AptarGroup Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2025

There are 11 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Aptar's twenty twenty five First Quarter Results 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 Mrs.

Operator

Mary Scafidas, Senior Vice President, investor relations and communications. Please go ahead.

Speaker 1

Thank you. Hello, everyone, and thanks for being with us today. Our speakers for the call are Stephane Tanda, our president and CEO and Vanessa Canoe, our Executive Vice President and CFO. A press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non GAAP financial measures.

Speaker 1

These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will also post a replay of this call on our website. I would now like to turn the call over to Stephane. Stephane, over to you.

Speaker 2

Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our first quarter results. Later in the call, Vanessa Canoe, our CFO, will provide additional details on key drivers for the quarter. Starting on Slide three, for the first quarter, we delivered adjusted earnings per share of $1.2 Neutralizing for currency effects and tax, earnings per share would have increased approximately 5% over the prior year period.

Speaker 2

We saw solid demand for our Pharma segment's proprietary drug delivery systems, especially technologies for emergency medicines, central nervous system therapeutics, asthma, COPD and ophthalmic treatments. Additionally, strong active material sales in Diabetes Solutions and royalties contributed positively to our quarterly results. Core sales for our Proprietary Drug Delivery Systems grew 4% in the quarter, following high single digit core sales growth in the prior year period. As we expected, quarter one twenty twenty five was impacted by softer demand for dispensing technologies in nasal saline and nasal decongestions. The strong cold and flu season is helping to deplete some of the inventory buildup.

Speaker 2

At this time, aside from The U. S, we are not yet seeing an inflection point in our order book, indicating that there is still inventory in the system. Our proprietary Drug Delivery Systems reported sales have grown over the prior year period for 12 quarters in a row, growing double digits in six of those quarters. We are very proud of the success of the team fueled by record launches, new innovations and the quality and the reliability of our products essential in administering life saving medications. And while we anticipate there will be phases of rapid growth and more moderate growth, we remain confident in our growth prospects.

Speaker 2

Our long term growth is driven by strong macro trends such as the decentralization of healthcare, growth of generic medicines, the switch of drugs to over the counter markets and always worsening allergies. The Injectables division had a challenging comparison over the prior year period. Our order book for injectables in 2025 is robust and we expect to continue to see good demand from GLP-one and Biologics. We continue to ramp up equipment capacities and our validation efforts to service the attractive growth in this end market. In our Beauty segment, Prestige Fragrance and Facial Skin Care end markets remain challenged.

Speaker 2

However, we saw sequential improvement in sales including in Europe from certain fragrance companies and progressive improvement in China. Turning to the Closures segment, the solid product sales results in the quarter were offset primarily by meaningfully lower tuning sales and the discontinuation of activities in Argentina. Improving utilization rates and continuous cost management efforts coupled with our strong innovation pipeline are contributing to top line and bottom line results. Moving to Slide four, I am proud to highlight recent corporate awards and recognitions. We believe operating in a sustainable manner and developing more sustainable product solutions is an important competitive advantage for Aptar.

Speaker 2

As a reflection of our progress, during the quarter, we were named one of Verint's most sustainable U. S. Companies for the seventh consecutive year. We also achieved the coveted ECO rated Platinum level rating in recognition of our sustainability efforts for the fifth consecutive year. The Platinum rating places us among the top 1% of more than 150,000 companies rated by Akavadis across all industries.

Speaker 2

Turning to innovation, I want to highlight a few recent technologies and product launches as shown on Slide five. Starting with our Pharma segment, our nasal delivery system is the solution for nasal saline rinse in Germany. In China, our ophthalmic squeeze dispenser is the solution for the multidose preservative free drops by VisionX Lab. Last but not least, we recently announced a clinical validation study for our Smartrac services platform after almost a decade of development, aiming to reduce the need for clinical trials in generic, inhaled drug approvals by leveraging in vitro, in silico methods to predict clinical outcomes. The validation study is scheduled for the second quarter of twenty twenty five and is a key step forward improving the platform's effectiveness.

Speaker 2

We expect that SmartTrack will help our customers speed up ANDA approvals and make generic inhaled medicines more accessible to patients. We anticipate the study to also support efforts such as creating low global warming potential powder meter dose inhaler formulations, developing new drug combinations, repurposing drugs and advancing new chemical entities. In Beauty, our refillable fragrance pump is the dispensing solution for L'Oreal's new Yves Saint Laurent fragrance in Europe. In Latin America, Oboticario has selected our pump for a new men's fragrance and our custom dispensing pump is on the Beiersdorf Userian brand lotion. In Asia, our customized cosmetics pump is used on P and G's Olay Serum facial skincare product.

Speaker 2

Our buildable drop by drop dispenser is featured on the Boima sun care brand in The U. S. Moving to closures, Hidden Valley Ranch inverted salad dressing features our new lightweight closure with fully recyclable valve, now on the grocery store shelves in North America. In Latin America, L'Oreal is featuring our fully recyclable e commerce capable desktop solution on its Garnier practice hair care products. And in China, our sports closure is featured on the New Lean brand sports drink.

Speaker 2

Before I turn the call over to Vanessa to share further details on the quarter, I want to highlight that we ramped up our share repurchases in the first quarter, repurchasing more than $05,000,000 shares for about $80,000,000 Our share repurchases underscore our belief in the future trajectory of the company. Now I will turn the call over to Vanessa.

Speaker 3

Thank you, Stephane, and good morning, everyone. Let me begin by summarizing the highlights for the quarter. Starting on Slide six, our reported sales decreased 3%, which included a foreign currency translation headwind of approximately 3%. Therefore, core sales were flat compared to the prior year period. As shown on Slide seven, we achieved adjusted EBITDA of $183,000,000 an increase of 3% from the prior year period.

Speaker 3

We reported adjusted diluted earnings per share of $1.2 versus the prior year's $1.22 at comparable exchange rates. The effective tax rate for the first quarter was 25.8% compared to 20.5% in the year prior. The higher effective tax rate reflects the estimated impact of the temporary 2025 surtax enacted in France during the quarter, lower tax benefits from share based compensation and certain non recurring incentives received in the prior year quarter. If we were to adjust Q1 twenty twenty four earnings per share, keeping tax rates constant, the comparable adjusted EPS would be $1.14 Neutralizing for currency effects and tax, EPS would have increased 5% over the prior year quarter. With those high level comments, let's take a closer look at segment performance.

Speaker 3

Our Pharma segment's core sales increased 3%. Let me break that down by market, starting with our proprietary drug delivery system. Prescription core sales increased 10%, primarily due to continued strong demand for dosing and dispensing technologies for emergency medicines as well as central nervous system, asthma and COPD therapeutics. Consumer Healthcare core sales decreased 10% driven by softer demand for nasal decongestants, nasal saline rinse solutions as well as cough and cold medicines as inventory management continued at the customer level. The continued growth in sales for ophthalmic solutions could not offset this decline.

Speaker 3

Injectables core sales decreased 8% due to a tough comparison from the prior year's quarter, a catch up quarter post the division's implementation of its enterprise resource planning system. And for our Active Materials Science solutions, core sales increased 11% driven by increased demand for our diabetes and probiotic solutions. In addition, we benefited from higher tooling sales in the quarter. Pharma's adjusted EBITDA margin for the quarter was 34.8, a two thirty basis points improvement from the prior year. The margin improvement was driven by increased sales of higher value products and services including royalties and continued cost efficiency initiatives.

Speaker 3

Moving to our Beauty segment, core sales decreased 3% in the quarter. Looking at the beauty segment by market, fragrance, facial skincare and color cosmetics core sales decreased 11% due largely to lower sales of higher value prestige fragrance products, particularly in Europe. While core sales of Masstige fragrance grew double digits, it could not offset the softer demand for dispensing solutions in prestige fragrance and facial skin care. Although we do believe that sales for dispensing technologies in these end markets should start to improve progressively. Personal Care core sales increased 9% with continued demand for body care and hair care applications.

Speaker 3

Home Care core sales increased 15% primarily due to continued growth of air care applications and surface cleaning products. This segment's adjusted EBITDA margin for the quarter was 12.1%, a decline of 50 basis points largely driven by lower Prestige Fragrance volumes. In the Closures segment, core sales decreased by 2% compared with the prior year. The segment saw product sales growth in virtually all end markets. These positive results were offset by lower tooling sales and unprofitable sales that the company chose to no longer service.

Speaker 3

Without these headwinds, core sales would have increased by 3%. When looking at the market field for closures, food core sales were flat, higher product sales were offset by significantly lower tooling sales compared to the prior year period. Product sales for food were driven by increased demand for granular powder, Asian sauces and salad dressing somewhat offset by a decline in sales for food protection. Beverage core sales were flat. As with food, the higher beverage product sales were offset by significantly lower tooling sales compared to the prior year.

Speaker 3

Product sales growth was driven by increased demand for functional drinks and concentrates. Personal Care core sales decreased 15% due to softer demand in two of its larger categories, body skincare and haircare products. While in our other category, which includes beauty, homecare and healthcare, core sales increased 7% driven by higher sales for dish care and laundry care solutions. This segment's adjusted EBITDA margin was 15.8%, representing an 80 basis point improvement over the prior year, primarily due to product volume growth and continuing cost management. The contribution from our segments resulted in our consolidated gross margins expanding by 160 basis points, while consolidated adjusted EBITDA margins expanded by 120 basis points to 20.7 compared to 19.5% in the prior year period, indeed driven by improved revenue mix and the positive impact from our ongoing cost improvement and productivity efforts.

Speaker 3

Moving over to cash flow. Free cash flow was $26,000,000 for the quarter, resulting from cash from operations of $83,000,000 net of capital expenditures of $57,000,000 Free cash flow increased by $9,000,000 from the prior year quarter. As Stephane mentioned, we stepped up our share repurchases in the quarter and returned approximately $110,000,000 to shareholders in the form of roughly $30,000,000 in dividends and $80,000,000 in share repurchases. You may recall that in October of twenty twenty four, our Board authorized a repurchase of up to $500,000,000 of common stock. As of the end of Q1, there was approximately $383,000,000 of authorized share repurchases remaining under the existing authorization.

Speaker 3

Finally, we ended the quarter with a strong balance sheet once again, reflecting a cash balance of $126,000,000 as of March 31, net debt of eight seventy million dollars and a leverage ratio of 1.16. Now moving on to outlook. Slide eight summarizes our outlook for the second quarter. We anticipate second quarter adjusted earnings per share, which as a reminder excludes any restructuring expenses, acquisition costs and changes in the unrealized fair value of equity investments to be in the range of $1.56 to $1.64 per share. Our effective tax rate range for the second quarter is 19% to 21%, primarily due to a onetime tax benefit as well as ongoing tax optimization planning.

Speaker 3

Additionally, I wanted to touch on tariffs before handing over the call to Stephane. With the evolving tariff situation, we are closely monitoring potential impacts. At this point in time, the net effect is expected to be limited. In our portfolio, we have some pharma products exported from Europe, while our Beauty and Closures segments have more exposure to Mexico, both in terms of manufacturing and material sourcing. Given how quickly things are changing, it's difficult to draw definitive conclusions at this stage.

Speaker 3

Once the landscape settles, we expect supply chains will adapt as they have in the past. What positions us well is our truly global footprint, operating in 20 countries with around 49 manufacturing sites, giving us the flexibility to shift and respond as needed. At this time, Stephane will provide a few closing comments before we move to Q and A.

Speaker 2

Thank you, Vanessa. In times of economic uncertainty, our resilience becomes our greatest asset. At Aptar, we are dedicated to providing the essential products that keep our communities strong and healthy. Our position as a leader in dosing, dispensing and protection technologies across a number of resilient end markets, including medications to treat chronic conditions and consumer staples that are relied on by millions of people every day underpin our business. Additionally, our robust largely in region, four region supply chain structure that we adopted decades ago allows us to adapt with agility and flexibility to the changing needs of our customers.

Speaker 2

Regarding tariffs, while we need to remain watchful, changing dynamics also bring opportunities, especially with our strong North American footprint. As a reminder, we have 11 plants in North America, 9 of those in The U. S. And two in Mexico, giving us a competitive edge in production capacity across each of our segments. Our large and unique North American footprint strengthens our reliability and responsiveness.

Speaker 2

Additionally, we are expanding distribution opportunities for our Beauty segment as market demand increases, particularly in response to tariff related concerns, leading to a notable rise in sample requests. And when it comes to our Closures segment, our mostly localized approach ensures proximity to customers, enhancing service and efficiency. The environment around us continues to change almost daily. And while we will remain vigilant, we are also aware of the opportunities that this disruption will bring. Looking ahead, we expect a strong second quarter with positive contributions from all three segments.

Speaker 2

In addition to the contribution from our strong Pharma franchise, we anticipate a stronger quarter two for Beauty and for closures. We are excited and encouraged by the order book and by our innovations that are winning the hearts and minds of our customers, patients and consumers. As we navigate the challenges and opportunities ahead, we remain committed to supporting and investing in these fundamental needs that have propelled our company's growth. With that, I would like to open up the call for your questions.

Operator

Thank you, Stephane. We will now begin the question and answer session. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind and would like to remove that request, you can do so by pressing star then 2. And as a reminder, that is star followed by one to ask any questions.

Operator

Your first question comes from George Staphos with Bank of America. Please go ahead.

Speaker 4

Hi, everyone. Good morning. Hope you're doing well. Thanks for the details. I guess, first question I had, Stefan, if you can give us a little bit more color in terms of what you're seeing in terms of order patterns and inventory levels.

Speaker 4

You mentioned that you haven't gotten past perhaps inflection point in farm and restocking on CHC, add and amend as you wish there? Just appreciate a bit more color there. And then can you give us a bit more color in terms of what's happening with GLP-1s and how that's helping injectables? I don't know if you're going be in a position to quantify, but if you can give a bit more color there, that would be helpful too. And I had one follow on.

Speaker 2

Great. Good morning, George. The general sense is that the companies, after a somewhat slow Q4 and Q1, are reaccelerating into Q2 across a broad range of end users. So we see good poised in new orders and new projects in Beauty. We see continued strong demand in closures.

Speaker 2

And on the Pharma side, Proprietary Drug Delivery engine is humming along. Injectables is doing well, good demand. Frankly, it's more about us ramping up our capability and validating equipment. And then as you saw, active material is doing well. Indeed, the notable exception is cold and cough.

Speaker 2

We certainly see that U. S. Inventories have been not depleted, but come to a more normal level based on the strong U. S. Cold and flu season.

Speaker 2

We have not seen that yet in other areas. And it's at this point, we probably see another quarter of destocking. The visibility is not great. We'll know more at the in the next quarter. Having said all that, when we get in these inventory buildup and then destocking cycles, it's a nontrivial exercise to tease apart all the variables.

Speaker 2

And just for argument's sake, let's say, we are short a particular SKU and and cannot meet demand for customer and short ship the customer. Then next time the customer places an order, they add a little extra for good measure. We didn't expect that additional demand, so we again cannot meet. And then the story keeps going on until the customer has hoarded a bunch without obviously telling us. Otherwise, they're concerned that we short ship them even more.

Speaker 2

And then you have this multiplied by four levels in the value chain. So, of course, we track retail sales in The US, but we don't see IQVIA comes out as a significant lag. And so it's not a nontrivial exercise. We're not trying to be evasive here or or if there is an excuse, but more of an explanation. Usually, the supply chains are pretty steady, but here, with, cold and cough, it's a a little tricky.

Speaker 2

Now coming on the GLP-one, we see very strong demand and continue to ramp up capability. I think you've seen one of our lines run see that run-in Les Boudreaux. So we continue to meet the demand. We get good traction with customers and, yes, generally positive on that. You had a

Speaker 4

follow-up. Okay, Stephane. Point of clarification. You said other areas haven't seen it yet. So meaning outside of The U.

Speaker 4

S, you haven't seen cough and cold inventories necessarily depleted. You don't have to go into detail. I just want to make sure I got that right. Then Vanessa, know tax rate is kind of circular. Thank you so much.

Speaker 4

I know tax rate is circular because it relies on the full year and you don't guide on the full year. But if you're in our seats and we need to model Aptar, what tax rate would you use broadly for second half of the year? Thank you.

Speaker 5

So George thank you, George. Thanks for the question. Maybe before I dive into that, I'll just quickly touch on the Q2 guide tax rate then because I'm certain somebody would ask what's driving the Q2 guide. We did guide 19% to 21%, so 20% at the midpoint. And we did mention that that was largely due to a onetime expected tax benefit.

Speaker 5

And really where that's coming from is the expected realization of deferred tax assets that were previously not recognized. And so we're now in a position through all the work that we've been doing around increasing profitability, etcetera, certain of our our entities that were previously loss making, we can now recognize that tax asset. So that's really what is driving that for for q two, and that that is is a big anomaly. If I think about the balance of the year and sort of isolate this onetime impact, but also other ongoing staff planning work that we're doing, I would expect somewhere in the sort of 22% to 24% ETR range.

Speaker 2

Okay.

Speaker 4

Thank you very much.

Operator

Thank you. Your next question comes from Ghansham Panjabi with Baird. Please go ahead.

Speaker 6

Thank you, operator. Good morning, everybody. Just following up on George's questions, on the cold and cough, where do you think the inventory lies? Is it in distribution? Is it in the upstream in terms of production at the pharmaceutical level?

Speaker 6

Just any color there. And what is the realistic sort of timeline for that inflection if you kind of look at parallels in the past where the company has gone through these before as well?

Speaker 2

It's very hard to tell. Think the color we can give you is that in terms of our order book, we've seen the inflection happen in The U. S. We have not seen it yet outside The U. S.

Speaker 2

And as you can imagine, the visibility of the different levels of the supply chain is even lower outside of The US. So our our best to call right now is that we extend this for another quarter, and we'll give you an update at the next queue. I mean, even when it was extreme, I think we rarely had this extend for more than a year. Yeah. So we are now but but but summer will be three quarters into it.

Speaker 2

Yeah.

Speaker 6

And so The US was how many quarters? You you mentioned an inflection. So how many quarters was the correction, you think?

Speaker 2

Well, I would say two quarters in The U. S. So quarter four and quarter one, that's I think now we've quoted. Yes.

Speaker 6

Got it. Okay. Thank you for that. And then in terms of GLP-one and your targets you outlined a couple of years ago at your analyst meeting about doubling the sales base, etcetera. How does the potential for an oral pill change the catalyst of that, if at all,

Speaker 2

for injectables? Yes. Certainly, the way we think about this is this is not a short term prospect. You have a lot of capacity going in for auto injectors, for CMO capacity. There's a lot of consumer adaptation to do these auto injectors.

Speaker 2

So I don't think anybody will abandon these investments. And in the end, it's a decision by customers what to launch, not to launch. In in addition, you've seen distribution growing for some of these auto injectors with the de novo telehealth investment. So for the next few years, I would not look at that. And then personally, I would expect it to be maybe more of a sequential thing.

Speaker 2

First, you know, you get the weight off with the auto injector and then the oral will be more of a maintenance regime, but I'm speculating at this point. But certainly nothing that our customers flag in the foreseeable future.

Speaker 6

Got it. And just one final one. The divergence in sales between Masstige Fragrances and Prestige, is that just a bit more color on that in terms of your share position? Is it obviously different one versus the other? Or is it just the market conditions and maybe customer mix?

Speaker 2

Well, it's more what our customers' decisions went to do launches. And clearly coming out of COVID, the first big swing was with Prestige Fragrances, and we're almost lapping that. Whereas, Masstige came later. Of course, it's always a question, are you on the launches that are successful? In terms of share position, we feel very good.

Speaker 2

So certainly, if you ask our teams, positive and maybe even saying that they're gaining share. You know, you're talking to salespeople. No disrespect. But we have a pretty sophisticated tracking, so I'm confident that we are certainly gaining a bit of ground there. And as we indicated, going into the second quarter, we're some of the prestige launches coming back, especially also in Europe.

Speaker 2

And on the broader beauty picture, we also see the Chinese consumer coming back. The overall sense has been quite positive there. Who knows what the whole trade and negotiations will do to that. But for now, it looks pretty good.

Speaker 6

Okay. Perfect. Thank you so much.

Operator

Thank you. We now have a question from Matt Roberts with Raymond James.

Speaker 7

Hey, Stephane, Vanessa, Mary. Good morning, everybody. If I could first expand on Ghansham's question there on the Prestige fragrance. I believe you said it was isolated to Europe. But are you seeing any early impacts of lower discretionary spending amongst that Prestige income cohort?

Speaker 7

Or are your customers passing along terpolated price already that is being absorbed? And if so, would would Acthar have to share in any of that cost?

Speaker 2

Let's start with the second part of your question. When it comes to tariffs, we are mainly in region, for region in terms of our supply chain setup. So while we have some tariff exposure, for example, for aluminum and for some isolated cases, region for region supply chain setup makes us pretty resilient here, plus whatever tariff we encounter we pass on. We see a bit more muted engagement in terms of new launches based on just the uncertainty that we may have compared to what we would have expected three months ago. But nevertheless, we see a solid increase compared to prior year and that's why we are confident about the Q2 contribution of Beauty to growth.

Speaker 2

Now, when it comes to what our customers do in terms of their sourcing decisions and where they send products, those are secondary and tertiary effects, and that will take some time. More kind of CEO math, the Prestige products probably have the biggest room to pass on things. Remember, selling price is not a transfer price, and there's a lot of room in absorbing or passing on tariffs in the short term.

Speaker 7

That's helpful, Stephane. Thank you. Maybe if I could, if I could ask a more holistic question, because I can't keep up with regulatory agent headlines and whether the odds or pace of drug approvals is any better or worse. And I'm not sure you can make that easier for me. But when you think about the longer term 7% to 11% core growth in pharma, How does the evolving approach of regulatory change your conviction on that here in the medium term, maybe over the next two to three years?

Speaker 7

Are there certain areas you're more or less comfortable within the pipeline given your customers and you spend small biotech companies to very large pharma companies, how is each end of that customer range approaching their respective pipelines? Yes.

Speaker 2

So the the and you know, our average project is about a decade. So if if if an approval process gets pushed out by six to twelve months, I'm not sure we will find it in the p and l. Most of our medications are treatment of chronic diseases that whether it's diabetes, whether it's COPD or asthma. And so we see that continue ongoing. Clearly, customers are concerned if the FDA is not as responsive as it used to be in terms of getting on cases.

Speaker 2

But so far, we have not really seen a lot of evidence of that. I think that right now, it's more concerns. Overall, Pharma R and D budgets were up in 2024. So we and our pipeline continues to grow. So I would let the dust settle here for a little bit before making any calls.

Speaker 2

We feel very good about the pipeline and the long term trends I referred to are really good. I wanted to come back on your earlier point on beauty though and the tariffs. I would also like to point out, again, that given our local presence in The US and here The US is in particular impacted, we see a lot more requests. In fact, our requests for new quotations are up 30% for people who need to switch away or want to switch away from having things coming from China. So for us, the tariff situation is as much an opportunity as it is keeping us busy with passing on things.

Speaker 7

That and providing a little comfort going over again. Thank you, Stephan.

Operator

Thank you. We now have Daniel Rizzo with Jefferies on the line.

Speaker 8

Hi. Thank you for taking my question. And just to kind of how are you doing? Just to kind of go with the tariff thing, is it also possible that tariffs could have a benefit for I mean, from my understanding in beauty, you produce in Europe or your end products are in Europe and they are shipped to China. Are we seeing or can we see that demand go up because of issues between U.

Speaker 8

S. And the rest of the world, if you kind of follow what I'm saying?

Speaker 2

Sure. Hi, Dan. China is the Chinese market is evolving, I would say. We certainly see more confidence, but we also see more patriotism given geopolitics. So there is a gaining of market share of local brands.

Speaker 2

Since we are in China and producing for China, we are quite happy supplying the local brands and some of the multinationals have local operations there like L'Oreal, a big footprint in China. Whether there is some rerouting from of luxury products rather than shipping them to The U. S, ship them to China, I think it's a good hypothesis. I think it's too early to have data on that.

Speaker 8

Okay. And then you mentioned tough comps in injectables. I was wondering I think in Q1, was wondering if that's something that's going be kind of an issue or just something that's highlighted for the remainder of the year?

Speaker 2

No. I know it's some time ago, but remember, we had this ERP deployment where the prior year, we were almost not able to ship for, I think, half the quarter. And then last quarter one, we caught up with all of that and the comparison was I think we were up like 56%. So we shipped for a quarter and a half last year. So when you compare to that, it starts to show growth.

Speaker 2

But demand is not an issue in injectables. It's for us. The demand is there. We're catching our breath. Our little window catching up with it.

Speaker 2

We are getting equipment installed and getting equipment validated.

Speaker 8

Okay. And then finally, with FX, you guided to 1.14. What was, I guess, the average rate in Q1? Was it like 108 or 109? What's the kind of the change or that's what's expected versus what was?

Speaker 5

Yeah. So if you're thinking of where we guided at the end of when we guided Q1, that was about 1.4 There was a little bit of an uptick, January, February were pretty consistent with that. March came in at about $1.8 And current spot rates are about $1.14 So that's what we're guiding at right now. So the impact of that if you're thinking about sort of year over year is roughly about $04

Speaker 8

That's perfect. That's exactly what was looking for. Thank you.

Operator

Thank you. We now have Matt Larew with William Blair.

Speaker 9

Good morning. I wanted to follow-up on growth in Pharma. Obviously, you've called out the sort of the cough and cold destock, but you've also referenced on the call continued strength on the emergency med NARCAN side. If I think about the last decade here, the the CAGR is around 9%, sort of right in that 711% range. But the quarters themselves, particularly over the last couple of years, have been much much choppier.

Speaker 9

Maybe if we think about the next few quarters as the the destock ends, do we get back to a more normal, cadence? Maybe as part of that answer, it would be good to hear an update on where emerging medicine stands as a percentage of of sales. Thanks.

Speaker 2

Hi, Matt. Emergency medicines today are about 5% of overall company revenue. That's not only NARCAN, but NARCAN is an important part of that. And yes, I can only agree with you. This is much more of a choppy business.

Speaker 2

Distribution chains are nontraditional. You're dealing with states' harm reduction agencies. In addition to that, you had, after emerging coming in a bunch of generics who fight for share and stock up, destock, and so on. So it's a much more choppy business, a lumpy business. But overall, you know, as we mentioned before, with deaths from opioid overdoses being clearly reduced through the availability and wide availability of NARCAN.

Speaker 2

And this having bipartisan support, we continue to expect this business to develop nicely, but I think it's also reasonable to expect that at some point, it will kind of resume a more normal growth trajectory. The beyond that, of course, if you look at the last five years, we had the tremendous whiplash with the COVID supply chain. So I think I would be prudent to say we don't guide for future quarters of the year, but we do stand by our long term targets. We feel very good about the long term growth trajectory. And as you mentioned, we will not hit it every quarter.

Speaker 2

We'll maybe not even hit it every year, but we feel good about the seven percent to eleven percent. And over the longer period of time, we have shown that we do that. And if anything, it's driven by our pipeline, and our pipeline is in good shape.

Speaker 9

Okay. Very good. And then, Vanessa, I just wanted to make sure on tariffs. You referenced that the net effect is expected to be limited. Does your guidance or at least what you're thinking about the year incorporate that net effect or does it incorporate sort of a gross effect with an expectation you might mitigate?

Speaker 9

Then this year, I think, as each company seems to be thinking about it differently in terms of the impact they expect versus what they incorporate into their outlook. So wanna make sure we're clear about that.

Speaker 5

Yes. Thanks, Matt. So we saw little to no impact in the Q1 results. In Q2, we are our guidance does incorporate the limited net effect. And for the balance of the year, we expect that to essentially be the same.

Speaker 5

Stefan mentioned earlier that where we are seeing an increase in tariffs, are already passing it on. And he also talked about the fact that it's not only a potential headwind, but it's also a potential benefit as well as there are other opportunities available to us depending on how all of this unfolds. So at this point in time, we're expecting the net impact to be limited.

Speaker 9

Okay. Very good. Thank you for the questions.

Operator

Thank you. Thank you, Matt. We have another question on the line from Gabe Hady with Wells Fargo.

Speaker 10

Stefan, Vanessa, good morning. Just one

Speaker 2

Hi, Gabe.

Speaker 10

Quick point of clarification. A point of clarification and maybe a a little data point for us. Consumer health care, you talked about some destocking and we've you were very transparent about it. But I think on the on your prepared remarks, said US was actually starting to get back to normal in terms of order patterns. Rest of world, maybe not so much.

Speaker 10

Again, we could probably sit here and speculate all day about how things move around and what the inventory supply chain looks like. But how big is that piece of business relative to U. S?

Speaker 2

Yes. I don't think we give you that detail, but you wouldn't be wrong to have The U. S. Share at or maybe less than the company average, which is about 30% of the business. Might be even a little bit less than that.

Speaker 10

Okay. Got it. And then, I guess, in pharma, maybe what we're all trying to understand is it feels like there's there's been a little bit of noise across a couple of different product lines. And, Vanessa, did you give us specifically the number, and I apologize if I missed it, injectables, what the volume was in in q one. But if I'm hearing you correct, we get through sort of this destocking OTC slash consumer health care.

Speaker 10

And is it fair to say, Stephane, that there's nothing that you see sort of over the next twelve to eighteen months that would kinda prohibit you from from being in that long term window?

Speaker 2

Well, well, Vanessa looks up that information from injectables. Again, we we don't guide for, the year. If the past five years have taught us anything, it would be a fool's errand. But we we feel comfortable about, the long term targets and have demonstrated that. I I'm not gonna get into, okay.

Speaker 2

It will be there in eighteen months or it will be there in, eight and a half months. I I do wanna, though, remind you next to the regional split of consumer health care that you talked, asked about. Also, reminder, health care itself is maybe a bit over 20% of our total pharma sales. So that's why Rx up 10%, consumer health care down 10%. That doesn't even tell about.

Speaker 2

We still have growth because Rx is a much bigger part of the proprietary drug delivery systems.

Speaker 5

And Gabe, we did not talk about inductable volume.

Speaker 10

Got it. Thank you.

Speaker 5

Yes. But

Speaker 2

again, demand is not an issue in injectables. It's our ramping up and validating of supply.

Operator

Thank you. We have another question from George Staphos with Bank of America. Please go ahead when you are ready.

Speaker 4

Thanks so much. Two quick follow ons from me. Stephane, to the extent that you have any view on this, and I realize it'd be very difficult to have one, with the pressure on the consumer that we keep hearing about, reading about, obviously, tariff considerations and what that might mean for supply chains and cost material. Recognizing on that latter point, material costs usually aren't that big of a deal for you anyway, Are you seeing any emerging trends in terms of the types of constructions that your customers are looking for across any of the key segments? Maybe less of an issue in pharma, but perhaps in beauty and or enclosures?

Speaker 4

And then second question and I'll turn it over. Overall, what's the outlook over the next you know, quarter, two quarters? If you had a view for '25, we'd obviously love to hear it on sort of tooling and and and sort of the appetite for

Speaker 2

for for,

Speaker 4

new products, opportunities for you as measured by your tooling activity. Thanks and good luck in the quarter.

Speaker 2

Thanks, George. Maybe best is to first say, in terms of recessions or lower consumer confidence, in general, Aptar is very well positioned. I mean, as a reminder, we supply patients with their everyday medications to treat chronic diseases, asthma, COPD, allergic rhinitis, and diabetes and so on, plus food staples, personal care, home care staples. Those are not the things people cut back on. They may go to a private label brand.

Speaker 2

They may go to smaller sizes. All of those things are neutral to net positive for us. So we are not that concerned about a garden variety recession, if that's even a thing that is possible. And those who go back to 02/2008, '2 thousand and '9, remember, pharma was about 20% of the company at that time. Today, it's almost half.

Speaker 2

So consumer pressure, while clearly something that some people are forecasting in The U. S, is not causing deep concern for us. And at the same time, situation is pretty unique to The U. S. Of course, The U.

Speaker 2

S. Will impact the rest of the world in certain ways, but that recession talk is not as strong in other parts of the world. Latin America is doing really nicely. As I said, China is much more on the front foot. Let's see how things develop over the next few months.

Speaker 2

Europe will invest a lot more in its defense, which means there's a lot more government spending that will stimulate economy. So I'm not so negative about the world at large. And having said that, even then in the recessionary environment, Aptar is very well positioned. Second, at the end of the day, our customers pay for our innovation. And they look to differentiate themselves.

Speaker 2

And what that way of differentiating is, it might be a little bit different when the consumer money is a bit more tight. But clearly, customers look to continue to differentiate themselves. And sometimes that's with having a more lightweight product or having changing product format. In the end of the day, that's innovation, that's project activity and that is good for us. Yes, we don't guide for the year.

Speaker 2

We don't guide for the quarter. But everything I just said tells me the growth is not coming in after quarter two.

Speaker 4

I'm sorry, was that Stephane? So everything we just said means that tooling activity is probably doing fairly well given customers are exploring different ways of continuing to differentiate but in a very sort of quickly evolving world. Would that be a fair summary?

Speaker 2

Yes, that's fair. And we certainly see tooling on the way up in quarter two.

Speaker 4

Okay. Thank you very much.

Operator

Thank you. Just as a quick reminder that it's staff followed by one to ask any further questions today. I can confirm that does conclude the question and answer session. I would like to hand it back to Mr. Stefan Tanda for some closing comments.

Speaker 2

Very good. Thanks for all your questions. Let me end the call by attempting to cut through the noise and remind us all of the bigger picture here. Our teams have delivered a very solid start to the year. While we started the year with softness in demand in certain end markets as well as tax headwinds and foreign exchange headwinds, we now head into the second quarter with confidence based on a few points.

Speaker 2

First, we see a reacceleration of demand in several end markets and geographies across all segments, albeit with the temporary exception of cough and cold. The profit engine in Proprietary Drug Delivery Systems is humming along smoothly, and the demand picture in injectables and active materials is solid. And as we discussed, our long term pharma end market trends are solid and the pipeline is solid. Our teams have found some innovative ways to mitigate the tax headwinds somewhat, and the FX headwinds have largely abated, at least for the moment. And then importantly, our long standing local for local supply chain structure allows us to deal with the tariff and supply chain uncertainties with agility and equally important, at the same time, we also it allows us to take advantage of opportunities as customers rethink their regional sourcing strategies.

Speaker 2

We didn't talk about it as much in the call today, but our teams are proudly focused on delivering productivity gains in all areas of the company through execution of ongoing projects, increasing automation and developing additional ideas for future measures. Last but not least, as we just discussed, if you're forecasting for The U. S. Or even a global recession, it's important to remember that Aptar is well positioned across a number of resilient end markets, including medications for chronic diseases such as allergy, diabetes, asthma, COPD, emergency treatment that patients want to have at the ready and consumer staples that people consume and use every day. In times of economic uncertainty, our resilience becomes our greatest asset.

Speaker 2

Lastly, given the strength of our business, we accelerated returns to shareholders in quarter one while, of course, retaining the strategic optionality of our balance sheet. With that, thanks for attending the call, and we look forward to follow-up discussions.

Operator

Thank you all for joining. I can confirm that does conclude today's conference call with Aptar. You may now disconnect, and please enjoy the rest of your day.

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Earnings Conference Call
AptarGroup Q1 2025
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