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AptarGroup Inc. (NYSE:ATR)

Q3 2009 Earnings Call

October 15, 2009; 8:00 am ET

Executives

Peter Pfeiffer - President & Chief Executive Officer

Ralph Poltermann - Executive Vice President & Treasurer

Steve Hagge - Executive Vice President & Chief Operating Officer

Bob Kuhn - Executive Vice President & Chief Financial Officer

Analysts

Ghansham Panjabi - RW Baird

George Staphos - Bank of America

Claudia Hueston - J.P. Morgan

Meggan Friedman - William Blair

Chris Manuel - KeyBanc

Chip Dillon - Credit Suisse

Jason Rogers - Great Lakes Review

Mike Hamilton - RBC

Operator

Ladies and gentlemen, thank you for standing by. Welcome to Aptar’s third 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 Mr. Ralph Poltermann, Executive Vice President and Treasurer of AptarGroup. Please go ahead, sir.

Ralph Poltermann

Thank you, Devin. 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.

The 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. The 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 in 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, Executive Vice President and Chief Financial Officer.

I’d now like to turn the conference call over to Mr. Pfeiffer.

Peter Pfeiffer

Good morning, everyone. I would comment on our overall results and outlook and then briefly comment on acquisition to be completed in South America. I will then provide insights in our Beauty & Home segments. Steve will follow with me with his comments our Closures and Pharma segments, and then Bob will review our financials.

Focusing on the quarter overall, we are encouraged by the sequential improvement in consolidated third quarter earnings over the second quarter of this year. Relative to the prior year, business conditions continued to be challenging. Our overall results were adversely affected primarily by the strong dollar, and weakness in our Beauty & Home segments, largely due to the continued self demand from fragrance cosmetic market.

The availability of capacity in the markets allows our customers to place orders with relatively short lead times. As a result, our visibility continues to be very limited. Several customers have mentioned to us that they are of the opinion that inventory levels have bottoming out and this is validated in some cases by our receipt of emergency orders.

In light of the caution and conservatism that still exists in the market, we still believe that the recovery in demand will be more of a granular nature than a quick snip back. We mentioned in the press release that we completed the acquisitions of Covit do Brasil. Covit do Brasil is a fairly small, but growing company that develops and supplies anodized aluminum parts primarily to the fragrance/cosmetic market. Their stamping and anodizing capabilities will allow us to reinforce our product offerings and better serves our customers in the fast growing South American market.

Turning now to our Beauty & Home segment; we had sequential improvement from the second quarter in both sales and income for Beauty & Home segment. Compared to the prior year reported third quarter sales decreased 12%. Changes in exchange rates adversely affected sales by 5%. Excluding currency changes sales declined by 7% in the quarter, mainly due to the softness in the fragrance/cosmetic market.

Our customers continue to be very cautious and we experienced weak demands in each market served by the Beauty & Home segment. Excluding changes in exchange rates, sales to the fragrance/cosmetic markets decreased 15%, sales to the personal care market increased 9% and sales to the household market increased 4%.

Reorganization charges of $1.2 million pretax and the continued underutilized capacity due to the drop in demand from the fragrance/cosmetic market were the main cause of the decline in the Beauty & Home segment’s income from the prior year.

On a positive note, flu virus transmission concerns have led to an increase in demand for of our Beauty & Home segment lotion pumps, which are used to dispense antibacterial or liquid soap products.

Briefly turning to some products, Daikin Valve household system was launched in US on Aquafresh and SensiTile oil care products that transformed from a gel into a foam during use. Our twist lock actuators were introduced on several types food sprays under the Lotrimin brand name. We continue to see interest in our dispensing systems for private labeled products.

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

Steve Hagge

Thanks Peter and good morning everyone. I will provide my comments and then turn the call over to Bob to review our financial results. First, looking at the Closures segment, compared to the prior year, second quarter reported sales declined 12%. Changes in exchange rates negatively impacted sales by about 5%, and acquisition made in the fourth quarter of last year accounted for about 2% of sales.

Excluding currency changes and acquisitions, sales declined by 9% of which approximately 8% is due to the pass through of lower resin cost compared to the prior year. Excluding currency changes and acquisitions, sales to the personal care market decreased 13%, adjusting this for the lower custom tooling sales and pass through of lower resin costs, sales to the personal care market decreased approximately 2%.

In the food and beverage market, excluding currency changes and acquisitions, the market decreased by 3%. Again, adjusting this for the lower tooling sales and the pass through of lower resin cost sales to this food/beverage market increased approximately 8% form the prior year. From a geographic standpoint, we saw some improvement in the US, where we had weak conditions in Europe particularly in Germany and France.

Segment income as a percent of sales declined slightly from the prior year. However, segment income for the third quarter of this year includes approximately $1.4 million of expenses related to our previously announced restructuring.

Adjusting out these restructuring charges, segment income in the quarter decreased in absolute dollars, but as a percent of sales it increased to 9.5% from 8.6% a year-ago. We saw resin cost spiking towards the end of the quarter and our normal delay in passing through of resin cost increases adversely affected the segment income for the quarter.

Looking at some of our new products, we see an increasing demand for dispensing closures for antibacterial applications, such as what Peter had talked about in his comments. Secondly, we’re seeing increased applications for dispensing closures in the food market, including areas in pancake syrups, ice cream toppings, pickle relish some of which are in the private label area. Finally, we are seeing an increase in the use of our easy open jar lids, increasing for non-liquid product such as cleansing pads.

Now looking at our Pharma segment, reported sales declined 7%, mainly due to 4% negative impact from changes in exchange rate on the translation of sales. Excluding changes in exchange rate sales declined by 3% in the quarter. The decline in sales excluding currency is mainly due to decreased demand for metered dose aerosol valves.

Turning to products, one of our nasal spray pumps is used on a medication called Astapro, which is marketed by Meadow Pharmaceuticals. It was approved earlier in the year in the US for the treatment of seasonal allergies, and it was most recently approved for the treatment of everyday allergies. It is the first nasal antihistamine to offer the convenience once daily dosing for patients, and Nycomed received European approval for their medication called Instanyl, which used one of our nasal pumps. It is the first fast acting nasal spray medication approved for the management of postoperative cancer pain.

Now I’ll turn it over to Bob to discus our financials.

Bob Kuhn

Thank you Steve and good morning everyone. I'll provide my comments and then Peter, Steve and I will be happy to answer your questions. First, commenting on the result for the quarter, as you have seen in the press release, our overall reported sales decreased a 11%. Changes in exchange rates negatively impacted sales by approximately 5% and acquisitions accounted for 1% of the sales, excluding currency changes and acquisitions sales declined by 7%.

From a geographic standpoint, sales to customers by our European operations represented approximately 58% of net sales compared to 60% last year, while sales to customers by our US operations accounted for 29% of sales this year, versus 26% in the prior year.

During the quarter we recorded expenses totaling $2.6 million pretax, related to our restructuring program, which is about evenly split between our Beauty & Home and Closure segments.

Reported diluted earnings per share decreased to $0.48 per share from $0.57 per share in the prior year. After tax restructuring charges negatively impacted earnings per share by about $0.03 per share, excluding this earnings per share were $0.51 per share. The slight decline in our net income in the quarter compared to last year, free cash flow increased significantly.

Our cash flow from operations for the quarter was approximately $83 million compared to about $105 million in the prior year, and capital expenditures were approximately $33 million in the quarter compared to $67 million in the same quarter of last year. Free cash flow, which we define as cash flow from operations less capital expenditures, was $50 million for the quarter versus $38 million in the prior year.

During the quarter, we spent about $3.5 million to buy approximately 100,000 shares and our repurchase authorization at the end of the quarter was approximately 4.2 million shares. With the stabilization of the credit markets and our current cash flow generation, we planned to increase our repurchase activity in the future.

The mix of debt at the end of the quarter was roughly 75% fixed versus 25% variable and the average interest rate was around 5%. On a gross basis, debt-to-capital is about 19%, while on a net basis it’s approximately 1%.

Briefly turning to the nine months, reported sales decreased approximately 17% and change in exchange rates accounted for about 8% of that decrease. Acquisitions added 1% thus leaving a decrease in organic sales of about 10% through the first nine months. Reported diluted earnings per share year-to-date decreased to $1.27 per share versus $1.72 per share last year. Reported diluted earning per share includes approximately $0.05 per share drag from the restructuring charges that I mentioned during the third quarter comments.

Looking forward, present than we expected depreciation and amortization for all of 2009 to be in the range of $125 to $130 million with capital expenditures expected to be roughly in the same range. I would like to point out this 2009 amounts could vary depending on where exchange rates move in the fourth quarter.

The effective tax rate for the full year of 2009 is expected to be in the area of 32%. I would like to emphasize that the range of EPS guidance in the fourth quarter that we mentioned in our press release does not include any reorganization charges. We previously announced that we estimated the total re-org cost to be in the area of $7 million of which $5.7 million is recorded through the third quarter.

Also when comparing our fourth quarter guidance to last year’s results, please keep in mind that the fourth quarter of last year included a favorable $5.2 million pretax or about $0.05 per share after tax benefit for the reduction in our LIFO reserve. Last year’s earnings per share for the fourth quarter excluding the favorable LIFO impact was $0.41 per share. The decrease in the LIFO reserve last year was mainly due to a significant decrease in resin cost during the fourth quarter of last year and we do not expect the same situation to occur in the fourth quarter of this year.

At this point Peter, Steve and I would be glad to answer any of you questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Ghansham Panjabi - RW Baird.

Ghansham Panjabi - RW Baird

Would you give us some color on intra quarter volume trajectory across all three businesses please, Beauty & Home, Closures and Pharma?

Steve Hagge

When you are talking intra quarter Ghansham, you're talking between second and third?

Ghansham Panjabi - RW Baird

From the beginning of 3Q to the end of 3Q.

Steve Hagge

I think if you look it, I think what we saw is August remember comes in the middle of the quarter. So from across the all three we had a relatively strong July. August tends to be our softest of the three quarter and that again followed this year. September we had a pretty strong September again, which is again pretty typical for us coming after summer holiday day, particularly in August.

Ghansham Panjabi - RW Baird

Okay so, seasonally compared to last year, its pretty much inline with what you would have expected then?

Steve Hagge

Yeah, again we had followed the same trends.

Ghansham Panjabi - RW Baird

Can you quantify the impact of higher polypropylene costs for the quarter?

Steve Hagge

When we look at it, again it's just pointing out when look at the second quarter and the first quarter we were in passing on resin drops, which was a favorable impact in terms of timing. We started to see that platinum and resin going up starting in the third quarter. Our rough estimate is between the second and the third quarter that had a negative impact on the Closure’s earnings of an area of $2.5 million to $3 million.

Ghansham Panjabi - RW Baird

Okay and just one final question, if I could. I think you guys commented on the fact that inventory levels some of your consumer discretionary facing businesses seems to be bottoming, and that's probably a positive sign looking ahead.

What about the pharmaceutical business? What are your customers saying about that particular business, and the inventory levels there? Thanks.

Steve Hagge

I think on the inventory levels on Pharma we haven't seen big movements, the only area we've seen it is some of our metered dose valves, where some of our customers were shipping into Eastern Europe and into Latin America. We saw some build up of inventory in 2008 and we’ve seen some bleed off of that inventory going through 2009.

Outside of that particular area, I think inventories were about the same as what they have been in the past.

Operator

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

George Staphos - Bank of America

Maybe first question, piggy back off of Ghansham's question, what kind of volume run rates have you seen early in the fourth quarter, and what core growth is embedded in your guidance?

Steve Hagge

We are not going to be able to talk. I mean the core growth we expect to be better in the fourth quarter in terms of where we are at in volumes from a year ago, but I don’t want to get into specifics in the fourth quarter. We’ve always just given earnings estimates at this point, George.

George Staphos - Bank of America

Okay, I would figure it would be worth a shot, but you expected to be positive. Can you comment on what early Octobers look like.

Steve Hagge

No, we are not going to get into the fourth quarter.

George Staphos - Bank of America

Okay. One question just going back, there are some transmission difficulties on our end. Can you review again the end market changes in beauty and home that you saw in the third quarter?

Peter Pfeiffer

I can give you this, sales to the fragrance cosmetic market was decreasing 15%. Sales to the personal care market increased 9% and sales to the household market increased 4%.

George Staphos - Bank of America

Thanks Peter. Okay now in terms of this sequential change in SG&A it looks like you did a very good job in reducing cost. Were there any other items or things we should recall that drove the lower SG&A.

Similar question, interest expense dropped pretty nicely sequentially although, looking at the press release yesterday evening, I didn’t see much of a change in debt sequentially. Can you remind us what might have been going on those two line items?

Bob Kuhn

Sure, George. On the SG&A side, the only other thing I can give you really is that, it’s a slight favorable impact on the exchange rates in the quarter. Some of our SG&A obviously is based in Europe, so that with the stronger dollar in the quarter compared to last year, we get a slight positive impact if you’re looking at just the gross SG&A cost.

Then on the interest expense, we had an additional month of our private placement in the quarter, so that gives us if you will a slightly higher average interest rate in the quarter compared to last year, but offsetting that you’ve got also the effect of the lower interest income that we’ve got on our investments in Europe, which is now for the quarter was at above 1% and it's now sitting at about 0.5% at the end of the quarter.

George Staphos - Bank of America

All right, I will circle back to you on that Bob. Then I guess two last questions, I will turn it over. One, can you give us tooling by segment, if possible if you provided I had missed it. Then as we think about the next couple of years, what do you think will be the major drivers of free cash flow, or if you had to help us think about what a normal level of free cash flow would be versus what we’ve seen in the last couple of years. How would you have us think about that? Thank you very much.

Bob Kuhn

Hi, George let me take the first part of your question here. Tooling sales in the quarter, we had roughly about $13 million in total in tooling sales in the quarter, about $3.5 million of that was in Pharma, about $5.7 of that was in B&H, and Closures was about $4 million. It’s roughly at the same level as Q3 of 2008.

There was a slight flip comparative between the B&H and the Closure segments, B&H would have been up about $3.8 million and Closures would have been down about $4 million.

Steve Hagge

I’ll talk a little bit about the free cash flow. As you can see, so far this year we’ve had very strong free cash flow, which is pretty much as we expected. Last year’s 2008’s level was impacted by some high one time capital expenditures.

So going forward George, we would expect free cash flow to continue to be running at the same pace that we have today, given the increased earnings. In other words, as earnings go up, free cash flow should go up. We would anticipate that our capital expenditures so outside of acquisitions, which is the largest use of our free cash flow, would be approximately equal to depreciation over the next couple of years. So, again a positive look in terms of where free cash flow is going over the next couple of years.

Operator

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

Claudia Hueston - J.P. Morgan

Just going back to the guidance for the fourth quarter, I was hoping you could just maybe talk about what the variability is between the low end and the high end. Is it mostly volumes, and then what are your effects, assumptions for the fourth quarter?

Steve Hagge

I will take the effects Claudia. Typically when we do our forecast, we use the rate at the time the forecast was done, so it would have been the rate that was sitting at the end of September; about 146.

Bob Kuhn

146, and last year’s rate I think is 132 for the quarter. The other side, in terms of the variability Claudia; as Peter has talked about and really I talked about as we look out, visibility is still very cautious and the one big question mark for us is always when we get to the fourth, what’s going to happen in December?

December, a lot of times inventories get adjusted by our customers, either sales get pulled back and pulled forward. So that’s the most difficult month out of the quarter to try to project. So that gives you the variability and the range.

Claudia Hueston - J.P. Morgan

Okay, and would you say visibility is worse than it was a year ago, or is it about the same?

Peter Pfeiffer

I would say it’s about the same. It started in the fourth quarter last year, that we have had some problems to look forward a few months, and the visibility has not changed. As I’ve mentioned, the lead times are very short, so our customers are really playing with this and trying to lay off orders as much as possible.

Steve Hagge

But I think Claudia, the one thing that is different from this year compared to a year ago, while we are still seeing very short lead times is probably more of a positive attitude, and we are seeing that in different areas of our business, where last year was a really negative time. Now there is at least more positive, and they are starting to looking in terms of more optimistically where 2010 may end up for them.

Peter Pfeiffer

And we have some indications for that too. I mean what has picked up in the last week is the promotion activities we are seeing at the high end of the fragrance/cosmetic area, which could be somehow a early indicator for the next month.

Claudia Hueston - J.P. Morgan

Then just on the cash side, I don’t know if you just want to provide some updated thoughts on how you’re thinking about the balance sheet and the strong cash flow you’ve generated. It didn’t look like you bought back any stock in the quarter, but may be just an update on that as well?

Bob Kuhn

Sure. Claudia we bought back about 100,000 in the quarter, which is pretty consistent with what we’ve done in the first two quarters, and then I had mentioned that we’ll be looking at accelerating that rate into the futures, now that the credit market seem to be stabilizing and our cash flow generation has still been positive.

Operator

Your next question comes from Meggan Friedman - William Blair & Co.

Meggan Friedman - William Blair & Co

A couple of questions; first, could you talk a little bit more about the emergency orders that you referenced? How does the volume of emergency orders compare to Q2? Then can you talk about the phasing, do they accelerate or decelerate during the quarter?

Peter Pfeiffer

I mean, the amount has not really changed, become a little bit more in the recent past, but what we are seeing is that the people are really playing with the short lead time. So it’s very difficult to predict how it will continue in this point.

Meggan Friedman - William Blair & Co

Okay. But over the course of the quarter, how was it --

Steve Hagge

We’ll get a little bit more in September, only because people are back from the holiday side. So you probably had it more weighted this September, and we would anticipate that we are going to get more of that as we get closer to the end of the year, because inventories for a lot of our customers are pretty low right now.

Meggan Friedman - William Blair & Co

Then in the Pharma segment, can you provide a little more color and what’s driving the softer demand from metered dose valves? Is it the inventory issue that you talked about and if so, are you expecting that that will continue through Q4?

Steve Hagge

When looking at it, again I guess a couple of things that have been positive first of all in the Pharma areas is, sales of generics in the United States continue to be very positive and we are seeing that increasing over last year’s level.

The softness is occurring in the meter dose aerosol valves as I mentioned, and a good part of that right now is relating to a couple of our customers, and they’ve told us it relates to their shipments going into Latin America and to Eastern Europe. So right now we don’t expect that to have a huge pick up into the fourth, but we would anticipate that becoming much more normalized as we get into 2010.

Meggan Friedman - William Blair & Co

Then final question, could you talk a little bit about the resin pricing assumptions that you have incorporated in the guidance, thanks?

Steve Hagge

On the resin pricing right now, what we have done is use resin pricing as what it was as of the end of September. Looking forward there are some rumors that resin may go up and we are also hearing that potentially there may be some downward pressure towards the end of the year. In our guidance we view basically resin pricing as of the end of September.

Operator

Your next question comes from Chris Manuel - KeyBanc Capital Market.

Chris Manuel - KeyBanc

A couple of questions for you; I want to make sure that I heard you correctly. When you talked about fourth quarter organic growth, and I do realize you give us an earnings guidance, you don’t typically try to get that granular with rates, but thus far for as I think Bob you pointed out, from nine months you are minus 10%. If I heard you correctly, did you say fourth quarter will likely be positive.

Steve Hagge

No, I said fourth quarter should be improving in terms of volume expectations over what it was a year ago. We don’t expect to be following the same trend we did in the first three.

Chris Manuel - KeyBanc

Okay, that’s helpful. Heading into 2010 though, I’ll have to say this, but the comps get a lot easier, and would it be reasonable in your mind, and again I know you are not trying to give guidance here on the quarter, but at some point given improving trajectory, would it be reasonable to assume that starting probably first quarter next year we might actually turn positive, to some degree.

Steve Hagge

Well certainly I think the key issue that you said is that the comps will become easier. We saw our biggest reductions in terms of the first and second quarter of this year. There is and I’ve mentioned this, there is a bit more optimism on our customer side. Inventories we feel as Peter mentioned have somewhat stabilized, so if you add those together it should be more positive as we started the year.

Chris Manuel - KeyBanc

Then Bob if I can drill down a little further into your share repurchase activity picking up, as you pointed out your debt levels, you’re happy where there are, you don’t have with some of the private placements, a lot of debt that you can pay off without calling. If you are generating 100 to 150’ish of free cash, pre dividend in that range, it could be unreasonable to assume that the bulk of your free cash outside of an acquisition coming is likely to go to repurchase, is that essentially what you are signaling?

Bob Kuhn

We didn’t see the bulk of it. I mean if you go back historically before the crisis, we were at about 2 million shares annually. We could see it potentially getting to that point. As far as acquisitions, we do also have some of the short term that we can’t pay down, but I would say that the historical trend of about 2 million prior to the crisis would be a good benchmark.

Chris Manuel - KeyBanc

Then if we can go kind of a different direction. You talked about some of the private label customers coming to you more now, looking for some solutions and things of that nature. In your view is your shipping to customers (a) do you have any sort of a mix as to what you think your branded versus private label is (b) as you see it, does it appear as though private label is continuing to pick up share in the market place. It has over the last six months year obviously, but I’ve been also under the impression that that’s more stabilized. So I’d like a little and maybe your thoughts or some color there as well?

Ralph Poltermann

Chris, I think that the private label business is increasing also in the future, because it really fits very well into today’s economic situation. People are going much more in most cases cheaper products. This is a trend which we have seen Europe since quite some time. It’s now also in the States and we are pretty sure that this will continue. So the split between private label and marketed product is very difficult for us to publish. So we have these figures not available for the time being.

Chris Manuel - KeyBanc

Okay just last question, kind of along those lines. Private label in developing regions, have you seen introduction of more private label type products there. Does that accelerate it at all?

Bob Kuhn

Not so far. We have not seen this at least in the bigger scale, in the Latin American area and not in the Asian area, although these tendencies usually are also picked up in this areas in most cases in the later stage.

Steve Hagge

But Chris, I think we also are allowed to make a bit of distinction here, because when we talk Latin America, what we’re seeing is when we talk private label, it’s private label compared to a Proctor & Gamble or Unilever. When you go down to Brazil or Argentina, you are going to have some very strong local suppliers which were a major suppliers too, and those are continuing to grow both in terms of quality and in some case going outside the region, and then we’re strong supplier to if you will, that second tier of customers.

Operator

Your next question comes from Chip Dillon - Credit Suisse.

Chip Dillon - Credit Suisse

I was wondering if you give us a little more color on the breakdown of the sales change, of course not counting currency and acquisitions between volume and price. I know the overall change was 7% for the company, but if you wanted to comment also about three segments that would be great too, especially I’m interested in the volume change?

Bob Kuhn

I think if you looked at it, first of all going back to the Pharma and to the B&H area, the majority of which you’ve seen in the drop equates to volume. There is not as much price impact to that.

The biggest side we have in terms of pricing was that 8% drop because of the resin drop in the quarter for the closure. So combined, that equates to about a 2% to 3% drop overall for Aptar at the top line as a result of pricing when I take out currency. But I would tell you between the other two segments, pricing is not a big factor in either the Pharma or the Beauty & Home area.

Chip Dillon - Credit Suisse

So it’s all happening in Closures, okay. And then as you look to the next couple of years, you mentioned that you see pretty much CapEx remaining in the range of what DD&A are.

If we get some surprises in 2010 and 2011 on the upside and business is strong, is that sort of saying that you would see either your current flip print as being adequate to handle a big jump in orders, or are you saying that maybe you think you can make the acquisitions more effectively to handle better times, vis-à-vis making CapEx?

Bob Kuhn

I think a couple of things here; number one, we continue to improve our capital through different improvements in our efficiency. So each time we are writing capital during the year, we’re actually adding additional capacity, because we’re getting more efficient. So that’s one generation.

Secondly, the advantage for Aptar is that we have been established in terms of the developing markets, whether it’s China, Latin America even in Eastern Europe. So we have a good platform that we’re able to go into and be able to add reasonable amounts of capital, rather than a lot of bricks and mortar.

So we think that we’d able to handle, let’s call it, if the market grows by 30% that’s a different game, but if the market grows at a reasonable level, we think we’ll be able to be able to grow with that, with the capital being roughly equal to depreciation and amortization level.

Chip Dillon - Credit Suisse

Through 2011.

Ralph Poltermann

We have also mentioned during our last conference call that we are not cutting back in capacities because of the crisis. We wanted to be prepared when the market is coming back.

Chip Dillon - Credit Suisse

Then, you mentioned about the share buyback. I know you still have about 4.2 million left on your authorization. I would guess that should be enough to get it through most in next year, almost under any scenario. In other words, we certainly look for you to increase or get a new authorization probably till I would imagine late next year to earliest, is that there?

Bob Kuhn

I would say that’s reasonable. Again if you look at the historic being about $2 million with 4.2, yes, I think that’s a reasonable assumption too.

Chip Dillon - Credit Suisse

And last question, on the tax rate you mentioned 32% for the year. Do you see any reason to think that’s going to be much different next year. I mean, I guess you could say with the dollar a little bit weaker, maybe that would make it go down a little bit, is that a way to look at it.

Bob Kuhn

No, it’s primarily driven really where the mix of the income is earned. So this quarter you saw it at about 32.5 rate, compared I think it was 31.09 last year during the third quarter. That was because the US earnings were stronger relatively speaking, compared to Europe quarter-to-quarter. So I would say the big driver of any rate movement at this point, barring any new tax legislation in the US would be really where the mix of the income is earned.

Operator

Your next question comes from Jason Rogers - Great Lakes Review

Jason Rogers - Great Lakes Review

I was wondering if you could provide an update on your ERP system implementation.

Steve Hagge

Yes, this is the one we have talked about. We are implementing a company wide new ERP system through the end of the third quarter. We have actually gone through one of our major operations and have installed that. We have introduced our second operation beginning of the fourth quarter. So, we are in the rollout phase of that, and everything is pretty much going on through on a plan basis.

Jason Rogers - Great Lakes Review

And any change in the competitive environment.

Ralph Poltermann

I mean the competitive environment is still very tough in these times. Everybody is looking for business. There is no dropout of a competitor yet so to speak, but it’s always difficult in those times, because everybody is fighting for business, for capacities.

Jason Rogers - Great Lakes Review

Okay, and then finally, just looking at your appetite for acquisitions, you made a small one here recently. I was just wanting to get your take on where you see acquisitions going forward, and if you are willing to consider bigger type of targets, or is this pretty much the range that you are looking at?

Steve Hagge

Well I think if you look at it, we continue to have an appetite for acquisitions and make strategic sense. So it’s not done for growth sake, it’s made really for the strategic part of the business.

We do think over the next period of time, whether that’s three months to 18 months that there are going to be additional opportunities given the strong balance sheet that Aptar has in terms of acquisitions. So frankly, the fact that with credit the way it is and some of the financial sponsors not being as active in the space, we think there are more opportunities going forward than there has been in the last year.

Operator

(Operator Instructions) Your next question comes from Mike Hamilton - RBC.

Mike Hamilton - RBC

Three questions if I could; one, could you kind of give a picture in terms of benchmarks of size of your flu and anti-bacterial related businesses and what kind of growth you’re seeing right now as a result of each one and one other awareness?

Steve Hagge

Let me try that, because it’s a good question and a tough answer. What the hand sanitizer market Mike we went back and looked at, in the hand sanitizer market, just that market by itself, in the past for us, we sold the both pumps and closures to that market, and we estimated that in 2008 the market was nearly a $4 million to $5 million of overall sales, so relatively a small market.

Today’s run rate, that’s doubled, it’s about $8 million to $10 million just on the hand sanitizer. Now another offshoot to that though, which is almost impossible for us to see is the soap market, the lotion market. Both of those are increasing as a result of people being more conscious about washing their hands, etc, so those have been positive, but it’s difficult to come back and give you an exact number.

Mike Hamilton - RBC

Could you just kind of give your thoughts of relative picture in the geographic markets, kind of what we are and your thinking on the economic curve for your customers?

Steve Hagge

Well, let me come back. I’ll let Peter maybe talk about that. Just to go back on that hand sanitizer I gave, the numbers I was giving you are our sales, not the market size. I just want to make sure I was clear on that.

Mike Hamilton - RBC

My spouse has $4 million in home right now of herself.

Ralph Poltermann

Okay, talking a little bit about the economic situations in the different regions. We are seeing a little pick up in the United States, especially in the personal care market, which is a positive sign. We are still seeing a lot of problems in Europe. Europe is still pretty weak in all markets we are serving. The reason might be that the people are a little bit uncertain about their future, the unemployment rates are supposed to increase for the next few months, so people are unsure, they are holding back their spendings.

The biggest growth market for us for the time being is Latin America. We are still growing in Latin America at a double-digit rate, which is very positive for us, and this was also one of the reasons why we have made this acquisition in Brazil to better serve this market.

The Asian market is more or less flat for the time being. They also felt a little bit of the increases, but the flatness is mainly coming from the third quarter. So it’s a very recent tendency there. Whether this will continue, it’s very difficult to predict.

Mike Hamilton - RBC

Final question, could you give a picture of your feeling of product launches, what the appetite is out of your customer base, how they are feeling about new launch activity?

Ralph Poltermann

For instance, in any market, we are seeing quite a lot of new products being developed. The problem is that the customers are not yet ready to launch the new products. So our activities, our R&D activities for these guys is pretty high. The problem is as I said, might be because of the financing issues they have, and they are not seeing yet the consumer being ready to buy these products. So it could accelerate in the future in more, but for the time being it does not show up in our sales.

Steve Hagge

The other side Mike, I think in going back on one of the other markets, the food/beverage market, we still are seeing a strong conversion from non-dispensing to dispensing. So when people are introducing new salad dressings, new condiments, all types of different areas, we’re seeing a positive. We’re even seeing that coming in the personal care, where we’ve now seen for the first time aerosol, aerosolized toothpaste with AquaFresh being introduced in the US. So sometimes it’s not a new product, but it’s a re-formulation or re-packaging that we’re seeing some benefit from.

Operator

(Operator Instructions) I’m showing no further questions.

Peter Pfeiffer

Okay, in this case I would like to thank everyone for participating in today’s call. Thank you and good-bye.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may all disconnect.

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Source: AptarGroup Inc. Q3 2009 Earnings Call Transcript
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