something that was going to maybe drag it down for a little bit. But look, you guys have consistently now got that to the high end and beyond. I just wanted to get a sense of couple of things. One, perhaps, as it as the business has gotten bigger, it's done it via scale? Has it been via -- that you've taken costs out of the business through time? Or how would we think about the progression? I mean, do we have an opportunity for it to continue to get better from here? What are your quick thoughts, maybe?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [51]

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Yes. I mean, Chris, I think it's not one specific thing that we can point to. I think specifically looking at Stelmi, I mean clearly, we were able to be a little bit more cost efficient on some of the plastic injection molding, which wasn't their core competency, but is ours. So we moved some of that production into our highly-efficient Pharma facilities. So again, there was some cost savings there. We did a better job at improving some of the coatings technologies, right? Moving more up into a higher value-added product range. So I mean, that's certainly been an emphasis over time. So I think you've seen the average price on some of our products be a little bit higher than what they were pre purchase of Stelmi. So I think the Pharma business really continues like the rest of the business, which is continuing to look for ways to get more efficient, more productive, whether that's through investments in the factory, automation, higher cavitation tolling. And at the same time, really as we've done this quarter, continue to invest in the future. So that -- the investments we're making today are really just looking beyond that 7- to 10-year horizons to what's going to be to the growth driver 7 or 10 years from now. So I think they've done a really good job over the years of balancing cost containment/improvement, value-adding for the customers and continuing to invest for the future.

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Operator [52]

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(Operator Instructions) We have a follow-up question from the line of George Staphos from Bank of America Merrill Lynch.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [53]

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A couple of follow-ons for me. Environmental remediation in Brazil, it doesn't sound like it's huge, but nonetheless, I wanted to peer into what was the cause of that and whether there's anything else that we need to be mindful of relative to that issue.

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [54]

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So George, this is the facility where we had the fire at back in 2014. So part of that, we had done some Phase 1 analysis. And there was some indication that there was some contamination in the soil. Right now, we don't know exactly what the root cause of it was, so we're launching kind of a Phase 2 investigation. And as of right now, we've got several quotes from expert firms that are professionals in the cleanup type of operations. So essentially what we did is we know we had a liability. We recorded kind of where the best estimate was based on several of those estimates. And we're not really going to know until we get further into it, but it could be less than the amount that we've got there, but it could also be slightly more. So it's something that we're going to follow, obviously as the remediation starts. And certainly, if there's any material changes to what our accrual is, then we will certainly inform everybody.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [55]

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Secondly, just on the repatriation. Perhaps you've discussed this in the past. But were there any tax implications from that? Or will there be? How did that run, if there were, through the cash flow?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [56]

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Sure. So no, This first $260 million really didn't have any significant tax implications on the repatriation. So it really did not have a material impact on our tax rate in the quarter.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [57]

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Okay. How did you manage that?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [58]

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Well, it's a complicated subject. But basically, the way you have to calculate where your patriations are coming from and what taxes you've paid previously with the dollar being as strong as it is, relative to when we paid taxes on some of those earnings, we actually were able to be very close from an effective tax rate to what taxes we paid on those when we earned them versus where we are today. So I could go into a much, much more of a geeky discussion on that at a later date.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [59]

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I suggest you have a separate conference call on it, how about that?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [60]

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(inaudible)

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [61]

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Yes, just kidding. And my last one, and I'll turn it over. I want to piggyback on a question or topic that Phil brought up. When we see management changes and changes in program, we'll call it, in sales management and incentives. Usually, the results, at least from our vantage point are bipolar. Either they're quite good initially because everyone is motivated, because they recognize there's a new -- we'll call it a new regime and approach to doing business. Other times, it can be really difficult to manage, especially if the incentives and the goals aren't set out pretty clearly. Now I know which side of the fence you're going to come down on, but tell me why you think this is going to be done without any disruption in customer relationships, ordering, sales growth, et cetera?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [62]

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Yes, I would say, my experience is indeed more the first one. But frankly, it's also not rocket science. It's basically just doing what you should be doing anyway and following up closely. And I mean, basic things. Having a weekly call, reviewing the sales pipeline, making sure that we follow-up on all the opportunities, making sure people know what they're held accountable for, making sure we are in front of the right customers with the right pipeline. So it's not that we are upending everybody's lives, it's just that we basically just do the blocking and tackling, do it in a way that is kind of best practice.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [63]

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Okay. I mean, but if -- Stephan, I don't mean to get too into the weeds on this, but if its basic blocking and tackling and to use your word, it's not rocket science, then that would suggest it would have been readily done in the first place. So what was perhaps missing previously?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [64]

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Well, yes, I think that's a fair challenge. But there are so many things that you need to do to manage a business. And sometimes, certain things are kind of deprioritized. And given that a lot of other things are running right in the business, this kind of comes to the surface and needs to be addressed, I think, also looking at our growth performance in recent quarters.

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Operator [65]

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Our next question or comment comes from the line of Jon Anderson from William Blair.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [66]

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Bob, I'm sorry if I missed this earlier, but could you quantify the total resin impact in the first quarter? And what your expectations are at this point, given spot rates and pricing, for the second quarter and maybe the second half of the year?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [67]

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Sure. So in the first quarter, it was slightly more than $1 million on the resin side split kind of between Food + Beverage and Beauty + Home, slightly more in Food + Beverage. We don't typically give guidance -- specific guidance on what assumptions we've got out there, but I would tell you that our estimates include a bigger headwind in the second quarter than what we incurred in the first quarter. And then looking out into the third and fourth, it's way too early to tell. I mean, the markets change so much from one quarter to the next that we would be just really guessing and speculating what the second half would bring.

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Jon Robert Andersen, William Blair & Company L.L.C., Research Division - Partner [68]

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Okay, great. That's helpful. One other one for me. Outside of the Pharma business, so kind of the more, I guess, basic consumer staple end markets that you serve, we're hearing a lot, particularly domestically, but also I guess in Europe, about price pressure related to channel shift and other kind of market dynamics, such that pricing power, I guess, for many of your customers is limited at best and there may be inherent pressure going forward. Is that something that's filtering back to you? That you're seeing either to a greater or kind of lesser extent that -- than you have in the past? Any color there would be helpful.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [69]

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Bob, I mean, the press should be more competitive. It's nothing new. But I quite agree with you that our customers in the CPG space wrestled now for a few years with the fundamental shift from the baby boomers to the millennials. And then with that comes the fragmentation in the product line. With that come the shift in distribution channels, including e-commerce. And with that comes also that they have economic pressure and they turn around to their suppliers. But there can also be a differentiating factor. I mean, we continue to drive cavity counts, we continue to increase the press sizes, we can help them with light-weighting and take out material costs. We can certainly help with automation. So part of our offering is also to be able to be more efficient and continue to drive productivity. At the same time, I think we mentioned earlier, as things shift over to e-commerce and more and more gets shipped by Amazon and others, as new demand for closures and dispensing solutions that are robust enough to be tossed around in the box and thrown off a UPS truck. So there is also new opportunities. So it's part of the business.

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Operator [70]

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Our next question or comment comes from the line -- is follow-up from Mr. Mark Wilde from BMO Capital Markets.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [71]

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Yes. Just a couple of quick follow-ups. One, there have been some signs down in Brazil of a little improvement in activity. Are you guys seeing any of that?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [72]

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Well, I think that the general macroeconomic development is clearly better, or let me put it this way, declining at a slower pace. So I mean, you had the GDP declining more than 3%. This year, depending on who you talk to, it's down 0.7%, 0.5%. And the huge optimists maybe call it a 0. That's still a decline, but it's not as steep a decline as before. And there's quite some dynamic in the Brazilian marketplace with some share shifts and also rapidly changing retail environment. So it's a little bit of a mixed bag.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [73]

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Okay, that's helpful. And then, Bob, I wondered, can you remind us of sort of the cadence on the Stelmi ramp-up in the plant in New York this year? Just from a (inaudible) standpoint.

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [74]

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On the Congers facility, yes, sure. Glad you asked. So we're in the process of validating right now the finishing capacity, which is really adding about 10% to 15% downstream capacity in that product. So we're hopeful that we're going to be shipping in the second half of 2017.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [75]

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And so financially, would you expect that to have an earnings impact in the second half? Or is that really kind of 2018?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [76]

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No, not necessarily. I mean, obviously this quarter, the injectables had nice growth of 10%. I mean, what we'll be doing is we'll be shifting components over to the Congers facility from the French facility. So it's really a shift of production from France to the U.S. on the finishing aspect of it. So if business in that division continues to grow, we have the capacity in France to absorb that by bringing on capacity in the U.S. So I would say, if there's a positive impact, it's going to be more market driven than it is going to be because of the new capacity we're bringing onboard in the U.S.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [77]

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So what exactly is going on up there? And what could you do incrementally over the next sort of 3 to 5 years? Because presumably, you want to grow Stelmi's position in the global injectables market. Right?

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Robert W. Kuhn, AptarGroup, Inc. - CFO, EVP and Secretary [78]

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So the 10% to 15% -- so as we've spoken about before, the elastomer components are, really, is a 4-phased process, right? I mean, you got to mix the rubber compound, you've got to mold it, you've got to stamp it and then you have to wash it and finish it and package it, either pre-sterilized or ready to sterilize. And so the part of capacity expansion we added in New York was at downstream. So that washing, drying, finishing capacity on the 4-phase process.

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Operator [79]

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We have a follow-up question from the line of Adam Josephson from KeyBanc Capital Markets.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [80]

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Stephan, I think Mark asked you earlier about M&A and I just want to follow up on that. I think you responded that you're always looking at opportunities but mindful of how high multiples are. Obviously, in the packaging sector, there have been numerous large deals and the companies have said, "Yes, we appreciate that multiples are high, but interest rates are low, so that can -- that makes that math work." Where do you come out on that in terms of this being comfortable doing large deals just given how low interest rates are, even though you're aware of how high multiples are?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [81]

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I mean, I learned the hard way that you should separate the investment decisions from the financing decisions. And at the end of the day, every deal should look at, really, can we create more value than the current owner? And yes, that tends to be easier with deals that you bolt on, where you have synergies that you can lift, than it is deals that are very adjacent or maybe not even overlapping. So it will be easier to pay the price if you can lift the synergies and make it work for our shareholders than not. So I know I'm not telling you anything new, but rest assured, we are mindful of that as well.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [82]

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And do you have any predisposition to do small or large deals? Or not necessarily?

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [83]

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Look, the hurdle to make large transformative deals work is much, much higher. And as we all know, the statistics on their success rates are much more challenging than kind of the mid-sized bolt-ons. So by the very definition, those will be easier to execute and easier to generate value. Of course, you never say never, but my predisposition will certainly be to do a string of these than a huge deal.

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Operator [84]

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Thank you. I'm showing no additional audio questions in the queue at this time. I'd like to turn the conference back over to Mr. Tanda for any closing remarks.

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Stephan B. Tanda, AptarGroup, Inc. - CEO, President and Director [85]

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Thank you. Well, appreciate you all joining us today. With this, we conclude our conference call and wish you all a good day.

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Operator [86]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.