AptarGroup, Inc. Q3 2008 Earnings Call Transcript

| About: AptarGroup Inc. (ATR)

AptarGroup, Inc. (NYSE:ATR)

Q3 2008 Earnings Call

October 16, 2008 8:00 am ET

Executives

Ralph Polterman – Executive Vice President, Treasurer

Peter Pfeiffer – President, Chief Executive Officer

Steve Hagge – Executive Vice President, Chief Operating Officer

Robert Kuhn – Executive Vice President, Chief Financial Officer

Analysts

Ghansham Panjabi – Wachovia

Claudia Hueston – J.P. Morgan

Chris Manuel – KeyBanc Capital

George Staphos – Bank of America

Meggan Friedman – William Blair & Company

Ross Gilardi – Merrill Lynch

Brian Crawford – Perimeter Capital

Jason Rogers – Great Lake Review

Timothy Burns – Cramer Capital

Operator

Welcome to the AptarGroup's third quarter 2008 results conference call. (Operator Instructions) Introducing today's conference call is Ralph Polterman, Executive Vice President and Treasurer of AptarGroup.

Ralph Polterman

Before we begin I would like to point out that the discussion to follow includes some forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup's SEC filings.

Information in this conference call is relevant on the date of this live call. Although the company will post a replay of this conference call on its website as a service to those investors who are not able to listen today, information contained in the replay will be dated and should be used for background information only. The company undertakes no obligation to update material changes and forward-looking information contained therein.

Participating on this call today, are Peter Pfeiffer, President and Chief Executive Officer of AptarGroup, Steve Hagge, Executive Vice President and Chief Operating Officer and Bob Kuhn who was recently appointed as Executive Vice President and Chief Financial Officer. I would now like to turn the conference over to Mr. Pfeiffer.

Peter Pfeiffer

This morning we issued a press release announcing that Bob Kuhn has been appointed to succeed Steve Hagge in the role of Chief Financial Officer. Bob has been with the company for over 20 years and is an important addition to our senior management team. He is joining us today for his inaugural quarterly conference call.

I briefly will summarize our [inaudible] and then comment on our beauty home segments. Steve will then provide insight on our closure and Pharma segment and Bob will follow Steve with a review of our financials.

Turning to our overall results, I would like to remind you that 2007 was a record year for us and as a result we are up against that comparison throughout 2008. The diversification of our business allows us to report record third quarter sales and profits despite our comparisons in a challenging business environment.

We benefited from the weaker dollar and as a result reported increased sales in every segment. Our profit was mainly driven by our policy focusing to the beauty and health sectors. For the third quarter of 2008 excluding changes in the exchange rate sales in the beauty and home segment decreased 1% from prior year. This is due to weakening across each of the markets served by this segment.

Thanks to the present personal care market we are flat. Thanks to the [inaudible] market decreased 1% and sales to the household market increased 1%. Increased sales in the emerging markets offset somewhat the weakness in the demand in the western world. Profitability of the beauty and home segment declined from the prior year due to the combination of weakening demand and at the same time higher cost pressure.

Looking forward, we expect in a difficult business conditions we saw in the third quarter to continue into the fourth quarter. Presently, it is difficult for us to predict even the short term with any degree of certainty. We are commencing cost reductions where possible, but our ability to rapidly reduce costs in response to weakened demand is somewhat limited in the short term.

Over the long term, we are confidence that our strong balance sheet in conjunction with our commitment to innovation and the diversification of our business will help us leverage these uncertain times. I would now like to turn the call over to Steve.

Steve Hagge

I'll provide my comments and then turn it over to Bob who's going to review the financial results. First, looking at the closure segment, compared to the prior year, third quarter reported sales increased 13% mainly due to changes in exchange rates and revenue pass throughs. Changes in exchange rates accounted for 7% of the sales increase while the revenue pass through accounted for about 5% of the increase.

Again excluding currency impacts, increases by market were as follows: we had a 3% increase in sales for the personal care market, a 19% increase to the food beverage market and a 13% decrease in sales to the household market. We saw increased demand in the U.S. particularly in the food beverage market. However, sales softened in Europe particularly in Germany.

The under utilization of capacity from our low sales volumes in Europe and delays in the pass through of [inaudible] increases adversely affected the closure segments income resulting in income for the quarter that was roughly equal to the prior year.

On a positive note, our pinpoint dispensing system is gaining acceptance as it was recently introduced on products by both Lorial and Este Lauder. In addition, Coca Cola will be introducing new packaging for their smart water product in the fourth quarter with our dispensing system.

Now looking at the Pharma segment, we had an outstanding quarter with Pharma increases in both sales and profits. Our reported sales grew 17% excluding changes in exchange rates, the Pharma segment sales increased 10% in the quarter due to the increases sales in both our meter dose valves and pumps.

In the U.S. market, we continue to see strong demand for our pumps that are used on allergy products that are generic alternatives to the former GSK Flonase brand. We continue to have a high number of pharmaceutical projects in the pipeline which makes us optimistic as we go forward.

Now I'll turn it over to Bob for a discussion of the financial highlights.

Robert Kuhn

I will provide my comments and then we'll be happy to answer your questions. First I'd like to summarize our consolidated results for the quarter. As you've all seen, our reported sales increased 10%. Changes in exchange rates accounted for approximately 7% of this increase resulting in an organic sales growth for the quarter of approximately 3%.

From a geographic standpoint, sales to customers in our European operations represented approximately 60% of net sales this year versus 61% of net sales last year while sales to customers in our U.S. operations accounted for 26% of sales in both years.

We continue to face higher interest costs particularly rising during the quarter. Increases costs affect us in two different ways. First is the [inudible] in increases on the higher selling prices. Secondly, to factor inventories in the U.S. that are on LIFO further magnifies the impact. The increase in our LIFO reserve cost us approximately $1.2 million pre tax in the quarter alone and almost $3 million year to date. The LIFO reserve adjustment is included in the corporate and other amounts in our segment disclosures.

Due to our strong balance sheet, we benefited in the quarter by almost $900,000 pre tax from reduced net interest expense. When comparing the effective tax rate for the third quarter of this year to the prior year, you need to consider that the preferred tax adjustment included in the prior year's effective tax rate.

During the third quarter of last year, the German government ratified a reduction in the tax rate which was effective January 1, 2008. The reduction of the net preferred tax liability reported in the third quarter of 2007 relating to this German tax rate change was approximately $2.3 million for a positive impact of about $0.03 per share which was included in the earnings of $0.56 per share reported for the third quarter of last year.

The prior year tax rate as adjusted to remove the effect of this deferred tax adjustment was in the area of about 32%. The current year tax rate of about 30% has been consistent throughout the year and has favorably impacted the decreases in German and Italian tax rate at the beginning of the year, as well as higher R&D credits in France.

Diluted earnings per share increased 2% to $0.57 per share from $0.56 per share reported in the prior year or approximately 8% from the $0.53 per share in the prior year excluding the previously mentioned deferred tax adjustment.

Our cash flow from operations for the third quarter was $105 million compared to $94 million in the prior year. Capital expenditures were $67 million in the quarter compared to $34 million in the same quarter of last year.

Free cash flow which we define as cash flow from operations less capital expenditures were $38 million for the quarter versus $60 million in the prior year. We spent approximately $20.7 million to purchase approximately 535,000 shares of the company's common stock during the quarter, at a cost of $38.57 per share. At the end of the quarter, our remaining purchase authorization is 4.5 million shares.

The mix of debt at the end of the quarter is roughly 60% fixed versus 40% variable and the average interest rate is around 5.3%. The fixed percentages increased from the end of the second quarter due to the refinancing of short term variable rate debt with a $100 million fixed rate private placement during the quarter. On a gross basis, that's about 26% while on a net basis, it is approximately 8%.

Briefly turning to the nine months, reported sales increased approximately 15% and changes in exchange rates accounted for about 9% of the increase resulting in an organic growth rate of 6%. Diluted earnings per share year to date increased 16% to $1.72 per share versus $1.48 per share last year.

Looking forward, presently we expect appreciation and amortization for the year 2008 to be in the area of approximately $130 million while total cash outlays for capital expenditures for 2008 are expected to be in the area of $180 million. Both of these amounts could vary depending upon changes in exchange rates. The effective tax rate for the full year 2008 is expected to remain in the area of 30%.

And lastly, going into the fourth quarter we're seeing the strengthening of the U.S. dollar versus the Euro relative to the exchange rate in the fourth quarter of last year. The average rate for the U.S. dollar versus the Euro in the fourth quarter of last year was $1.45.

We continue to see weakening demand in our beauty and home enclosure segments. However, offsetting these weaknesses we expect the strength in our Pharma business to continue. And lastly, we are starting to see some relief in raw material input costs particularly resin in the fourth quarter.

Looking forward, diluted earnings per share for the upcoming quarter are expected to be in the range of $0.42 to $0.47 per share compared to earnings from continuing operations of $0.47 per share in the fourth quarter of the prior year.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first call comes from Ghansham Panjabi – Wachovia.

Ghansham Panjabi – Wachovia

Just judging by some of the reports out there on the map it looks like September was a pretty tough month overall. Can you talk about volume trajectories across some of your end markets that you see specific to your business both in the U.S. and Europe?

Steve Hagge

I think if you look at it on a broad basis, certainly as we got into the quarter some of the personal care part of the business started to weaken as we got towards the end of the quarter and also some of the fragrance cosmetics. What we saw happening though largely was pushing out of orders rather than cancellations, so we saw our customers get a conservative edge as it relates to the upcoming Christmas season and long term, they haven't cancelled the order but more pushed them out.

So today I think we've seen the biggest drop off coming in the personal care and the fragrance cosmetic sectors. And again, that's being offset by the strength we've seen at Pharma and the food and beverage markets for us.

Ghansham Panjabi – Wachovia

Do you think this has anything to do with just working capital being sort of adjusted along the supply chain as the credit markets have tightened or is it just end market weakness? Personal care has a little bit more stickiness on the volume side.

Peter Pfeiffer

This has really to do with some inventory adjustment. We are seeing our customers looking into a more weak holiday season so they are preparing for that. In our mind it's really a lot of natural readjustment going on.

Steve Hagge

What we've seen even publicly is that WalMart's announced that they're cutting back on inventory so that's affecting our customers, and as you say, in the personal care, most of our products are usable on a day to day basis so most of these tend to be temporary fall backs.

Operator

Your next question comes from Claudia Hueston – J.P. Morgan.

Claudia Hueston – J.P. Morgan

I was hoping you could comment on resins in terms of where you are coming out of the quarter. Are you pretty much all caught up on the increases you've seen? And how are you thinking about resins for the remainder of this year?

Steve Hagge

I think we have to break resins between the U.S. and Europe. We saw pretty significant increase in the U.S. in the third quarter, probably an estimate of 20%. That went up through September and it started to come down, so we were still catching up once we got into the quarter and expect to be caught up pretty much as we go through the fourth quarter.

The same has been in Europe. We're seeing it going up through September. It's now starting to see it go down. So through the quarter, we still saw a lag but those should start to reverse in the fourth. Right now, expectations are from what we're hearing in the market, is that resins both in the U.S. and Europe are expected to decline.

In fact to a large degree of those increases in the third quarter are at least now projected to go down as we get into the fourth.

Claudia Hueston – J.P. Morgan

May you could just comment more broadly on the cost environment as a whole. I think last quarter you talked a little about freight costs. I don't know if that's changed given the pull back in oil costs, and maybe just how quickly or what specifically you're doing to try to improve the overall cost profile.

Peter Pfeiffer

Basically the cost of transportation hasn't really changed. It's somewhat related to the oil prices but we are also seeing an increase in [inaudible] costs for example and we are doing some exits there. We are trying to save energy by using new technologies so for the future we are going to be prepared for these kinds of market change.

Steve Hagge

The other side on a broad basis, we talked about in the press release, reducing costs, we really come back particularly in the beauty and home enclosure area significant focus on taking out discretionary costs, travel, those types of expenses. We've now brought in product that we were using with some of our subcontractors to help us more effectively manage our cost from an internal manufacturing.

So we're continuing to monitor those, taking a hard look at all of our, we're reducing for example all the temporary labor, as much of the temporary labor that we have that's possible going into the quarter. We're trying to maximize the amount of cost reductions we have.

Operator

Your next question comes from Chris Manuel – KeyBanc Capital.

Chris Manuel – KeyBanc Capital

Where tooling sales flat for the quarter?

Steve Hagge

Tooling sales for the quarter were relatively flat. It had minimal impact on the quarter for us.

Chris Manuel – KeyBanc Capital

You talked about where you've begun to see some slowness primarily personal care, beauty and home, have you seen any slowness or deferral of orders in the Pharma unit yet?

Steve Hagge

The Pharma side, we continue to be strong. In fact we were actually stronger in the third quarter than we anticipated when we went into the quarter. So we're strong as I said in the generic medication in the U.S. market as well as a lot of the branded drugs. The allergy and the asthma product lines that we sell to, continue to do well. So we're not seeing any backlog yet in those areas.

Chris Manuel – KeyBanc Capital

Do you anticipate seeing any?

Steve Hagge

Right now, I think it continues to be strong, so there's nothing. When you look at asthma, it's not a discretionary drug you're going to be needing but the fact that we're well placed within the generic in the U.S. also gives us good balance to the allergy market. So anticipation is that we're not going to see a major slow down as a result of economic issues in either of those markets.

Chris Manuel – KeyBanc Capital

With respect to the developing regions it sounded like, in your prepared remarks you said emerging markets remain strong. Have you seen any fall off? My understanding is in September some regions such as Russia have really seen a sharp fall off. Have you begun to see any signs of change in those order patterns linking to the emerging markets as well?

Peter Pfeiffer

Generally the emerging markets have done really well in the third quarter and we are not seeing any change there up to now. The financial crisis is too short to spill over in these regions. Up to now Asia, South America and Russia are doing at least in our area reasonably well.

Chris Manuel – KeyBanc Capital

As we look at your guidance for the fourth quarter, organic growth for this quarter appears to be in that 2%, 3% range depending on how you treat the resin acquisition and things of that nature. Is that essentially what you're betting into your fourth quarter numbers as well, is a flat or very low single digit number?

Peter Pfeiffer

Generally we are not commenting quantitatively on future quarters but we could say the growth in the Phama market as Steve has mentioned will not be sufficient to mitigate the down turn in beauty and home in the fourth quarter.

Steve Hagge

We should probably overall have a net. We're probably going to be on the negative side of everything if it holds as it is today. But I think we're seeing so dramatic changes in the market. It's very difficult to predict what will happen at the end of the quarter.

Operator

Your next question comes from George Staphos – Bank of America.

George Staphos – Bank of America

Relative to Pharma, if demand remains firm, the orders seem to be holding up, realizing that this is a very, very important product for your customers and their customers, are you seeing any indications from your customers about perhaps getting concessions on pricing? Any downward tension in margin?

Steve Hagge

If you look at any of the outward press releases from our customers' costs are a significant concern for them. I think that most of our products with our major customers are covered by long term contracts. We continue to work on new products, so while pricing is always a concern it is certainly not as big of an issue in this market as it would be in the beauty and home or closure market. So there's nothing overly significant in terms of margin and pressure particularly on our branded drugs.

George Staphos – Bank of America

So we should be holding these margin levels into 2009 then?

Steve Hagge

I think what we've said and for this I think you could hold it, we said margins had a fluctuation quarter to quarter for us between that 25%, 29%, 30%. We think that will hold for 2009.

George Staphos – Bank of America

In terms of fragrance in particular, realizing it's a difficult market to predict, this has been an industry end market over the years that's had a notoriously bad reputation for bad working capital. Do you think that this retrenchment if in fact that's what's going on in working cap is going to be worse than what we've seen in the early '00's or any other period?

Peter Pfeiffer

I think the difficult times that we are in, our customers especially in the present market are trying to bring up new product and we are seeing no cancellation in new products. Introductions may be pulled back so our outlook for the next year is not so bad. It reflects the tendency to bring out new products.

George Staphos – Bank of America

If you look at the guidance for the fourth quarter and the quarter that you just reported, the run rate in earnings growth is roughly 2% which probably looks good relative to a lot of other sectors and companies. Do you think that Pharma plus lower input costs have the chance of accelerating that growth rate in 2009 or is it really too hard to call anything at this juncture?

Steve Hagge

It's probably going out too far. I think we do have a couple of things. The reduction on input costs I think will benefit us long term. Secondly, the products that we sell, personal care, particularly in some of those markets the consumer continues to use. So if there's reductions of inventory either by our customers or by the consumer those tend to recover pretty quickly.

Our new projects that we're seeing are not being cancelled. So I guess we're cautiously optimistic about where we're at for '09, but frankly we're in pretty uncharted water and I'd hate to come back and give you projections.

Operator

Your next question comes from Meggan Friedman – William Blair & Company.

Meggan Friedman – William Blair & Company

You talked about the pushing out of orders, specifically in personal care and fragrance and cosmetics. Can you provide a little more color to how you're thinking about both those businesses, particularly the fragrance and cosmetics in Q4? Are you assuming a typical Christmas, just delayed or are you in your guidance assuming drastic cuts.

Peter Pfeiffer

Concerning the fourth quarter, we are seeing that customers are cautious and they are not expecting a very brilliant holiday season. But that does not really affect the coming year. The general tendency is that innovation in product packaging is still very welcome. Some of our customers are using this to bring out new product and new more sophisticated products and they try to increase their model on our module and so it's good as well the major metrics to get better prices.

Steve Hagge

I think the other thing that we have seen is that frankly in the fragrance cosmetics, our customers are somewhat early this year. They tried to pull back. So I don't think we're going to see the big inventory going into Christmas that maybe we would have seen in other years. With all the things we're seeing in the credit market and the consumer, if any thing, they may be over cautious as we get close to the season.

Meggan Friedman – William Blair & Company

And your guidance incorporates that?

Steve Hagge

Yes. That's what we've seen in the short term.

Meggan Friedman – William Blair & Company

Could you comment on the acquisition pipeline?

Steve Hagge

We won't comment on it specifically but I think you've seen that one of the strengths that Aptar has had over the years is the balance sheet. And particularly in today's world where credit is a very key item, we really view our balance sheet as a strong strategic asset. We think there are several transactions that we ongoing continue to look at we would at this date, still being active.

One of the challenges that all of us will have, not just Aptar are going to be valuations in today's market with these crazy movements up and down and multiples, etc. That being said, right now I can tell you that we're looking at more potential transactions than we've seen in the last three to four years.

Meggan Friedman – William Blair & Company

You had said that the pharmaceutical pipeline remains strong? You've had a number of drugs that have seen approval lately. Is the pipeline still strong?

Steve Hagge

The pipeline continues to be strong. We've seen additional work done with pain medications etc. coming into nasal sprays. So we see a lot of different activity and our customers are very active in our field. So that hasn't changed. If anything, it's strengthened over the last year, year and a half.

Operator

Your next question comes from Ross Gilardi – Merrill Lynch.

Ross Gilardi – Merrill Lynch

Just wondering if you could elaborate on food and beverage? Certainly 19% growth in this environment is great. I was curious how much of that is resin pass through, but if you could also just talk about different areas where you're seeing strength.

Steve Hagge

Food and beverage you said 19% is strong growth. Of that, resin is probably around, pretty consistent with the overall, is about 5%. We're still seeing different applications coming back in. We announced in prior quarters that Heinz is taking their inverted package which has our dispensing system across all of their brands and basically going inverted on everything. We're seeing new introductions on salad dressing with Kraft going to our low cost closure.

As I mentioned in my prepared remarks the movement into the Smart Water brand with Coke, we're very please with and that is one of their high focus brands that Coke has. So food and beverage continues to expand. What we're seeing is our customers in those areas continue to look for value add, and that's a strong focus to that. We think that will continue going forward.

Ross Gilardi – Merrill Lynch

On the Coke business, is this the first time you've done business with Coke and could you just give us a little more color? Is this a pilot program or is a regional platform, a global platform? Any other details you could share would be helpful.

Steve Hagge

On the Coke side we have been doing business with Coke. For example, there's a product called Power Aid which is their sports drink product. We are on that today, have been on that in the past. So we continue to do business. We're not able to talk about volume per se on the Smart Water project. It will be a significant financial play in the U.S. if not worldwide.

We're also seeing new water applications, another one in Poland and I think we're continuing to have another expansion of that also in China. The other region that's actually helping us is the food beverage. Tooling is about 3% of that 19%, so again, growth across all the sectors in there.

Ross Gilardi – Merrill Lynch

Could you just comment on collections and receivables? Have you seen any issues with bad debt expense or customers having difficulties making payments on time in this environment?

Steve Hagge

For the time being, no. Fortunately, we have not seen any issues in that area, but that is certainly one of the key areas that we're going to be focusing on going forward not only our customers but also our suppliers. We're going to continue to monitor their financial health as well, but we have not seen fortunately any issues on the collection side.

It's also even broader than our customers and suppliers. Our competitors are another area that we're watching because Aptar at least has been very fortunate in terms of our balance sheet and right now, particularly in some of our smaller competitors, may have some financial issues if the credit market stays as tight as it is.

Operator

Your next question comes from Brian Crawford – Perimeter Capital.

Brian Crawford – Perimeter Capital

How is your business different today compared to let's say 2000 when we went through another difficult period?

Peter Pfeiffer

The last crisis we saw was in 2001. The basis of the crisis is different. Today we are seeing a worldwide credit crisis which affects our customers and the prime consumers. 2001 was deep than this crisis and it was easier for the people to get out of this difficult situation. We are seeing maybe a longer term problem this time than in 2001.

Steve Hagge

I think the key issue is also, is that's it's similar to 2001 if you kind of compare Aptar. Really our diversification of where we're at is the same as it was there. If you go back, our recovery was actually pretty quick into 2002. The diversity of our products, the geographic diversification and the innovation, we've talked about innovation in the past. And it's interesting there's a quote from a senior Proctor and Gamble official that I just saw in the paper this week, and it said one encouraging side for Proctor and Gamble that they're saying is strong consumer and customer response premium innovation, because in good times or bad, the importance of innovation cannot be underestimated.

When you take a customer like that, those are the guys that frankly make inroads when things get pretty challenging. So in those cases, there's a lot of similarity.

Brian Crawford – Perimeter Capital

You didn't have a Pharma business back then, correct?

Steve Hagge

We did. Percentage wise, it's probably about the same size relative to overall Aptar. And again we saw at that time much less volatility in our Pharma business than we saw in the other business.

Brian Crawford – Perimeter Capital

Are you seeing anything or hearing anything from your end customers in terms of consumers trading down and if so, what impact does that have on you? In other words, trading down from branded goods to more private label?

Peter Pfeiffer

We are seeing a tendency to private label and low cost products, but we are seeing that the customers, the final consumers are not giving up on convenience. So we are also supplying closures or pumps to the lower end of the market. So we are effective but not in the same size as usually, so we are profiting from the down turn as we do from up turn.

Operator

Your next question comes from Gregg Halter – Great Lake Review.

Gregg Halter – Great Lake Review

I believe you spend about three times the amount on Research and Development than your nearest competitor, but I'm wondering if you're making any cutbacks there on your own spending plans given the environment.

Peter Pfeiffer

I think innovation is our key competitive advantage and will stay that in the future so we are not cutting back our R&D spending in the future.

Gregg Halter – Great Lake Review

With the new facility that you opened or just about to open in France?

Steve Hagge

That's on our Pharma side. We just completed that. In fact, we've started manufacturing as we've got into the third quarter. We're actually expanding our pharmaceutical facility in Germany also to respond to the increasing demand we see at the Pharma business. So the construction, the good news is it came in pretty much on our schedule and pretty much also within the budget. So given the growth in our Pharma business, it's been a welcome addition.

Gregg Halter – Great Lake Review

Would you expect your CapEx to decline in '09?

Steve Hagge

I'm sure. Again as we came into this year we thought 2008 was going to be an unusual year. We would expect 2009 to be pretty close to depreciation in terms of our cap spend.

Gregg Halter – Great Lake Review

Looking at your Pharma business, I know you've talked about the allergy and asthma a lot but also some areas that are coming like pain management, insulin, Alzheimer's and so forth, if you had to apply a percentage what amount would you say currently is due to allergy and asthma and what amount is due to everything else?

Steve Hagge

Probably 80% asthma and allergy, 20% other. That's a broad guess.

Gregg Halter – Great Lake Review

Where would you see that 80% going over time, or the 20% going over time?

Steve Hagge

Our hope is that in terms of numbers, the 80% will continue to grow, maybe not as a percent but as a total, and that there will be over time more uses. If we get into pain, get into hormone replacement, vaccines is another area we've talked about over the years. We think the worldwide growth of asthma and allergies will continue. It's new therapies that have a potential jump start to other categories within the whole Pharma sector.

Gregg Halter – Great Lake Review

Relative to your stock repurchase program, with the stock market the way its been recently and share prices bouncing all over, have you changed your stance at all on your position towards buying back stock?

Steve Hagge

We're actually going to put a temporary halt on the stock repurchase given the credit markets the way they are today until we start to see where things are going to settle in. I think it's better to be conservative in this time frame. Certainly we consider the stock to be a very good value, but it's bouncing all over. Until we get some more stability, we're going to temporarily halt the stock repurchase.

Operator

Your next question comes from Timothy Burns – Cramer Capital.

Timothy Burns – Cramer Capital

With tooling sales being flat is that a good thing or a bad thing. I kind of thought it was one of these things that people adjusted out of the numbers yet it was an investment in the future of the company sales.

Steve Hagge

I think we're up about $10 million in tooling sales over last year for the first three quarter so what you're seeing is the flatness of one quarter, and then you have quite a bit of variation in. Secondly, I think tooling sales, we've said, we think are a positive indicator. But in some cases, tooling sales are going to replace other sales that we have stocked product. So on the whole, I think it's positive, but it's difficult to come back and correlate it like future increases in sales.

One area that we've talked about in the past with tooling is the most at risk is new Pharma. Pharma puts a lot of capital back into tooling and there it's difficult for us to predict when it may come to market.

Timothy Burns – Cramer Capital

Wouldn't developing new dispensing systems let's say to gain share after we cross the valley of death make sense?

Steve Hagge

That's what we're hearing. I think the P&G guys were covering what we've seen in the past. Now is not the time to stop the R&D, so we're still focusing on trying to innovate, come up with new product. I think the seeds you sow today will really do well in the future.

Timothy Burns – Cramer Capital

The promotional products, I think it's Inspiration and the like that go in these fancy magazines. Wouldn't that also be an area where the fragrance and cosmetic people might accelerate their use?

Peter Pfeiffer

Usually, in difficult times people are doing advertising using the devices like we are producing. And you are seeing also an interest for new product which we are going to the market, a dispensing system for lotions. We have a good response from the market. It's true. Advertising in difficult time is important and we are supporting this.,

Operator

There are no further questions at this time.

Peter Pfeiffer

I would like to thank everyone for participating in today's call. Thank you and goodbye.

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