AptarGroup, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Aptar Group's 2019 fourth quarter and year-end conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Introducing today's conference call is Mr. Matt Della Maria, Senior Vice President, Investor Relations and Communications. Please go ahead, sir.

Thank you, Lisa, and welcome, everyone. Participating on our call today are Stephan Tanda, President and Chief Executive Officer, and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. You can find a copy of our press release as well as a slide presentation file that summarizes our results on our website. We will also post a replay of this conference call on the website. Today's call includes some forward-looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. APTAR undertakes no obligation to update the forward-looking information contained therein. I would now like to turn the comments call over to Stephan.

Thank you, Matt, and good morning, everyone. Thanks for joining us. Before I comment on the quarterly segment results, let me start by sharing an update on recent activities. Since the breakout of the coronavirus, our management team in China has taken very strict measures around the health and safety of our employees, and we are thankful to say that to date, none of our employees have been infected with the virus. We do not have any operations in the Wuhan region, but beginning in late January, we restricted employee travel to and from China and have been closely tracking and monitoring the situation. We are keeping the most stringent protocols in place to keep our facilities in pristine conditions. Prior to the reopening of our operations after the mandated Chinese New Year holiday period, we received special permission from the Chinese government to begin production in early February in order to supply our farmer customers whose products are listed on the national emergency product list. We are, however, experiencing some labor shortages due to government restrictions on the movement of people, and we continue to update our customers with the latest supply and delivery information. We are also continuously assessing the impact that the crisis will have on our business in the first quarter and beyond, though it is impossible at this stage to predict the full extent of the impact. In addition to Chinese domestic retail beverage consumption, the area most at risk appears to be our prestige beauty business due to the coronavirus significant negative impact on prestige and luxury consumption and travel retail. We may see a positive impact to our business for pumps and closures for sanitizing and antibacterial products, but it is also still too early to tell. We're extremely proud of our people on the ground in China and how they have rallied together during this difficult time. Now moving on to other topics, as shown on slide four in the presentation that accompanied the press release and is posted to our website, APTA was named one of America's most responsible companies of 2020 by Newsweek magazine. This recognition of our ESG leadership by Newsweek, in addition to being named again by Barron's as one of the top 100 most sustainable companies in America, now for the second year in a row, is a reflection of our long-term orientation to build a sustainable business and also a testament to the commitment of our people to further and more inclusive and sustainable world. Turning to slide five, our pharma segment had a good fourth quarter and benefited from strong growth in our consumer healthcare market, injectable, and active packaging markets. I'm pleased to share that our patented unidose liquid system is the device delivering the first and only nasal rescue treatment that was recently approved by the US FDA to treat acute repetitive seizures in people living with epilepsy. This ready-to-use rescue treatment can be used when and where a seizure occurs thanks to a proven intuitive and convenient unidose system. Noble International, which we recently acquired as part of our drive to build up the pharma services platform, developed an accompanying training device in partnership with our customer to be used as a part of the patient onboarding program for this new product. We also partnered with Lupin Limited to launch India's first connected device for metered dose inhalers, also called MDIs, and this product is called Adhero. This unique add-on smart device is designed to help patients with chronic respiratory diseases, track their MDI usage, and facilitate improved adherence to their prescribed treatment regime. Adhero is a Bluetooth-enabled reusable smart device that attaches to the top of an MDI. With built-in sensors, the device tracks the patient's daily medication usage and consumption patterns. In other pharma news, we launched a first-of-its-kind combination oxygen scavenging and moisture absorption active packaging solution. This new technology utilizes our patented three-phase active polymer platform in the active film product configuration. As shown on slide six and outlined in our press release, it was an exciting year for our pharma segment as we broadened our services platform with the acquisitions of leading analytical laboratories, NanoPharm and Gateway Analytical, and the training device and patient onboarding expert, Noble International. Also during the year, several customers launched new US FDA-approved drugs featuring our delivery technologies, including our bi-dose nasal spray device, uni-dose powder system, nasal uni-dose device, and active blister packaging solutions, as shown on the slide. Now let me turn to the beauty and home segment results starting on slide seven. As we saw in the previous quarter, this segment faced considerable challenges from weak demand from the personal care market, including customer destocking. We also saw several beauty customers reduce inventory, which weighed on our beauty top line growth. However, we had some exciting activity in the fourth quarter as we opened new sales offices in Dubai and Tokyo, Japan, which serve as meeting occasions for our customers in these regions and will support all three of our business segments. We also celebrated the grand opening of our new facility in Guangzhou, China, to bring close proximity to our customers in southern China who are some of the world's leading brands and manufacturers. In the quarter, we helped Klaas to launch a new facial serum called Plant Gold, which features our dual delivery dispensing system. We're also pleased to be featured on several European prestige fragrances oranges including new eau de toilette called K by Dolce & Gabbana, featuring our spray pump in custom metal color, and the Miss Dior Rose and Roses Parfum by LVMH, featuring our spray pump. In North America, our small pump is found on the anti-wrinkle serum Elixir Vitae by the indie brand Tata Harper. Aligned with our drive towards a circular economy, starting this year in North America, we are converting our portfolio of stock block closures to post-consumer recycled resins. Now I would like to take a moment to outline how we are strengthening our beauty packaging business to keep winning for years to come. And now on slide eight. First, we have closed on our agreement to acquire the initial 49% equity interest in BTY. a leading Chinese manufacturer of high-quality decorative metal components, metal plastic sub-assemblies, and complete color cosmetic packaging solutions for the beauty industry. This is the first key step in our strategy to increase our capabilities and exposure to the fast-growing local Chinese beauty market. Second, we recently announced the acquisition of Fusion PKG, an asset-light innovation leader in high-quality, complete skincare and color cosmetics packaging solution. They add a new, agile concept to launch and turn key capabilities to Aptar to serve the North American beauty market. With proven creativity, engineering formulation, and fast go-to-market offerings, Fusion PKG has strong existing relationships with both global cosmetics and skincare customers and with many indie brands. Today's market demands what is called fast beauty. This is Fusion PKG's specialty. They have built an incredible business that is an excellent complement to Aptar's, and we will eventually look to scale this offering beyond North America to selected other regions. Both Fusion PKG and BTY are growing profitable businesses, and they will be margin accretives to the beauty and home segment. Finally, we are taking the next steps in our ongoing business transformation. We continuously evaluate and optimize our operations to adapt to changing market conditions to ensure we're delivering the very best to our customers. As a result, we've decided to close our Stratford and Torrington, Connecticut sites and absorb and rationalize these production capabilities into other existing AFTA facilities in North America. The transfer of production is planned to be completed by the end of the year. With these changes, we will be in a better position to serve our North American beauty and home customers and focus on long-term profitable growth. This is a continuation of other steps we have taken to streamline and modernize our beauty and home footprint. In 2019 alone, we sold our Liberty, Illinois, molding facility to one of our subcontractors, and we have made other consolidations in other regions. For example, we consolidated our two facilities in Argentina into one, We consolidated production capacity that was in Indonesia into our Thailand facility, and we consolidated two facilities in India into a new location. Moving now to slide nine, our core sales in our food and beverage segment declined due to decreased beverage closure sales and the negative effect of passing on lower resin costs to our customers. We launched new products in the quarter, including newly redesigned coconut and avocado oil cooking sprays for Aldi in North America, which feature our sprayer actuator. Our non-detachable, tamper-evident tear band and closure are also featured on the Yokui brand of infant formula in China. In the beverage market, our sports closures are featured on a line of Desani bottled water in Ecuador and on several new Disney-themed bottled waters by Danone in Brazil. In summary, overall, it was a challenging quarter due to the reduction in inventory by several key customers, making it a difficult comparison to the prior year where we were growing in all but one of our key markets. While we navigate through these short-term challenges, we are taking several steps to position us for long-term growth, including strategic investments in high-growth areas with BTY and Fusion PKG, and the consolidation of our North American beauty and home operations. With that, I will now turn it over to Bob, who is going to walk through some of the financial details that impacted the quarter.

Thank you, Stefan, and good morning, everyone. I'll briefly walk through some of the details concerning our fourth quarter results, starting with slide 10. For the fourth quarter 2019, reported sales declined 2% and core sales declined 1%, in part due to the passing through of lower resin costs to our customers. Reported sales had a positive impact from acquisitions of 1% and negative impact from currency rates of 2%. Our pharma segment achieved a core sales growth of 4% and an adjusted EBITDA margin of 35%. Core sales to the prescription market decreased 3%. due to a tough comparison to the previous year where the prescription market was up 17%. Core sales to the consumer healthcare market increased 8% due to strong demand in dermal drug delivery and eye care. This is very good growth over what was a strong performance last year when consumer healthcare was up 21%. Core sales to the injectables market increased 15% due to strong demand across all regions and most applications. Core sales to the active packaging market increased 13% across a variety of applications, including our active blister packaging solution for oral solid dose drug delivery. Turning to our beauty in home segment, core sales decreased 5%, primarily due to customers reducing inventories, especially in the personal care market, and the negative impact from passing on lower resin costs. Beauty and Homes adjusted EBITDA margin was 12% in the quarter. Looking at sales growth by market on a core basis, core sales to the beauty market increased 1%, primarily due to an increase in tooling sales. Core sales to the personal care market decreased 9% due to the customer stocking that I previously mentioned. Core sales to the home care market decreased 8% due to lower sales to the air care and laundry application fields. Looking at our food and beverage segment, core sales decreased 1% in the quarter. This includes the negative impact from passing on lower raw material costs, which negatively affected the growth by 4%. Food and beverage adjusted EBITDA margin reached 13% due to productivity improvements and lower resin costs compared to the prior year. Looking at each market, poor sales to the food market increased 6%, to sales of our solutions for the non-beverage dairy and granular powder categories. Poor sales to the beverage market decreased 19%, primarily due to lower sales to Asian beverage customers. Turning now to slide 11, with an effective tax rate of 28%, fourth quarter adjusted earnings per share totaled 80 cents. Prior year comparable earnings per share totaled 92 cents. Slides 12 and 13 cover our annual performance and highlight our 3% core sales growth and 2% adjusted earnings per share growth. Slide 14 refers to our outlook. We are expecting earnings per share for the first quarter to be in the range of 85 to 93 cents per share, using an expected tax rate range of 28 to 30%. I have a few other details to share, and then I will hand it back to Stefan. In the quarter, reported cash flow from operations was strong and totaled approximately $134 million. Capital expenditures were approximately $55 million, and as shown on slide 15, our free cash flow was approximately $79 million, compared to approximately $38 million a year ago. Higher earnings due to less restructuring and acquisition costs and working capital improvements led to the increase in free cash flow. This brings our annual free cash flow to a record $272 million compared to $102 million in the prior year. We continue to have a strong balance sheet, and on a gross basis, Debt to capital was approximately 43%, while on a net basis it was approximately 38%, and we remain less than two times levered. At this time, Stefan will provide a few comments before we move into Q&A.

Thanks, Bob. So in closing, I'd like to leave you with a few key takeaways. It was a good year for APTA with core sales increasing 3%. We achieved an adjusted EBITDA margin of 21% for the year and grew adjusted EBITDA by 8%. It was also another year of outstanding performance by our pharma segment, which grew 10%, driven in part by a very active year for new drug delivery launches. We also built out our pharma services platform with the acquisitions of Noble International, NanoPharm, and Gateway Analytical. We partner with two important sustainability innovators, TerraCycle's Loop Platform and PureCycle, and we were pleased to be independently recognized by multiple parties for our leadership on key ESG topics. Our balance sheet is in great shape, and 2019 was our 26th consecutive year of paying an increased dividend. Looking to the first quarter, we faced unusual demand uncertainties due to the economic impacts from the coronavirus outbreak. Our pharma business is facing somewhat difficult comparisons compared to the prior year's exceptional growth, but remains, of course, a key driver of our profitable growth. Having acknowledged the near-term challenges, we are very optimistic about our long-term opportunities for growth and will continue to invest in high-growth areas in each of our businesses. With that, we'll open it up for your questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound or hash key. In the interest of time and fairness to all participants, please limit yourself to two questions and one follow-on question, then come back into queue if you have more questions as time allows. Please stand by while we compile a Q&A roster. And our first question comes from the line of George Staffos from Bank of America. Your line is open.

Hi, everyone. Good morning. Thanks for the details, and congratulations on the progress in 2019. Hey, the first question I had, Stefan and Bob, could you give us a quick update on the business transformation, the progress you saw in the quarter, kind of how it helped you in the quarter, and what the next milestones are in terms of 2020? And then the next question I had before the follow-on is, Just the destocking that's going on, you know, I recognize we've all been doing this a long time, trying to track and figure out when destocking ends is up there with finding a cure for the common cold. But, you know, when do you think this destocking is largely done? Is it done? Is it done in the first quarter? Any thoughts there? Thanks.

Thanks, George. And I prefer a cure for coronavirus at the moment. Okay. I didn't want to go there, but... So on the transformation, just stepping back, as a reminder, first year was really focused on top line and everything on the commercial front end of the business. That worked well, current situation understanding. In 19, we focused a lot on improvement in the factories, and that has worked very, very well, also amongst others allowing us to now consolidate in North America. All the KPIs around OTIFs, scrap rates, and so on, much improved, and customers are happy again with our service levels. Also, I would say in 19, we make good progress on the working capital, driving up our payables, working on inventories. Receivables is always a work in progress with our huge TPG customers. acting like they are almost bankrupt, but forget that editorial. And then as we look into this year, fixed cost, GNA is a big part of the agenda this year. We've mentioned before, we've negotiated with Works Council in Europe, which always takes some time, and we're now executing on those actions. And of course, we've added some additional action with the North American Footprint Consolidation. So I think that kind of gives you the outline for the transformation. On the one hand, I feel very good because we are executing everything that we set out to do. On the other hand, I, of course, don't feel good when I look at the results that drop through to the bottom line given the current demand environment is not that visible. In addition to that, the exchange rate also has changed from, you know, 20-something when we kicked this off to today, 108. So the exchange rate eats up quite a bit of that. Now, on your second question, I think when we were just looking at the destocking scenario, we said it could be two quarter phenomenon, so Q4, Q1. Now, of course, we have a completely different situation with the coronavirus story. So Hopefully, the de-stalking on the personal care side in North America will run its course toward the end of the quarter or early next quarter. But overlay on that is the coronavirus impact. Let me just say a few more words around that. On the one hand, of course, great, nobody infected. Our plants are running. But our plants are only running about 50% in China because we can't get our workers to return to the factory due to travel restrictions. Just to give you a practical example, our president for Asia sits in Shanghai. If she takes a road trip to Suzhou, which is two hours down the road to visit the factory, she has to self-quarantine her again for two weeks if she returns to Shanghai. So the movement of people is heavily restricted, understandably so. They're starting to opening up transportation for full truck loads and full container loads, but partial container loads, for example, not. It's really the, on the one hand, the Chinese government wants to be, of course, accelerate being open for business at the same time, not compromise on the coronavirus situation. And then for us, the difficulty is to read through March is by far our biggest month, usually in the quarter, in the first quarter. What will exactly happen in March? We have the domestic consumption in China. We have The fact that the luxury and the wealthy Chinese consumers not traveling and more and more we see other people are not traveling. People from Japan are traveling, conferences being shut down on the West Coast or in Europe. So what will be the impact of that travel retail on the end consumption and then of course the read through on the orders on us. So you've noticed we opened up the range of our outlook to the down. just because of the uncertainty. And we just don't know at this stage what that will do and what might be some of the offsets, you know, more sanitizing products, supplying some products in the U.S. that used to be supplied by Chinese, all these things. It's just too early to call it.

Stefan, thanks for all of that. And I recognize the answer to this question will be, It's generally very hard to tell, and so give us some slack, which we will. But nonetheless, you did put out a guidance range for the quarter, so can you give us a couple of details in terms of what's in the lower end and higher end of your range in terms of your assumptions for coronavirus, and if it's just a wide range and we'll take it as it comes, that's fine too. But that's my question, I'll turn it over.

Yeah, I mean, certainly we call it the best way we see it, and with the orders we can see, we cannot account for last-minute cancellations or postponements, and we certainly opened up the normal range to the downside for things that we can't see. I think that's kind of how we went about it. Okay. Thank you.

Our next question comes from the line of Neil Kumar from Morgan Stanley. Your line is open.

Great, thanks for taking my question. Just another follow up on the building home restructuring and your margin target of 15 to 17%. How much of the opportunity going forward is independent of the top line growth? And then in terms of the consolidation of your North American building home operations, how should we think about that $20 million of cost flowing through in 2020 and how much of a benefit do you expect from this?

Yeah, let me take the first one and then maybe Bob, you can come in on the second one. So certainly, one, we're not changing our targets. We're fully committed to our targets. But it did assume that we have and continue to be able to grow in the three to six percent range for beauty and home, which the end market is growing, and I have no doubt we will be able to grow as well. So having said that, clearly that's not the case at the moment. and we need to work hard to earn that growth, and partly that's by repositioning our supply capability and also repositioning how close we are with customers. Their fusion PKG plays an important role.

Yeah, and Neil, I just want to reiterate something that Stefan has said. We believe this is the appropriate time to consolidate some of our North American factories due in part to the efficiencies that we've gained from the transformation efforts. So, you know, we believe this is the right transaction. It has an attractive payback and we would expect that payback to be achieved over two to three years. You know, more specifically to your question on what to expect in 2020, it's going to be minimal in 2020 and ramp up more towards the end of the fourth quarter and into 2021. But I think the most important thing, I think, to take away is that it's another move to modernize our beauty and home business to become more efficient and more agile to our customers' needs.

Okay, that's helpful. And in pharma, can you just also talk about what you're seeing in terms of trends in the allergy market, both OTC and prescription? Can you give us a sense of the magnitude of the slowdown you experienced in the fourth quarter?

Well, It is doing what we said it would do, is basically the overall farmer growth is reverting more to a normal range, maybe towards the bottom end of the range for this year. And the allergy runitis business is certainly there's some excess inventory in the chain, but I would expect it to grow at the GDP kind of rate.

Our next question comes from the line of Adam Josephson from KeyBank. Your line is open.

Stefan, Bob, Matt, good morning. Morning, Adam. Morning. Morning. Stefan or Bob, I'm sure George is trying to get at this. Maybe I'll try a different way. So your 1Q guidance is 85 to 93 cents. If coronavirus didn't exist and your customers were no longer destocking, is there any way for you to give us a sense of how much higher, roughly, if not precisely, that range would be?

We're both shaking our heads here. Those are a lot of hypotheticals. I would kind of point you back to our published targets for most of the business. Certainly, we still have work to do in beauty and home margin, and food and beverage China, but certainly much closer to our published targets.

Yeah, I mean, Adam, I mean, you think back to October, the last time we spoke, right, we were just beginning to talk about, you know, the Q4 impact on destocking, and we were speculating is this, you know, this could continually be a two-quarter phenomenon, right? We had no idea on the horizon that really to what magnitude that was going to impact Q1. And then as you get into this, you know, you now add in the coronavirus. So it's difficult to parse out exactly. We didn't have a real solid prediction for Q1 prior to the coronavirus. That's why we're kind of shaking our heads. It's difficult for us to separate what those two were because they, you know, the coronavirus really came on in the beginning of January, right at the time we were formulating our outlook for the first quarter.

Yeah, no, understood. And Stefan, I think you said you may be at the low end of your long-term target growth range for pharma for the year. I know the next three quarters have really difficult comps and the comps get a lot easier in 4Q. Can you give us a sense of what you're expecting in that regard? Do you expect to be below the range in the first three quarters and then maybe in the middle of the range in 4Q?

If I could run the business with that precision, I would be happy. Look, just as a reminder, RX grew 17% previous quarters. So on a two-year read-through, not too shabby. Now, we clearly said that allergic rhinitis is going to slow down to a more normal pace, A lot depends how bad the allergy season is. Something depends on still the flu season. So that's why we said, hey, our range is 6% to 10%. Certainly I'm comfortable at the lower end of the range, but, you know, it's February. Certainly cannot give you a quarter-by-quarter play.

Yep, yep, understood. And then just back to the beauty in home restructuring. I know Stefani talked about FX and, you know, these demand headwinds that have come up. Is it fair to assume that in terms of the 80 million target that you laid out a couple years ago, you're actually on target to hit that 80, but that there are so many other headwinds, FX-related, demand-related, that they're just really completely offsetting all of these savings that you're getting in that business?

Yeah. The short answer is yes. So if we didn't do what we did, we would be that much lower. But, of course, that doesn't help you, nor does it help our shareholders, and we're not happy with that either. So we're adding additional activities. The North America footprint is one of those, and we're not stopping there. This business will get into its published target profitability range one way or another.

Thank you.

And our next question comes from the line of Gunchub Panjabi from Baird. Your line is open.

Hey, guys. Good morning. I guess a follow-up to George's question and Adam's question. So back to Butane Home. Core sales down 5% in 4Q. What are you assuming for 1Q at the midpoint of the guidance that you gave? And is the lower end and upper end of the guidance predicated mostly by – is it mostly influenced by B&H, or is there uncertainty with segments such as pharma as well?

All right. I'll take that one. So, I mean, you know us. We don't really give segment core sales guidance, you know, looking out to the future. But, I mean, obviously beauty and home is majority size-wise of the business. So, the overall core sales is going to be heavily influenced by what's happening on beauty and home.

Yeah, I think the uncertainty you have in pharma is what can we get out the door in China, given the supply chain challenges and the labor challenges, not so much demand related.

Okay, and I know this is a while back, and China was obviously in a different place when SARS existed from a growth standpoint, but If you just sort of look at that playbook and the impact that it had on global travel and sort of overlay it as to what you're seeing right now, how long do you think that impact on travel retail, which is pretty big for your customers on the prestige side, what is reasonable in terms of the impact from a quarterly standpoint? Is it one quarter, two quarters? What do you think is realistic on that channel?

Yeah, of course, we all look for analogies, and we started with the SARS analogy, but let's remember this is 17 years ago. I was actually in China at the height of SARS. There was no travel restriction, and it was a completely different economy. It was an investment economy, no high-speed train network, no domestic flight network, and no affluent Chinese consumers by the hundreds of millions. So the reality is this is not a good proxy, not to scare anyone, but probably the 2008-2009 is a better proxy in terms of impact on pullback of the consumer. And if you will, in 2008-2009, two large economies, U.S. and Europe, kind of hit the pause button. Now it's one large economy. China hit the pause button. and that consumer is absent. So I think a lot will depend how quickly people get comfortable getting on airplanes again. And, you know, I'm not going to compete with the CDC on calling that how quickly these measures can be lightened and people gain confidence again. Certainly, then when that happens, there's a lot of pent-up demand. You know, whatever is in your... bathroom or in your fragrance bottles or premium skincare will have run dry and people will want to replenish. And certainly not all of the travel that was canceled will be done. But so a lot of, pretty much everything will have to do with how quickly people get comfortable getting back on airplanes.

Okay. And just one final one on pharma. I mean, obviously you have difficult comms throughout, you know, 2020 year over year. Is the 4% core sales that you generated in 4Q, is that the right trend line for 2020? I mean, you cited all these new products and applications in your slide deck, but will they actually benefit 2020 in a material way, or are they sort of future opportunities? Thanks.

Yeah, some of them do. Some of them will not. That will come, a ramp-up come later. It's always hard to call what is the ramp-up success of new launches and how is the experience then in the doctor's office. But I don't think I have more to say than kind of the lower end of the pharma range. Okay. Thank you.

And our next question comes from the line of Mark Wilde from BMO Capital Markets. Your line is open.

Good morning, Stefan, Bob, Matt. Good morning, Mark. Morning. To start out, you know, Stephan and Bob, you guys, you talked about sort of the destocking that was taking place in the fourth quarter. Now we've had the kind of the emergence of the coronavirus issues. I'm just wondering, you know, in the last four to six weeks, have you been hearing incrementally from customers, particularly in that kind of prestige area, that they're pulling back even further because of fears about a kind of a travel slowdown, less duty-free sales, less kind of prestige and luxury sales?

At this stage, we're all shadowboxing. So I can give you anecdotes for all the things that we talked about. We see people pushing out orders because they don't think they need the product. We see people advancing orders because they don't think they can get the product from across the ocean. We see people ordering more for sanitizer products. So anecdotes for all of this exist, but how it will work through quantification-wise, it's... I'm not that good.

Yeah. Bob, what's your perception just comparing it to kind of 08, 09? I remember meeting with you in March of 09, and you were Steve Hagee saying, you know, there are customers we haven't heard from in five months.

Yeah, I mean, that was a little bit different, Mark. I mean, that was more of a, you know, financial crisis. So I think at that time customers were more interested in, the financial viability of their supply chains, and certainly having a strong balance sheet as we did back in 08 was a benefit to us. So I think there was more of a concern there that their supply base would shrink or diminish. This is a little bit different, but if we look at how the financial crisis impacted the beauty business, certainly there was some precipitous declines in Q1 and Q2. in that 20% range. Q3 was also down, but by Q4, we started to see things turn around. But I think as Stefan said, it's really difficult to draw a good analogy to either SARS or O8 or R9. They're all a little bit different. But certainly, as we've said in the past, on the financial side, beauty products tend to be a little bit more discretionary I don't think this is right now a financial issue. It's more of a pandemic issue that everybody's concerned with.

Okay. And then just staying on beauty at home, I'm just curious. You talked about some of the restructuring that you're doing not only in the U.S., but that you've done in Latin America and Asia. You didn't mention Europe. And my perception over the last probably 12 months is that you had been having some conversations with – Works Councils over in Europe and that we could see some more moves there. Can you give us any color about what potentially could be in the pipeline, if at all?

Look, the discussion we had with the Works Council are all about existing projects. So, for example, we opened the Shared Financial Service Center in in the Czech Republic, and that is up and running, and that will lead to consolidation of headcount. And we have a number of streamlining activities around overhead and in the plants, and that has been negotiated. Let me not speculate on future projects. This is not the place to have that discussion. But the other one... The other one I would highlight, in addition to kind of this consolidation, we are, of course, also on the front foot on building out new capabilities in the fast-growing parts of the beauty business. Very excited about the Fusion PKG acquisition, the step we're taking with BTY, and in general kind of building out more service capability in an asset-light fashion.

Yeah, okay. Last one for me just as kind of the final follow-up. Bob, is it possible for you to help us just with the potential impact from kind of both lower resin and the puts and takes from a stronger U.S. dollar?

Okay, so on the resin side, again, it depends on where we are in that cycle of pass-through. But we did have about $4 million positive in the fourth quarter on the bottom line. On the top line, though, we also get hit. It was about a half a percent on the beauty and home side, and it was about 4% on the food and beverage side. So the impact and the flow through to the bottom line is going to depend on where we're at in that cycle. As far as currency, what we said in the past, and it still really holds true today, is that for every penny move, in the euro to dollar rate, it equates to a two-cent EPS on an annual basis. So if you look at kind of, you know, where we were in the, you know, in the fourth quarter, you know, it averaged about 111. And, you know, we started the first half of this year, the first half of this quarter at around 110, and we're trending now more in the 108. So if you kind of do that math and spread that out over, you know, allocated over one quarter versus a full year, you'll have a rough estimate of the comparative moves.

Okay, very good. I'll turn it over.

And our next question comes from the line of Daniel Rizzo from Jefferies. Your line is open.

Hi, guys. How are you? Tell us what the cost is, the cash cost is for closing Stratford and Torrington.

Again, not specifically, but it's in the neighborhood of about $20 million cash cost.

I think you did mention that there's room for maybe additional footprint consolidation in the U.S. When did you say that? And, I mean, can you kind of provide color on magnitude or what you're looking at?

No, I think in the U.S., I think what we were referring to is other activities that we had done, you know, such as selling our Libertyville facility to one of our contract manufacturers and things like that. But, no, I don't think we signaled that there was any other further consolidation in the U.S.

All right, and then last question. Just within the pharma segment, can you just provide color on the margins? They've been kind of trickling down over the last couple quarters. I don't know if that's just some sort of timing issue or – or if there's the mixed issue of just wondering what's going on there.

Sure. So, I mean, I can address that. If we're looking specifically at Q4, you've got a couple effects. One is the mix issue, right? RX was down and the other three segments were up. So we know, as we've said in the past, RX has a stronger margin profile than our injectables, our active packaging, and our CHC. So you're going to get an impact on the mix. Secondly, in the fourth quarter of last year, we had the gain on propeller health. which positively impacted the Q4 2018 margin. So if you're looking at it, those are the two effects that had an impact on the margin comparison, Q4 2019 to Q4 2018. Thank you very much.

And our next question comes from the line of Gabe Hajde from Wells Fargo Securities. Your line is open.

Good morning, gentlemen. Two questions. One, I hate to kind of beat a dead horse here with beauty at home, but is there any way for us to assess on the outside world or give us comfort that this is, in fact, destocking? When I look at some of the other actions that you guys are taking, you talked about incremental to your transformation efforts might suggest more of a structural headwind in the segment, maybe competitive landscape or something else that's changed. And then Stefan, you mentioned kind of getting to your margin target one way or another. I'm just curious maybe if you could expand on that and then still kind of remind us of the strategic merit of having all these different businesses together.

How many questions was that? Let me deal with the question on the structural headwinds and competitive landscape. I mean, I think what we've been talking about for quite some time is that within the beauty and home segment, there are faster growing categories such as skin care and color cosmetics. And while we do have a presence in skin care, we really don't have a significant presence to speak of in that fast growing color cosmetics, foundation, lipstick type of market. So I think what you've seen is us making investments in areas that give us the capabilities to go after some of those faster growing markets. So if we call that structural or market related, the other thing is, yes, I think those markets also are operating with a slightly different business model. It's all about speed to market. It's all about innovation. It's all about design. And, again, some of our strategic moves, like the acquisition of BTY, like the acquisition of Fusion PKG, those are all addressing that changing landscape, as you said.

Then maybe to add some color still on the stocking question, as we said, I think, last time, there's really two factors at play. One is the stocking. Two is the non-repeat, especially of the J&J baby care launch. that we had last year. In addition to it not repeating, it's not doing well. If you want, there is an element of what horses you bet on and how they win in the marketplace or not. I just want to remind folks that that is at play here as well. Now, on your other question, of course, is one that we look at and re-look at frequently or periodically. Just as a reminder, when you look at our unit operations, precision injection molding, high-speed assembly, between our fragrance business, our pharma business, they're basically identical with the difference that In pharma, they are in a clean room environment with pharma quality systems and all the regulatory requirements. So from an operational setup, there's a lot of expertise that we leverage across the company. Also, in terms of learning how to capture value, how to drive value, we do that. We now look at bringing services capability to the beauty business. It's something that we learned in the pharma area. And then last but not least, there would be a significant tax bill if you ever wanted to separate the businesses. And then the last point, although it depends how you look at that, the moment you separate the business, you've created a new competitor for the pharma business. So we look at that, but it doesn't seem to make a ton of sense.

Gabe, let me add one more kind of current living, breathing example, right? If you look at Aftar's acquisition of CSP Technologies, right, we go back, let's say, three, four years. The majority of what that business sold was to the pharmaceutical market, diabetes test strip vials and the like. And now what we see is applications, very exciting applications for food safety type products. Now we're investigating applications potentially in the beauty market around cosmetics and antimicrobial technology. So I think that's a good example of how we focus more on the technologies and the capabilities that we have and how we can leverage that across multiple end markets.

Very much appreciated for a thorough answer, Joan. Maybe on a slightly more positive note, Bob, sometimes you give us kind of a flavor for how volume is trended by region. I'm more specifically thinking about beauty and home, and there has been a little bit of optimism down in Latin America. Just curious if you can give us any sense there.

Sure. So maybe let's just start, Gabe, at the consolidated level of overall APTAR for Q4. And really, all of the regions were down with the exception of Europe. So Europe being the biggest region is what contributed positively to Q4. If we look at it by segments and specifically focusing on beauty and home, we were down in all the markets that we're in, less, of course, in Latin America and less in Europe, more so in Asia and the U.S., And again, looking for the full year, looking out, similar to the consolidated for Q4, Europe was a positive for beauty and home, and the other regions were down slightly comparatively. And then I think our, you know, we saw good growth in Latin America within our food and beverage categories, or food and beverage segment rather, and as we've been talking about, down or decrease in Asia. And then pharma, obviously, very strong in the U.S. and in Europe, which is where the predominance of that pharma business is, and then down in the fourth quarter in Latin America, but that's off a very, very small base.

Thank you very much. Good luck, gentlemen.

Our next question comes from the line of Courtney Owens from William Blair. Your line is open.

Hi. Good morning, guys. Just a quick question on... Hi. On, I guess, the Asia for, like, Asia Made in Asia initiative, how, I guess, in your guys' minds are you thinking about how the coronavirus is going to kind of slow down or potentially impact that from more of, like, on the manufacturing and, like, supply chain perspective at present?

Well, you, of course, have the short term and then the mid to longer term. In the short term, I think this is all about communication. consumers daring to get back out on the street and going to stores, let alone travel. So it's all about getting the consumers of one of the three major economies back consuming. Secondly, I don't think it has any impact on the longer term trend. We are moving more again to a world where regional fulfillment capability, and agility is much more important. The trade wars is a little bit of a contributor to this, but also just the fact of fast beauty. We need to be able to react much more rapidly, and our customers see that too, that they need to react much more rapidly. Launches that used to take 18 to 24 months, and then if you really pushed it, you could do it in 12 now, you need to get out the door in three. You cannot do that by making things across the ocean and planning to supply things that way. That really means that we need to have key capability in each of the major regions and be flexible. May have a six month delay on setting up some of these local filling capacities because people don't like to get on a plane to do the scouting and due diligence. I think that's possible.

Got it. Thank you. And then just, like, from, like, a regional perspective in beauty and home as it, like, relates to kind of the destocking that you guys are seeing, I know that it's predominantly probably in Asia Pacific, but if you kind of break that down, is it just really in China or are kind of other markets, other key beauty and home markets like Korea, for instance, being really impacted right now as well? Thanks.

Let me just separate out, so actually the personal care he's talking is mainly U.S. and a bit in Europe, so I want to keep that separate and not combine it with now what the uncertainty we have around the coronavirus impact on consumption in China and in travel retail, which is heavily tilted towards Asia.

Got it. Okay. Thank you.

Our final question today will come from the line of Adam Josephson from KeyBank. Your line is open.

Thanks so much for taking my follow-up questions. I have three unrelated ones. Bob, just a nitty-gritty one on options expense. Should we still assume that you have the same six to seven cent hit in one queue that goes away thereafter, as has been the case in years past?

No. In fact, we've shifted more to a restricted stock model. So, I mean, we stopped issuing options last year. So, no, we will have much more of a ratable expense going out quarter to quarter.

Okay. So, 1Q won't be artificially depressed in any way just for that reason. Okay. And, Stephen? No. Stefan, when you came in, when you took over, you talked a lot about wanting to expand in Asia and specifically China. And if we look at the last couple of years, China slowed down and that was before the trade war. And then obviously there was the trade war and now there's coronavirus. Now you could argue coronavirus is an unusual item, if you will, and it's going to go away sooner rather than later. But The economy was slowing down well before coronavirus, as you know. Do you still have aspirations to get much bigger in Asia, as you did three years ago or so, and why or why not?

Yeah, great question. Thanks, Adam. The short answer is yes, and the reason is very simple. The demographics are overwhelming, and that's not something that changes. A small anecdote. Some in China expect a baby boom towards the end of the year. But all joking aside, the demographics overpower pretty much anything else. And so the growth is there. And then when you look at beauty, it actually over-indexes in Asia. And a lot of the growth that we've seen in our beauty business, quote, in Europe, is really supplied to the Chinese consumer, and that will not change. So that's why BTY is the first step or one step. It certainly will not be the last step. And you need to go where the growth is, and these short-term issues will not change the underlying trends.

Got it. And thank you, Stefano. Just one last one on the beauty in home EBITDA margin target. You said you're going to hit that target some way, somehow. I guess my question is, I don't know how much cash you'll need to spend to hit that target, but to the extent that you're going to have to lay out a fair bit of cash to hit that target, maybe it is not the best use of capital in that case. So how do you think about hitting that target versus having to spend a lot of cash to do it and maybe not getting a particularly good return on that investment?

Yeah, look, we're all very humble people. I'm not going to paint myself in the corner and say, hey, since I said this, I'm going to make irrational capital allocation decisions. Clearly, pharma is not wanting for resources. And every transaction and investment we look at, does it create value? On the other hand, when I look at the growth rates in the beauty business, the attractiveness of the beauty business, the performance of competitors, I see no reason why we shouldn't get there. I will readily admit that we were banking on more growth, and certainly my first priority was to get the business growing again. But if we face a prolonged period of slow or no growth, we certainly need to do more on the cost side. But those will be decisions that are rational and that make sense and create value.

Thanks so much, Stefan. Good luck.

I would now like to turn the call back over to Mr. Tanda for closing comments.

Thanks, everybody, for joining us. Looking forward to see you on the road.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.