AptarGroup's CEO Discusses Q1 2012 Results - Earnings Call Transcript

AptarGroup (ATR)

Q1 2012 Earnings Call

April 26, 2012 9:00 am ET

Executives

Matthew DellaMaria - Vice President and Assistant Secretary

Stephen J. Hagge - Chief Executive Officer, President, Director and Member of Executive Committee

Robert W. Kuhn - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Secretary

Analysts

Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division

Gabe S. Hajde - Wells Fargo Securities, LLC, Research Division

Michael A. Hamilton - RBC Wealth Management, Inc., Research Division

Jon Andersen - William Blair & Company L.L.C., Research Division

Ernie Ortiz

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Jason Rodgers

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2012 First Quarter Results Conference Call. [Operator Instructions] Introducing today's call is Mr. Matt DellaMaria, Vice President, Investor Relations. Please go ahead, sir.

Matthew DellaMaria

Thank you, Jonathan, and welcome, everyone. Participating on the call today are Steve Hagge, President and Chief Executive Officer; and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Steve will begin our call with an overview of our first quarter performance. Bob will then discuss our financial results in greater detail, after which, we'll open it up for questions.

Information that will be discussed in 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 AptarGroup'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. AptarGroup undertakes no obligation to update the forward-looking information contained therein.

I would now like to turn the conference over to Steve.

Stephen J. Hagge

Thanks, Matt, and good morning, everyone. The first quarter ended up very close to what we had expected, and we're off to a good beginning to 2012. Strong demand for innovative dispensing solutions helped us achieve record first quarter sales. It's encouraging that each of our segments grew their top lines over the prior year. Operating income increased slightly to a record first quarter level in spite of the increased level of custom tooling sales compared to a year ago, additional start-up cost associated with our newer facilities and unfavorable effects from the changes in currency exchange rates.

Our Beauty + Home segment, which constitutes about half of our revenue base, achieved core sales growth of 3%. Sales of our products to each of the markets served by this segment increased over the prior year. Operating margins were consistent with the prior year as product mix helped offset slightly higher custom tooling sales.

Our Pharma segment had a terrific quarter, with core sales growth of 8%. Demand for our nasal delivery systems with the -- from the prescription drug market was particularly strong, and we continue to grow our Consumer Health Care business even though at a slower pace than last year's exceptionally strong growth rate. Profitability remained toward the higher end of our historical range mainly due to the product mix and production efficiencies, which offset some of the start-up costs associated with our new Indian facility and the impact of higher custom tooling sales.

Our Food + Beverage segment completed the quarter with core sales of 11%, with 2% coming from increased custom tooling sales. Once again, we saw a very strong demand for innovative dispensing closures from the beverage market and steady growing demand from the food market.

I'd like to mention a significant step in the penetration of the juice beverage category. In the quarter, Tropicana launched the new redesigned 2.6-liter orange juice package with our custom closure. We're optimistic that further penetration of the juice and other beverage categories will contribute to the growth of our Food + Beverage segment. Profitability for this segment was negatively impacted by the start-up cost associated with our new facility in North Carolina, increased R&D and prototyping cost coming from new project activity, as well as higher custom tooling cost.

Now looking at our new facilities worldwide, we continue to bring our new capacity online, and I'm pleased to say that our progress on our new facilities in both Lincolnton, North Carolina and Mumbai, India has gone very well. In Lincolnton, we began shipping to customers in the first quarter, and we expect to begin shipping products from more our Pharma facility in India in the second quarter.

As we look ahead to the second quarter, there continues to be some macro concerns, particularly about the financial situation in Europe and a potential slowing growth rate in the emerging regions. We also expect a challenging input cost environment and that currency exchange rates will have a larger negative impact on our results in the second quarter. However, I am encouraged by the level of product -- project activity across all of our segments, and we continue to penetrate new and existing categories with our market focus strategy. We're well positioned with the recent capacity enhancements to grow with our customers in all the regions we serve.

Now I'll turn it over to Bob, who will review our quarterly financial results in more detail.

Robert W. Kuhn

Thank you, Steve, and good morning, everyone. I'd like to first comment on our consolidated results for the quarter, and then I'll go into details by business segment.

As announced in our press release, we reported record first quarter sales. Core sales growth was 6%. Currencies had a negative impact of approximately 3%, and therefore, the reported sales growth, including currency effects, was 3%. From a geographic standpoint, our European operations represented approximately 55% of sales this year versus 58% of sales in the prior year, while our U.S. operations accounted for 29% of sales versus 28% last year. Reported diluted earnings per share for the quarter equaled the previous year's first quarter record level of $0.64 per share.

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