AptarGroup, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to APTAR's 2020 Third Quarter 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 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. If you are following along on our website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. We will also post a replay of this conference call on our 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 conference call over to Stephan.

Thanks, Matt, and good morning, everyone. I hope that you and your families are continuing to stay healthy and safe during this time. We appreciate you joining us today. We began this pandemic journey early in the year, learning from our Chinese colleagues in late January and standing up a crisis team to oversee the evolving situation with a focus on our people and the production of essential dispensing solutions. Our priorities remain the health and safety of our people and the continuity of production so that we can deliver on our promises and provide the drug delivery and consumer dispensing solutions that are helping millions of people each and every day. I would like to thank our dedicated people around the world who have contributed so much to ensure the supply and support of our customers and end consumers and patients everywhere. As shown on slide three, We continue to adapt our safety procedures and working policies to comply with new insights and local government regulations. Our COVID-19 action team is rigorously monitoring the pandemic and we have maintained a regular cadence of town hall and other communications with our employees. Most of our travel restrictions and the limitations on the number of visitors to our facilities remain firmly in place. Like all of us, we have also rapidly boosted electronic collaboration. To further increase customer engagement and to ensure we share our broad solution expertise, especially during this time, we have greatly increased deployment of digital engagement formats and the training of our people in their effective use. On a daily basis, our segments are holding virtual events, digital co-creation sessions, and webinars with our customers, potential prospects, and industry partners. Our pharma segment has also launched a knowledge hub which contains our latest scientific content and digital event information, all designed to inspire and foster innovation. We are encouraged that, as a result, our new business development and innovation pipelines remain strong across all segments. Now turning to our quarterly financial performance in slide four, I am pleased to report top-line and bottom-line growth, especially when considering the current pandemic conditions. Our diverse product portfolio serves multiple attractive end markets that are each long-term growth markets. Today, we know Two of those markets remain temporarily impacted, while all others are growing nicely. Our recent acquisitions, in particular Fusion PKG and Noble, are also performing well. In addition to the organic core growth over the prior year, we are generating a strong level of cash flow and have exceeded prior year levels through the nine months to date. Moving to slide five, our pharma business, which is the best of breed global leader in drug delivery solutions and services, and has been a very consistent growth franchise for many years, turned in another impressive performance. We grew core sales of our devices and primary components in each end market. However, increased sales of the drug delivery devices were offset by lower custom tooling sales in the prescription market. The 11% core growth for the segment was on top of the very strong quarter a year ago. Current period growth was driven primarily by increased demand for primary components used with injected medicines, such as existing seasonal flu vaccines and other treatments, as well as some beginning orders in anticipation of coming COVID-19 vaccines. Since the onset of the pandemic, we have seen a consistently increasing recognition of our technical capabilities in the injectable field and a steadily rising number of attractive inquirers from pharma and biopharma customers. And we expect that positive trend to continue. During the quarter, we also benefited from increased demand for our consumer healthcare and active packaging solutions. We continue to be optimistic that we will benefit from a global increase in demand for primary components used with injected medicines, including those related to COVID-19 vaccines and therapies, at least to the degree of our market share. Now I would like to share a few recent pharma product and technology launches. Our after pharma services company, Novo, recently launched Adhere IT, a connected, intuitive, and user-friendly onboarding solution for the growing number of patients with chronic conditions who use auto-injectors to administer their medications at home. This is the first fully interchangeable connected add-on solution that can work across a multitude of auto-injector platforms. This launch is an important advancement for patients who self-administer their therapies, and it furthers our mission to provide robust training devices and onboarding programs. In the quarter, we also helped P&G launch their Vicks Cynex saline ultrafine nasal mist in the U.S., featuring our bag-on-vowel system and actuator. Our metering valves for inhalers used to treat asthma and COPD are found on medications in Mexico, Turkey, and South America. Finally, our unidose nasal system can be found on a new naloxone nasal spray called Ventisolve in Sweden that is used to reverse the effects of an opioid overdose. Now turning to slide six and starting with beauty at home, we continue to see strong demand in the personal care market for our dispensing pumps and closures for hand sanitizers and liquid soaps, and increased sales to the home care market primarily related to cleaners and disinfectants. While the beauty market did experience some positive trends in the early part of the quarter due to the reopening of many stores, This market continues to be negatively impacted by the effects of COVID-19 and sales decreased compared to a year ago. We were encouraged by the level of activity related to retail sales, although it is not clear if that level of consumer movement and spending will continue as we head into the winter months in the Northern Hemisphere. Customer engagement and dialogue is at a good level, especially around sampling systems, which we perceive as a positive signal. We also continue to implement cost containment measures and streamline our footprint. Turning to recent global product launches in the quarter, our pumps and closures continue to be featured in numerous sanitizing and cleansing products in the worldwide fight against COVID-19. We helped Unilever launch a new Zest brand of antibacterial spray in Mexico, featuring our spray pump, along with an antibacterial hand soap featuring our closure. Our ocean pump is found on a new antibacterial hand soap for Unilever's Vaseline and Lifebuoy brands in Thailand. In India, we helped Colgate launch a mouth protect spray with our pump. We also supplied several new perfume and cologne launches, including Tribeca by Bond No. 9, Tom Ford by Estee Lauder, Peony Rose by Avon, and many others. Moving now to food and beverage, we reported strong cold growth in the food market that was partially offset by lower sales to the beverage market due to the on-the-go and beverage category being affected by the pandemic. The strong growth in the food market is attributed to the demand for pantry staples with consumers continuing to dine at home more. In addition, the effects of passing through lower resin prices to customers also affected the segment's overall growth. Turning to recent product launches, our closure is found on a new Big Mac sauce for purchase at McDonald's in Brazil, and our closures with SimpliSqueeze Valve are found on the new inverted old El Paso taco sauce and the new oral hygiene water enhancer for pets called Tally Ho by Ocean Spray. Before I turn the call over to Bob, I would like to share a few additional highlights as shown in slide seven. We have recently joined the Gender and Diversity KPI Alliance, a group of D&I advocates and more than 50 corporate leaders to support the use of key performance indicator as high-level internal measurements to provide an overview of the diversity of our workforce. We will use key performance indicators to measure gender and underrepresented groups. We also publicly announced that our science-based targets have been validated by the Science-Based Target Initiative You set an emission reduction goal consistent with requirements to keep global warming well below 2 degrees Celsius by the year 2030. The science-based approach incorporates after its own operations electricity, fuel, oil, natural gas, and refrigerant use, and operations within the value chain, including transportation of goods, raw materials, travel, and commuting. Our business strategy focuses on reducing our environmental impact while living after our purpose and responsibility to society. We remain committed to running and encouraging increasingly energy-efficient operations along the entire value chain. With that, I will now turn it over to Bob, who is going to provide additional comments on our results. Bob?

Thank you, Stephan, and good morning, everyone. I will walk through some of the details concerning our third quarter performance, starting with slide eight. For the third quarter 2020, reported sales, including positive effects of currency translation rates and recent acquisitions, increased 8%, and core sales increased approximately 2%. As Stefan mentioned, our pharma segment had a terrific quarter and achieved core sales growth of 11%, and an adjusted EBITDA margin of 36%. Looking at sales growth by market, poor sales to the prescription market were even with the prior year. Prescription drug delivery device sales grew 4% on a core basis against a very strong quarter a year ago. This was due to increased demand for our metered dose inhaler valves for asthma and COPD treatments and nasal spray devices for allergic rhinitis. This growth in devices was offset by lower cost and tooling sales compared to the prior year. Core sales to the consumer health care market increased 6% due to increased sales of our pharma systems for nasal decongestants and nasal salines. Core sales to the injectables market increased 27% with higher demand for primary components used with injected medicines, such as existing seasonal flu vaccines and other treatments, as well as some beginning orders in anticipation of coming COVID-19 vaccines. Core sales of our active packaging solutions grew 56% as a significant increase in tooling sales accounted for 46 of the 56% increase. Nevertheless, product sales were also strong, accounting for 10% of the 56% growth. Turning to our beauty and home segment, results were mixed across the markets with growth in the personal care and home care markets being offset by decreased sales to the beauty market. Core sales decreased 5% for the segment, and beauty and home's adjusted EBITDA margin was 10% in the quarter, and was negatively impacted by the reduced volumes at our locations that produce dispensing systems for the beauty market. We are continuing to right-size our footprint and have recently announced facility closures in Ireland and Spain. However, we are very much dependent upon volume growth in the beauty market in order to meaningfully improve our overall margins. Looking at sales growth by market on a core basis, core sales to the beauty market decreased 21% due to a significant reduction in orders from customers selling both Prestige and Mastige beauty products, mainly in the travel retail and standard retail settings. Core sales to the personal care market increased 12% due to increased sales of our products used on personal cleansing applications, mainly for hand sanitizers and liquid soaps. Core sales to the home care market increased 6% due to higher demand for household cleaner and disinfectant products. Turning now to our food and beverage segment, core sales increased 2% due to increased demand for pantry staples in the food market. The food and beverage segment achieved an adjusted EBITDA margin of 19%. Looking at each market, Core sales to the food market increased 15% due to increased demand across several applications for pantry staples as consumers continued to cook at home during the pandemic. Core sales to the beverage market decreased 22% as sales of our single-serve bottled water and on-the-go functional drink products continued to be negatively impacted with consumers traveling less during the COVID-19 pandemic. Turning to slide nine, third quarter adjusted earnings per share totaled $1 per share and were an increase over the prior year comparable earnings per share of $0.97, adjusting for currency effects. Slides 10 and 11 cover our year-to-date performance and show a 2% core sales decline and adjusted earnings per share, which was $2.72 compared to $3.15 a year ago, adjusting for currency effects. Slide 12 outlines our outlook for the fourth quarter as we expect the company to achieve core sales growth. Rising demand in many end markets is expected to more than offset COVID-19 related declines in some of our other end markets. We expect our pharma business to continue to do well with existing business and increased opportunities indirectly and directly related to the pandemic. We expect our adjusted earnings per share range to be 84 cents to 92 cents in the fourth quarter. Now, I will share a few more details around our cash flow and capital expenditures, and then turn the call over to Stefan for closing remarks. In the quarter, reported cash flow from operations was strong and totaled approximately $154 million. Capital expenditures were approximately $50 million. And as shown on slide 13, our free cash flow was $103 million compared to $97 million in the prior year. We continue to have a strong balance sheet, and on a gross basis, that the capital was approximately 41%, while on a net basis, it was approximately 36%. In addition, we continue to evaluate and challenge our capital expenditure needs and are forecasting a range of $240 to $250 million. At this time, Stephon will provide a few comments before we move to Q&A.

Thanks, Bob. So in closing on slide 14, we had a strong third quarter with top and bottom line improvements over the prior year, driven primarily by our pharma and food and beverage segment. We are proud of the way our employees have responded to the difficult year, and we're encouraged by the level of dialogue with customers in the beauty market who saw some positive consumer spending patterns when retail stores opened. We expect our best of breed pharma business to continue to do well with existing business and increase opportunities related to the pandemic. Our balance sheet is in great shape and we are generating cash flow above last year's level. We will continue to focus on furthering a sustainable, diverse, inclusive business and a more circular economy. I would now like to open the call out for your questions.

If you'd like to ask a question at this time, please press star then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound 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 the queue if you have more questions as time allows. We'll pause for a moment to compile the Q&A roster. First question comes from John Krieger with William Blair.

Hi, thanks very much. Stefan, could you just expand a little bit more on what you're hearing from innovators around the pandemic? Is the early demand you're seeing more driven on the vaccine side or therapeutic side or sort of indirectly from other products dealing with respiratory illness? Thanks.

Hi, John. Yeah, it's really all of the above. In terms of quarter three results, the strong performance is really related to increased demands for the flu vaccine, increased demand from COVID-related treatments, as well as robust demand, increased demand for traditional in-home treatments like COPD, like allergic rhinitis, like saline rinse. People just want to stay healthy. Take their chronic disease treatment regularly. And also, let's not forget, most COVID cases are not super severe, but people still need decongestant and take their regular medication to make sure the outcome is as good as possible. Towards the very end of the quarter and certainly are heading into quarter four, we see people starting to make at-risk purchases to ramp up some of the early vaccine candidates manufacturing of that. But as we said, that's only starting late in the quarter and then into quarter four. I think in general, this pandemic really has put a spotlight on our injectable business, our technical capability. For the first time, we see dual sourcing as the supply chains for the vaccine productions are being organized and customers are pleased with our overall capability and having multiple options. Overall, we are very optimistic about the future, but so far what we've seen in the demand uptake is mainly related to secondary effects.

Thank you. And just a follow up on your comment there about the injectable. part of your pharma business? I realize there's uncertainty about whether or not any of these vaccines will be effective, but if this sort of 27% demand that you saw in Q3 were to be sustained through next year, do you have capacity to handle that, or are you needing to add additional capacity at this point?

Well, we have, of course, added capacity over the course of the last 18 months. to the tune of about 35% or so. We're continuing to ramp up investment to add additional capacity to the tune of 15 to 30 million, and we're reviewing the NEET regularly. So right now, we're comfortable with our capacity situation. And of course, whether the 27% will be repeated next year, We're not giving any guidance on that. But certainly we see a bump in the growth rate indirectly and directly related to COVID. What exactly it is, maybe 5%, maybe 7% growth bump over kind of the baseline growth that is already in the teens, mid-teens with this business. Excellent. Thank you.

Next question comes from Gansham, Punjabi with Baird.

Hey, guys. Good morning. Hope everybody's doing well. You know, Stefan, maybe on the last, following up on the last comments, as you kind of think about the four different sub-verticals that you've outlined in pharma, you know, injectables and prescription and so on and so forth, can you just sort of stack rank for us, you know, the COVID impact on each of those subsets, you know, which ones would have obviously been the most, I would assume it's injectables, but maybe just more color on that in terms of what you're seeing at this point?

Well, yes, of course, in the top-line growth rate, it's injectable, but also realize it's of a smaller base compared to the other businesses. We certainly have been positively surprised in the quarter about the strengths of our prescription division and the use of, if you want, some of our traditional products and medications and certainly tied to what I said, a proactive approach making sure your medicine cabinet is full, but also just treating light COVID symptoms. Same for consumer healthcare. Now injectable certainly has a step function and driven by the flu vaccine, driven by COVID and other treatment in hospital that are in injectable form. And just the overall activity level gearing up significantly and providing sample quantities, qualification quantities, and so on. Overall, we have about, at this time, north of 80 active projects. By now, it's kind of a more stabilizing number. New projects come in. Some products get stopped, but it's a pretty stable number. And then let's not forget active packaging. Active packaging is doing very well. uh we're starting to to get good traction in the oral solid dose uh category which is new for us while the the kind of the chronic disease diabetes treatment remain solid and also some of the more consumer healthcare application are are very much in demand as people take care of themselves in in these tough times so it's really uh across the board uh but clearly the step

change in the trajectory is our injectable business okay and then on that last point on injectables i mean there are many you know drug candidates out there in late stages of the trials etc um you know is it fair to assume that you are going to be a participant no matter who wins in terms of the vaccine or is it going to be more specific to customers and and i guess i'm referring to that comment that you made about dual sourcing uh is that a relatively new dynamic for this type of rollout relative to maybe the previous baseline?

Yeah, I think to pick up on the last point, that is new. Usually it would be, you know, people get specced into a particular project and then you're in that project for the life of the project. And in this particular case where demand is amping up quickly and people want to make sure they've got their bases covered, we see dual sourcing and situations and we have been qualified in several projects as a second source. The other overlay I would remind you of is, of course, geographic. We have certain strengths in certain geographies. And in some geographies, it will be more pre-filled syringe. With that product mix and other geographies, it will be more multi-dose vials with stoppers, coated, uncoated stoppers. So as we said before, and I think it's very safe to assume that at least in line with our market share and the overall injectable ecosystem, we will benefit no matter who or which vaccines we have.

Thanks so much, Stephan.

Next question comes from George Staffos with Bank of America.

Hi, all. This is actually Cassian Keeler sitting on behalf of George Staffos today. Thank you for taking my questions. My first question is with regard to COVID and just kind of the previous comments made. So last quarter you talked about COVID projects. You know, I think the figure cited was around 100. So how many are particularly engaged with right now and where does that stand and how is it progressing? Thanks.

Yeah, thanks. I just said earlier north of 80, so somewhere between 80 and 100. This is a dynamic number, so it doesn't keep increasing as is typical with new projects. Some die and some new ones get added, so it's somewhere between 80 and 100. Okay, thanks. That's helpful.

Next question comes from Mark Wilde with BMO Capital Markets.

Morning, Stefan. Morning, Bob. So just to come back to this COVID question one more time. You know, before you had talked about, you know, getting incremental business sort of in proportion. to your market position and and today you're really suggesting something a little different can you just can you put a little more color on that i i hear you and talking about the dual sourcing but i'm trying to figure out what is leading you to say you might actually have uh volume gains beyond your share well um not to parse uh

every comma and period, but we say, okay, at least in line with our share. Is it a little bit more optimistic? I guess so. And that has to do indeed with what we perceive as broader based technical recognition of our technical prowess and the ability to um, be just as good as anybody else, um, across our product line. And that's being confirmed with the dual source, uh, operations also. Um, you know, we do a lot more now on the bio, uh, biotech side, biologics, vaccines, uh, obviously. So it's just, uh, um, playing back the confidence that we see amongst our customer base about our capabilities.

Okay, that's fair. I'm just curious, as Pharma continues to kind of outgrow the rest of the portfolio, and at the same time, as you've been out, I think, attending some healthcare conferences over the last couple of quarters, do you feel like you're making headway, Stefan, with the investment community and getting them to think about you as more than just a packaging company?

Yeah, it's a journey. In the previous life, the journey took very long, but to be re-characterized and obviously the multiple following that. But we are well along those journey. I think it's just a fact of life that pharma investors understand this kind of business better than somebody who has to follow materials, mining and packaging. And that's no judgment. It's just a fact of life. And clearly, when pharma investors look at our business, the margin profile, the growth, and then what it trades at, they see a lot of value. But it's at the beginning of the journey, but we are certainly committed to that journey because I think we are an attractive option for pharma investors.

Yeah, well, for what it's worth, Stefan, a lot of packaging analysts also see a lot of value in the company. I'll turn it over. Glad to hear it.

Next question comes from Neil Kumar with Morgan Stanley.

Hi. Good morning. Thanks for taking my question. In Beauty Home, can you just provide some more color on the facility closer you referenced and where you are generally with your transformation plan? What are you expecting in terms of the cadence and margin recovery in the business from here?

I didn't quite phonetically understand the first part of it, but let me just cover the field here. As a reminder, in our duty and home business, we embarked on a transformation back in the beginning of 18, late 17, with four pillars. One is to... accelerate and upscale the front end of the business, sales, marketing, Salesforce segmentation, customer project management, and so on. That is very well advanced. I'm quite happy with the performance. I'm very happy we did it before the pandemic. When I see the skill base we have in that team and the rapid switch to virtual and electronic interactions, and the tracking we do on customer projects, pipeline conversion, and so on. So that's number one. Number two was addressing some of the underperforming operations. It took a little longer, but as I mentioned before, I feel very good about that. Nearly all of the underperforming factories are now at very good efficiency levels, service levels recognized by our customers. There's always more to do, so don't get me wrong, but very good progress. I realize you haven't seen the benefit of it because of the significant underleverage from a volume point of view of our beauty facilities. But when we dive into the personal care home care facilities, we already see significant gains from the volume leverage confirming the improved performance. The third part was the reduction of fixed costs and overhead, and their progress is still being made. It's a bit slower than the other two. And then last but not least, the corporate support functions, and very happy with that. Bob can maybe speak a little bit to the shared service centers. He started up in the Czech Republic, and that's performing very well, and we pull more and more activity into that shared service center. Having said that, of course, we continue now also to address the strategic gaps that we had, which is an underexposure to the more rapidly growing skincare, color cosmetics, Asian markets. That's partly organic and partly through acquisitions. I remind you of the Rebol acquisition in color cosmetics, BTY acquisition in color cosmetics in China. And being more responsive is fast beauty. We're very happy with the Fusion PKG acquisition that's even in the pandemic performing well, confirming that rapid reaction agile model. And over time, we will build that out in select countries in Europe, of course, in China. You're never done. And I'm a big believer in the old Andy Grove, only the paranoid survive, and we'll continue to make sure that we adapt our product and market portfolio. Last but not least, with all that comes, of course, paring down the footprint in the West, and when I look over the last two years, we've made a lot of progress there. We're, of course, in the middle of the North American footprint project, and as Bob mentioned, we announced recently in our well into the closure of our island facility and now also a smaller facility in Spain. So we will continue to adapt our footprint as we position the business towards the faster growing segment and geographies, notably Asia, where beauty is very much over indexed compared to the West. Hope I answered your question.

Yeah, great. Thanks for all that detail. And then within the injectables and pharma, is there a way to quantify how much of the growth in the quarter came from more people getting the flu vaccine this year? And do you expect that benefit to continue to the same degree in the fourth quarter?

Well, I think I mentioned before, we estimate, and that's really what it is, estimate that maybe a quarter... maybe a third of the growth pump is due to COVID directly and indirectly, especially indirectly. And of course, that will now also transition more to vaccines directly. And Canada's 5% to 7% growth premium, we expect to continue until, of course, we lap it. I think that's probably as much transparency as we can give you.

Next question comes from Adam Josephson with KeyBank.

Thanks. Good morning, everyone, and congratulations on a really good quarter. Stefan, one more question along the lines of what you were just talking about. So, you grew 11% in pharma on a really difficult year-ago comparison, as you referenced earlier. You mentioned some of these trends are going to continue for some time just as the vaccines and therapeutics get rolled out and as people pay more attention to their health for obvious reasons. You have this longstanding core sales growth target of 6% to 10% in pharma, and you've been on top of that for the last two years, and you were on top of that in 3Q on what was a really difficult comp. Is there a reason to reassess that long-term target, given this bump you're seeing from COVID? Do you expect to remain at or above the high end of that range for the foreseeable future as a result?

Yeah, I mean, look, thanks for the congrats, Adam. We're proud of the quarter. Of course, our 6% to 10% target did not anticipate COVID, and we're getting a bump here. But even with that bump, so we grew 11%. Let's remember a couple percentage of that is tooling in injectables. Also, we took about 3% in price. And the 6% to 10% is kind of a volume range. So even with all the bumps, we're kind of in that 6% to 10% range if you strip out the tooling and the pricing. I do not see a change of targets here in the middle of a pandemic, but certainly if we step back next year and take stock of the maybe next normal, we may take another look at that. But I wouldn't hold my breath. I think 6 to 10 is a pretty good corridor.

Sure. Fair enough, Stefan. And just I think to Mark's question earlier about just going to healthcare conferences, etc. Do you think the BDN home business impedes the ability for investors to see the value in this company, given the extent to which it drags down your returns, your margins, your growth, etc.? Or do you continue to view it as so integral to the pharma business that the two just go together, period, end of story?

Well, the short answer is your last sentence, but the long answer is we are not holding back anything in pharma in any way other than rigorous discipline management, as you would expect. We are, by the beauty market, realize that right now we have a depressed demand in beauty. But we see the bounce back in China eclipse pre-COVID levels, and that bodes very well for the rest of the world once COVID is in the rearview mirror. And as I said before, I understand, of course, the capital market multiple logic of a pure play. but the industrial logic is is we um just not there we do the same things uh often in some cases at shared sites we do high precision injection molding we do high speed assembly rotary continuous motion assembly we practice this across the company and we do very specialized metal processing that with shared facilities between farm and beauty so um yeah um I'm not saying it can't be done. As I said before, I can put a wall through my house, create a separate entrance and rent out the back half of the house. It can be done. It's just industrial logic. What we do hope is that by eliminating the pharma business with a broader investor base, including healthcare investors, that people do a fair evaluation of the total company. And some of the parts of two parts doesn't seem too hard to do.

Thanks, Nathan.

Next question comes from Salvatore Tiano with Seaport Global.

Yeah, hi. Thanks for taking my questions. First one, you know, in pharma, again, I just want to look forward roughly, you know, next 12 months. Assuming that we do get one or several vaccines, against, you know, a Q3, in Q3 of 21, you Could your volumes that received this COVID boost for COVID treatments, flu vaccines, could they actually decline? And obviously in this scenario, your injectables would benefit. So what would be the net effect of a flu vaccine against two, three, 20 volumes next year?

Yeah, I think the short answer is we really don't give guidance for next year at this stage. you do have a mixed effect always in pharma with the profitability being highest for our prescription division and then consumer healthcare, then active packaging and then injectables. But when you look at the performance quarter three, you also see by deduction that injectables actually has been quite successful in boosting their margins. So the negative mix impact of their higher growth has been muted. So, but you will always have that mixed impact if there's a stark difference in growth rates. And yeah, clearly if you put some high numbers on the board, you're going to have tougher comps. And certainly we alerted you to that fact, especially also for quarter three. Now with COVID as the booster, we were able to grow also nicely against tougher comps, but that's not the guarantee for ever.

Yes. Okay, perfect. And for my second question, can you provide a little bit some update of how you think about M&A, any areas that you particularly like, and is the pressure on beauty volumes providing you opportunity, perhaps some targets that you could acquire at attractive valuations?

The environment is very active, so maybe surprisingly, we have a lot of deal flow and look at different targets. We have been able to pull the trigger on some very small things that you may have seen. A connected reusable packaging company in Europe, Miwa, and a connected device company, Cohero. Very small investments, but... um larger premium assets still come at premium prices especially uh with the interest rates where they are and sponsors are able to get money and so uh and we remain disciplined so um the themes you know certainly digital for us is important especially in pharma so we continue to look at digital we look at services opportunities Geographic is important. The demographic imperative of Asia has not diminished, maybe the opposite. So we continue to look at Asian opportunities and at the same time stay disciplined. So I think, I don't know, Bob, whether you want to do it.

Yeah, I think you summed it up. I mean, there's not any bargains out there, to be honest with you. And I think we just need to stay true to our form and remain disciplined and not overreact here on assets that are out in the marketplace today. So I think we'll We'll stay the course, and if we see something that makes sense from a strategic point of view, certainly we'll be aggressive and go after it. But I don't see any real big positives or negatives at this point in the M&A environment. Okay, perfect. Thank you very much.

Next question comes from Daniel Rizzo with Jefferies.

hey guys thank you for taking my question uh you mentioned with the the good growth in food and beverage because of consumer pantry uh demand i was wondering if you anticipate a dip in demand maybe in 2021 given kind of i guess what i would call inventory build by consumers yeah again given guidance for next year um not something we want to get into i think it's common sense

uh thinking about it would be if that's the case that would mean that the economy is opening up people eating out more that also would help our beverage business a lot more that is depressed right now so i think there is kind of an offset built in clearly demand has been very robust in quarter three perhaps there's been some pantry restocking but you know we're kind of i guess in here also a lot of it is now moving on to uh online e-commerce, and as you've seen from the economic number overall and the consumer-facing businesses, the economic numbers have helped people shopping a bit more. And, yeah, I don't have more insight for you than that. Okay. Thank you very much.

Next question comes from Kyle White with Deutsche Bank.

Hey, good morning. Thanks for taking the question. I wanted to get a bit more clarity or color on beauty and the core sales growth throughout the quarter. How did volumes trend throughout the quarter? Did you see month-to-month progression? Has any of that kind of recovery stalled here into October?

Yeah, certainly we've seen good build throughout as the months progressed. And as we highlighted, particularly also in sampling formats, Clearly, the brand owners and retailers have retooled and are looking for a big Christmas season. A lot of this sampling is now not in-store sampling, but sampling that you get with your online purchases. So as retailers and brand owners retool how they can accelerate the top line, We certainly have good dialogue, good project discussions. But let's be clear, retail traffic and a lot more travel certainly would help a lot more than at these depressed levels. But we've seen good progression from the bottom in April, and it has continuously built from there. What all of us really don't know, let's be clear, is the very latest... the shutdowns in Europe, although factories remain open, all factories remain open, and what the pandemic will do here.

Yeah, maybe I can just add that, you know, from a meeting home perspective, Q3 is always a little bit different than how the other quarters trend. You know, typically August is a is a slow period for us with european vacations and so we saw really good strength out of fox in july and then we saw you know an unexpected reduction in august and then september was was pretty near july levels now traditionally what we see then is we'll see that that september bump you know, flatten out in October a little bit, and then we typically trend lower in the back half of the year as most of the beauty orders have been already filled and in the store shelves by then, and then we wait until Q1 before we get kind of the, if it's a good sell-through season, you know, another bump for Valentine's Day and Mother's Day and things like that. So I would say it's not a progressive trend throughout the quarter, but that's normal for us in Q3.

That's helpful. And you touched on it a little bit with France imposing kind of new restrictions. I assume your direct production and facilities are still open, but are there anything that we need to be mindful of in regards to maybe your supply chain or any indirect impacts related to this?

We don't think so. Certainly everybody has become more sophisticated about how to manage things. You know, at the moment, it's not even restricted to essential business, but all businesses can remain open, just being much more diligent and rigorous in how they manage it. Now, we can't divorce ourselves from the general population, so we do see higher COVID counts, but still overall relatively low, and we are better able to manage it. I don't see us shutting facilities or anything like that. I think we're now all experienced on how to manage the situation.

Thanks. Good luck in the quarter.

Thanks.

Next question comes from Gabe Hage with Wells Fargo.

Stefan, Bob, good morning. Hope you and your family are well. Thank you. I was hoping maybe you could talk about what came in better in the quarter, kind of driving the upside. Versus my model, it was in duty and home. I mean, I think tax was maybe $0.03 or so, and FX could have been a penny or two. And then I guess if we kind of get advanced emergency use authorization of a vaccine in the fourth quarter or something like that, would that potentially drive upside to the fourth quarter?

Bob, you want to take it?

Sure. So I would think, Gabe, overall in Q3, all three segments in our models and our forecast performed better than what we had expected. pharma was was a significant growth driver and their part part of that you know outsized growth at least in the active packaging um division was some tooling validations by customers that we weren't anticipating until q4 later so that's that was a positive bump um that we were expecting but the food and beverage definitely um performed well as the quarter progressed and i would say the same thing um really for beauty and home as well they We picked up some nice business in the quarter, and some of that fell to the bottom line. Also getting some business on the diagnostic side in active packaging as well, which is nice to see. So overall, I would say it was broad-based improvement from what we had expected it to be.

Yeah, on this question, of course, a steep ramp up of the vaccine would be beneficial to Quota 4.

All right, thank you. And then I know you tell us always, I think, Bob, to not think about increased tooling sales as kind of foreshadowing future growth, and they tend to be lumpy, but it seems like in active packaging, you guys are working on a couple of things that could in fact kind of drive future growth in that, I don't know what the range looks like, but maybe above what your long-term target traditionally is in pharma. Can you talk about maybe timing as to when some of this stuff could hit, or it's just part of your campaign? Sure.

Sure. So, yeah, we do have a number of active projects in active packaging that we're excited about. The tooling sales in this one is, I would say, a classic example of a customer who was already in the market with the first-generation product. And due to the success of that, what we validated was kind of the second-generation product. And so to me, that's a good sign in that the customer's product is successful in the market, and they're anticipating needs for kind of next-gen product and quantities, and they're already in discussions for kind of a third phase. So this is kind of what we'd like to see in this. So it's not necessarily a new product. It's just the follow-on success of a customer's project.

All right.

Thank you. And last one real quick. you call out i think slide 11 some temporary operating efficiency inefficiencies and i don't know if that's specific to beauty and home i suspect it is um if you're able to quantify that for us and then relatedly on the the two facility closures in europe um you know what kind of maybe savings we would expect kind of going into 2021 sure and on the on the inefficiencies are definitely um beauty and home related

In particular, it's the beauty factors, as you might suspect. I mean, we've got certain break-even points. And as we've said numerous times, you know, we need to kind of run in a low idle mode in those facilities. And when you're not getting the, you know, the volume throughput, you just can't absorb all of the fixed overheads. And as Stefan said, we've made great strides in reducing a lot of that fixed overhead and But there's some of it that you just can't without literally shuttering the facility, which we don't want to do. In terms of some of the plant closures here, you're looking at run rate. Again, there's several projects here we've talked about in the past in the U.S., which has been slightly delayed due to the positive bump on the lotion business. But I would say all in, you're probably looking at you know, 14, 15 million on an average runway basis when all these get done and closed. But again, it's going to take some time before that happens. Great. Thank you. Good luck. Great.

Next question comes from George Staffels with Bank of America.

Hi, guys. It's Cashin again. I just wanted to ask quickly about on-the-go beverage markets. And I know you talked about lower demand there due to the pandemic, but any sort of rebound, either sequentially or year-over-year, anything at all? And then how much does this end market represent as a percentage of the food and beverage segment as a whole? Thanks.

Yeah, I mean, we see clearly a bounce back in China. It's, as you would expect, kids have been going back to school, and sequentially that's And year over year, that's looking up. In the other geographies, it's much more mixed because of the lack of people movement. In terms of the relative importance, I'll let Bob answer that.

Yeah, so beverage for us on an overall Aptar basis is about 5%. Overall sales, I'm working off of kind of last year's figures right now. And then within the food and beverage segment, it's about one-third, two-third beverage, two-thirds food.

Next question comes from Adam Josephson with KeyBank.

Sure. Take my follow-ups. I appreciate it. Bob, forgive me if I miss this, but can you talk about what price cost was in the quarter for the company and what you're seeing in the resin markets? Obviously, there's been some inflation going on. I'm just wondering how that's playing into your fourth quarter guidance, and then what you're anticipating perhaps thereafter.

Sure. So on the resident side, so it did have a negative impact on the top line in beauty and home food and beverage, a little bit more predominant in food and beverage, as you might expect. It was less than a half a percent on the top line for beauty and home negative impact, and it was about 3%. 3.5% on the food and beverage side, so pretty significant there. On bottom line impact, you had kind of two different things going on. You had a little bit of a positive on the beauty and home side. On the EBITDA side, there was a pass-through, and that was more or less on a consolidated basis offset by negative on the EBITDA flow-through side on food and beverage. looking forward i mean it it it's it's a crapshoot really in terms of what we've got baked into the um into the forecast i can't really give you specifics on what we've got in there i will tell you that you know we're looking at at slightly lower prices in europe um but as of right now we're expecting slightly higher prices in north america so It's all going to depend since Q4 typically is a weaker quarter in terms of overall revenue. We'll have to wait and see what impact that has on the overall results.

I appreciate it, Bob. And just on the restructuring, primarily beauty and home restructuring, I think that's pretty much winding down now. Correct me if I'm wrong there. Do you anticipate any more restructuring in beauty and home, or are you finished with that for the foreseeable future, you think?

Well, I mean, when you say we're done, I would say it's more of a mindset change right now, right? I mean, it's really now embedded in the culture of the organization. And so some of the plant closures that we've talked about, those are kind of ongoing evaluations of the business and and cost out structure and reacting to the environment and the benefits, as Stefan said, of some of these efficiencies that is gained through the transformation process. So, you know, in terms of the formal program, yeah, we're about two-thirds through with that, but we're still executing on some of the initiatives, some of the some of the broader, more complex initiatives, and those are related to some of these plant closures, which we always said was going to be kind of in that third year. So there'll be some lingering effects of that, and then I think, you know, we'll just have to see which way the market goes and does it require any more heavy lifting or not.

Maybe to say the same in different words, as far as large program, large one-time cost, that's winding down. But in terms of mindset and offshoot projects, secondary projects, it's becoming a way of life, and so it should be, and in terms of vigilance. So there are smaller projects that are running in all three segments. And by the way, coming back to one of the earlier questions, I mean, what we've learned and the muscles we've trained, we're also deploying now in the other segments. For example, food and beverage margin expansion, it's not by coincidence that a lot of those muscles now being applied in the other segment, and even pharma has its own improvement drive, of course. So the big one, yes, winding down the mindset and the follow-on is a way of life.

I appreciate that, Sivan. Thank you.

Last question comes from Salvatore Tiano with Seaport Global.

Yes, thanks for taking the follow-up. A couple of quick ones. Firstly, on taxes, there have been some more specific rulings recently by the IRS for foreign taxes. How does this affect your tax rate? Is there going to be any change this year and any change in the long-term tax rate that you're assuming going forward? And I assume you won't use specific capex for next year yet, but with growth in pharma, new investments, is it safe to assume that it's going to be trending higher next year?

So on the tax side, I mean, one thing's for certain is in this environment, every government is looking for taxes. So we've seen an amplification on the audits and the scrutiny and the challenging And some of the governments are, you know, where you used to be able to have a dialogue with them are now kind of drawn lines in the sand and saying, well, if you disagree with our assessments, then take us to court. So we've got a few small ones like that. But I would say we benefited in this quarter really from a couple things. One, slightly higher equity comp, exercise of options in the quarter. That was probably about a percent and a half. And then we had some recent rulings by the IRS and the U.S. on the treatment of some guilty taxes. So that was also positive for us in the quarter of about a percent and a half. So going forward, like I said, the scrutiny is there, and certainly I don't expect it to lessen any heading into the future.

And at this time, I'll turn the call over to Mr. Tanda.

Thank you all. Thanks for your continued interest. We're obviously proud of the numbers we put on the board, and we look forward to discussing it with you in more detail in the coming weeks. And please, everybody, stay safe.

This concludes today's conference call. You may now disconnect.