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AptarGroup, Inc. (NYSE:ATR)

Q2 2012 Earnings Conference Call

July 27, 2012 09:00 AM ET

Executives

Stephen J. Hagge - CEO, President, Director and Member of Executive Committee

Robert W. Kuhn - CFO, Principal Accounting Officer, EVP and Secretary

Matthew DellaMaria - VP and Assistant Secretary

Analysts

Benjamin Wong - Bank of America-Merrill Lynch

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Alex Ovshey - Goldman Sachs Group Inc., Research Division

James Armstrong - Vertical Research Partners Inc

Alton Stump - Longbow Research

Christopher Manuel - Wells Fargo Securities, LLC

Adam Josephson - KeyBanc Capital Markets Inc.

Mark Wilde - Deutsche Bank Securities, Inc.

Albert Kabili – Credit Suisse AG, Research Division

Jason Rodgers - Great Lakes Review

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC.

Jon Andersen - William Blair & Company L.L.C., Research Division

Operator

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2012 Second Quarter Results Conference Call. (Operator Instructions) Introducing today's conference call is Mr. Matt DellaMaria, Vice President, Investor Relations. Please go ahead, sir.

Matthew DellaMaria

Thank you, Jonathan, and welcome, everyone. Participating on the call today are Steve Hagge, President and Chief Executive Officer; and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Steve will begin our call with an overview of our quarterly performance. Bob will then discuss our financial results in greater detail, after which, we'll open it up for questions.

Information that will be discussed on today's call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to AptarGroup's SEC filings to review factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements. We will post a replay of this conference call on our website. AptarGroup undertakes no obligation to update the forward-looking information contained therein.

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

Stephen J. Hagge

Thanks, Matt, and good morning, everyone. Yesterday we reported results for the second quarter that were in line with the updated guidance we issued a couple of weeks ago. We also announced that we completed the Stelmi acquisition in early July. We view this transaction as a very positive expansion of our pharma segments product portfolio, I’m happy to report that the underlying Stelmi business is doing very well and our integration work has already begun and that the customer feedback on the transaction has been very positive.

Bob will discuss the financial impact of the transaction a bit later. The second quarter was a challenging one. Currency exchange rates had a significant negative impact on our sales and earnings. Also broad based softness in Europe affected each of our business segments, but on the positive side, we experienced strong growth in Latin America and Asia.

Overall, we were able to grow core sales, in spite of the challenges. Thanks to our innovative industry leading products, our widespread global presence, and a variety of markets we serve and the dedication of our talented employees. Even with the difficult economic environment, I’m very encouraged by the level of project activity across each of our segments.

Now looking at the segments – looking at our segments performance for the second quarter, our Beauty & Home segment primarily serves the fragrance/cosmetic and personal care markets. These two markets were affected by the slow down in Europe in this quarter. Project activity remains at good level for our Beauty & Home products and we participated in several new launches by customer this quarter, including several new fragrances, a new men skincare, several new cosmetic products launch using our innovative dispensing solutions, including our fully recyclable airless pump.

We also participated in several hair care product launches by some of our large multinational customers and several body lotion and spray products that are equipped with our dispensing systems that were launched in Russia, Poland and Thailand. Now looking at our pharma segment, strong demand for our nasal delivery devices from the prescription drug market was partially offset by weaker sales to the consumer healthcare market.

We’re particularly pleased that we began shipping from our new facility in Mumbai, India during the quarter as anticipated. Also it was an exciting quarter in terms of approvals of new drugs that are equipped with our delivery systems. There were a couple of approvals that happened in the quarter, that did not impact our results. But are important nonetheless as they relate to the debut of our patented dose indicator called Landmark.

Skyepharma’s Flutiform, a combination steroid treatment for asthma has been approved in Europe and is expected to be on the market before the end of the year. Flutiform is equipped with Aptar Pharma’s Landmark dose indicator and a metered dose valve. Also in nasal aerosol allergy treatment distributed by Sunovion Pharmaceuticals has been approved by the FDA and also uses our Landmark system. This treatment is planned to be on the market in the U.S. later in the third quarter just ahead of the fall of allergy season.

On the generic front, the FDA approved Sun Pharma’s generic Astelin Nasal Spray, which is equipped with our nasal delivery device and this again is expected to be on the market in the second half of 2012. We also have some several interesting consumer healthcare launches including a new eye moisturizing product in Europe that uses our preservative free pump. Several nasal saline launches in Brazil and Argentina, using our Bag-on-Valve system and in China several customers launched antiseptic sprays using various topical spray pumps of ours.

Now turning to our food and beverage segment, once again we saw very strong demand for innovative dispensing closures from the beverage market and a small decline in demand from the food market in the quarter. I’m happy to report that our Lincolnton facility continues to ramp up production and we’re encouraged by the new project activity for that facility.

Regarding a few of the new products launched this quarter, in the U.S. Trader Joe's launched the Hummus Salad Dressing using our (indiscernible) closure. We successfully helped several different customers in Mexico launch different brands of chili and soy sauces. We were chosen to supply beverage closures on new – one several new isotonic drinks in Latin America and Eastern Europe and our beverage business in Asia continues to do extremely well.

As we look to the third quarter, we currently expect softness in Europe and the challenging currency exchange rate environment to continue into the third quarter. We are seeing some continued caution on the part of customers, particularly from customers in the fragrance/cosmetic, personal care, and consumer health care markets in Europe.

In spite of this difficult economic period, we continue to be optimistic regarding some interesting new projects across each segment. While we cant control the macro environment that affect our business, we can face challenges with the same focus we have had in the past. We know the importance of maintaining our commitment to innovation and research and development.

Our balance sheet continues to be in excellent condition and we will stick to our plan to invest and grow our business profitably. We continue to prove we have the best products and services in the industry and our business model is a successful and fundamentally sound one.

Now I will turn it over to Bob, who will review our quarterly financial results in more detail.

Robert W. Kuhn

Thank you, Steve, and good morning, everyone. I'd like to comment first on our consolidated results for the quarter and year-to-date, and then discuss the segment results for the quarter.

As announced in our press release, reported second quarter sales declined 6%. But as Steve mentioned we’re in a challenging exchange rate environment. Currency exchange rates had a significant negative impact on second quarter sales of approximately 8%. And therefore on a constant currency basis, our core sales grew 2% and this includes a decline in custom tooling sales of approximately 1%.

From a geographic standpoint, our European operations represented approximately 53% of sales this year versus 58% of sales in the prior-year, while our U.S. operations accounted for 29% of sales versus 27% last year.

I would like to take a few minutes to speak about foreign currency transaction effects and their impact on our results in the quarter. We defined transaction effects as inter-country sales and purchases transactions involving two different currencies. If we take a look at the changes in currency rates in the quarter, the euro devalued versus the dollar, the euro devalued versus the Swiss franc and the Brazilian real devalued versus both the euro and the U.S. dollar.

Some examples of transactions that we have in these currencies are the following. Some of our pharma products are manufactured in Switzerland and sold to certain customers outside of Switzerland in euros. Since we don’t produce our entire product portfolio in Latin America, we’re still importing certain components and finished goods from both Europe and the U.S.

And lastly, we still import to the U.S. certain components and finished goods from Europe. Based on our calculations we estimate that the positive and negative transaction effects offset each other in a quarter. This means that the translation effect at the top-line, the 8% negative headwind drops to the bottom-line for the quarter.

Now if we look at last year’s second quarter, we reported $0.74 per share. If we roll forward that $0.74 using this year’s currency rates we have the 8% negative currency impact that’s about $0.06 per share. We have the $0.05 from the Stelmi acquisition cost that hit in the quarter and the remaining $0.02 to arrive at our reported $0.61 for this year relate to the decrease in operating margin as a result of the slowdown in Europe as well as the start-up cost of our Lincolnton, North Carolina facility.

Turning to free cash flow which we define as cash flow from operations less capital expenditures. In the quarter we had a positive free cash flow of approximately $18 million compared to nearly $16 million a year ago.

Our cash flow from operations for the quarter was approximately $71 million compared to $70 million in the prior-year. Capital expenditures were approximately $53 million in the quarter compared to approximately $54 million in the second quarter of last year. On a gross basis, debt-to-capital is about 22%, while on a net basis, it is roughly 6%.

Turning to our business segments. Our Beauty & Home segments reported sales decreased 8% from the prior-year and all of the decrease is related to the negative impact of changes in currency rates. Therefore, on a constant currency basis, segment sales were flat. Looking at the markets on a constant currency basis, sales to both the fragrance/cosmetic and personal care markets were flat with the prior-year.

Our Pharma segments reported sales declined 4%; again changes in currency rates had a similar negative effect of 8% putting core sales growth at 4%. If we look at our markets on a constant currency basis, sales to the prescription market increased 7%, and sales to the consumer healthcare market decreased 2%.

Our Food & Beverage segment reported sales growth of 2%. Currencies also had a negative impact of 4%, therefore, core sales were up 6% over the prior-year and this included a negative impact of 3% from decreased custom tooling sales.

On a constant currency basis; sales to the beverage market were again very strong and were up 39% compared to the prior-year and sale to the food market decreased 10%.

We didn’t have any share repurchase activity during the quarter due to our self imposed blackout period surrounding the Stelmi acquisition; therefore, we still had 3.4 million shares authorized for repurchase at the end of the second quarter. The Board of Directors also declared a quarterly dividend of $0.22 per share payable on August 30th to shareholders of record at the close of business on August 9th.

Looking at our year-to-date results. Our year-to-date reported sales decreased 2% with changes in exchange rates having a negative impact of 6%. Therefore, core sales increased 4% over the first-half of 2011. Customer tooling sales were flat year-over-year for the first six months.

Reported diluted earnings per share which included a negative impact of $0.06 per share related to the Stelmi acquisition costs decreased 9% to $1.24 per share compared to $1.37 per share a year ago. Again if the 2012 exchange rates were in place in 2011, we estimate that earnings per share for the first six months of 2011 would have been approximately $1.30 per share.

I’d like to review what we stated in our press release regarding the Stelmi acquisition. Our second quarter and year-to-date results were negatively affected by approximately $5.5 million or roughly $0.05 per share and $5.8 million or approximately $0.06 per share respectively of professional fees associated with the acquisition. We will begin to include the operating results from Stelmi beginning with the third quarter, but I would like to talk about an unusual impact that should only affect the third quarter.

Due to purchase price accounting adjustments and a small amount of additional professional fees related to the transaction, we anticipate that Stelmi’s results will have a negative impact of approximately $0.01 per share on earnings in the third quarter.

Stelmi sales in the third quarter are expected to be approximately $25 million. After the third quarter, we expect the acquisition to contribute to our earnings growth and we expect that Stelmi’s results to be accretive on an annual basis in the range of $0.12 to $0.16 per share again assuming current exchange rates.

Looking forward; presently, we expect depreciation and amortization for 2012 to be in the area of $140 million, with capital expenditures expected to be in the area of $180 million. I'd like to point out that these could vary depending upon changes in exchange rates.

We currently anticipate that a full-year tax rate will be between 33% and 34%. I'd also like to point out that we expect stronger currency headwinds to continue into the third quarter. The average exchange rate for the euro to the U.S. dollar in the third quarter of 2011 was 1.41, whereas the spot rate at last week was 1.22, and this is what we used for our forecasted third quarter range.

We currently estimate the diluted earnings per share for the third quarter of 2012 will be in the range of $0.61 to $0.66 per share compared to $0.72 per share reported in the prior-year third quarter.

Once again had today’s currency exchange rates been in place a year-ago, we would estimate that the prior-year’s third quarter earnings per share would have been approximately $0.65 per share. In addition prior-year results were positively impacted by approximately $0.02 per share related to a lower effective tax rate.

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

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of George Staphos, Bank of America. Your question please.

Benjamin Wong - Bank of America-Merrill Lynch

Hey, good morning guys. It’s actually Benjamin Wong filling in for George. I think you talked about the growth in Fragrance/Cosmetic and Beauty & Home, but can you also talk about the personal care and household within that segment?

Robert W. Kuhn

Sure. The personal care results were flat in the quarter overall and for the year it’s up about 1%. Household was down about 3% in the quarter and is up about 2% for the year.

Benjamin Wong - Bank of America-Merrill Lynch

Okay, I appreciate that. And then, at this stage does the weakness you’re seeing does there appear to be underlying demand weakness or perhaps inventory destocking?

Stephen J. Hagge

We think it’s a little of both, Ben. I think it’s primarily due to some consumer demand and again most of that is sitting in Europe from the demand side. Our cost as I said, our customers are still a bit cautious so there maybe some inventory contraction. On the positive side we’re still hearing our customers introducing new products and our project portfolio continues to be very positive. So it’s a bit of a balance on both of those.

Benjamin Wong - Bank of America-Merrill Lynch

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Ghansham Panjabi from Robert W. Baird. Your question please.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Hey, guys. Good morning.

Stephen J. Hagge

Hey, Ghansham.

Robert W. Kuhn

Hi, Ghansham.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

On the OTC side under Pharma, it looks like you had pretty good momentum in that business over the last several quarters, you mentioned core sales down 2%. Can you just give us some more color there, what's happening?

Stephen J. Hagge

Yeah, I think first of all – I think Ghansham, it’s a good point because if you look back we had really outstanding growth in that segment last year, in second quarter alone last year we were up 26% on a year-on-year basis and in the third quarter of 2011 we were up 32%; so we had a very strong year. What we’re seeing a bit this year is there’s been some inventory -- there was some inventory replenishment last year that isn’t occurring this year and also right now we’re seeing a little bit of a slowdown coming from our customers as they serve the eastern European markets. So again, it’s coming off very – I would say high comps from last year and we think it’ll continue into the third quarter.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay. And so just on that same thought, a lot of your customers products also get shipped around, you mentioned some FX mismatches for you guys, but just from your conversations with them, do you have a sense as to how much of the slowdown in Europe relates to domestic Europe versus perhaps what's being exported to other regions, Brazil, China, India et cetera?

Stephen J. Hagge

That’s a difficult one. I think what we’re doing is, we’re -- again our customers seem to be still very positive about particularly in the prestige fragrance markets, very positive about the upcoming Christmas season. So I think they are seeing some weaknesses particularly in Italy and Spain within Europe. So it’s not also just broad based, I think it tends to be more on-off markets. But again, I think it’s more what we’re seeing today is ordering being at the consumption level and again we had a very strong first-half of 2011 in the fragrance/cosmetic market, so I think we’re getting back to more consumption today.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay, makes sense. Thanks so much.

Stephen J. Hagge

Thanks.

Operator

Thank you. Our next question comes from the line of Alex Ovshey from Goldman Sachs. Your question please.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Good morning, guys.

Robert W. Kuhn

Hi, Alex.

Stephen J. Hagge

How you’re doing?

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Well, thank you. On the fragrance/cosmetic side and Home & Beauty is there a way that you can talk to what the organic volume trend you’re seeing currently is in Europe and whether there is any visibility from your customer base around how that trends over the next couple of quarters?

Robert W. Kuhn

On Europe, again most of our -- and most of our movement is going to be volume based. In Europe we were down about 8% on the fragrance/cosmetic side. So again I would estimate that most of that would be volume; but as Steve mentioned the first-half was very strong and slower little bit in the back-half. So I think that’s a little bit of what you’ll see in there.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Thanks Bob, but just on resin, I didn’t hear you talk to it. I know usually it’s not going to be a big driver, but polypropylene did come-off very materially. Are you expecting any impact from resin over the next couple of quarters?

Robert W. Kuhn

Yeah, I mean, certainly we’ve got that built into our assumptions, I mean, we had a slight positive in the second quarter on the lag and we’ll be catching up on some of that going into the third.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

There shouldn’t be a tailwind for you in the third?

Robert W. Kuhn

Yeah.

Stephen J. Hagge

Yes.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Got it. Thank you very much

Stephen J. Hagge

Thanks.

Operator

Thank you. Our next question comes from the line of James Armstrong from Vertical Research. Your question please.

James Armstrong - Vertical Research Partners Inc

Good morning.

Robert W. Kuhn

Hi, James.

Stephen J. Hagge

Hey, James.

James Armstrong - Vertical Research Partners Inc

Two questions. First; the volumes in Beauty & Home has slowed a bit, how much of the slowness would you attribute to Europe and is there any other specific areas that are seeing softness?

Stephen J. Hagge

I think, frankly on the Beauty & Home area almost everything we saw in the quarter was all Europe. The rest of the regions frankly and again we’ve pointed this out kind of the opening comments, we are very strong both in Asia, Latin America and we were actually seeing increases in the United States in the fragrance/cosmetic area, so it was primarily Europe and again I do want to come back and as Bob mentioned that’s against a very strong second quarter last year in that segment. So it’s not totally unexpected that we would see difficult comparisons.

James Armstrong - Vertical Research Partners Inc

Okay, very helpful. Switching gears just a bit; as the global economy muddles through a bit, have customer’s demand to innovate been impacted especially in Food & Beverage?

Stephen J. Hagge

Actually I think what we’re seeing is, the customers continue to take a look at innovation as a way to differentiate on the market. So, what’s been encouraging to me, I have been in Europe several times over the last month and I was just -- I just got back from the trip to Latin America. We’re seeing significant project activity with customers looking at ways to cost effectively innovate their products. So from my perspective that’s actually very encouraging for Aptar going forward.

James Armstrong - Vertical Research Partners Inc

Okay. Thank you very much.

Operator

Thank you. Our next question comes from the line of Alton Stump from Longbow Research. Your question please.

Alton Stump - Longbow Research

Thank you. Good morning.

Robert W. Kuhn

Good morning, Alton.

Alton Stump - Longbow Research

Two questions, I guess first off, on the currency front, it seems in the past that you always had a hedge with the cross region shipping and I think you mentioned in the press release that, I haven’t seen that hedge play out here recently. Is there any major factor that is keeping that hedge from -- is offsetting some of the currency pressure?

Robert W. Kuhn

Yeah, again what you got Alton is, you’ve got some pretty wide swings inter-currencies even from the first to the second. So if you take the Brazilian Real for example it devalued almost 19% compared to the dollar in the second quarter, it was nowhere near that in the first quarter and it also devalued versus the euro. So as you can see as our business continues to grow in Latin America that negatively impacts any components or finished goods that we’ll import into that region.

And the other side you’re starting to see for the first time really a movement between the euro and the Swiss franc, and one of our consumer healthcare pharmaceutical plans is based in Switzerland and some of the customers that they sell to outside of Switzerland and Europe the invoicing is done in euros; so that also is having a negative impact. Offsetting that and what is traditionally I’ve said that in the past has been our net import basis back to the U.S. from Europe and a big part of that in the past was some of our pharmaceutical components and finished goods.

And I think what we’ve been talking about over the last couple of years is, we’ve been adding production capabilities in the U.S. so you’ve seen that positive hedge if you will decrease as we put more and more local production in the U.S. so lot of different moving variables which is what makes it somewhat difficult to predict on a quarter-to-quarter basis, but you had very different dynamics first quarter to second quarter and we’ll just have to see how it plays out in the third quarter.

Alton Stump - Longbow Research

Okay. Thanks, that’s helpful. And then, just secondly; on Stelmi acquisition obviously it’s in a bit different area than what your core business has been in Pharma, is there any synergy opportunities from cost standpoint or is this more of a top line synergy play?

Stephen J. Hagge

I think it’s more of a top line. We do buy some elastomers, which is similar for our gasketing products in our Pharma business, but when we looked at it, which really is not a raw material or cost savings play. The synergies are we’re going to be able to reinforce the overall growth opportunities of Stelmi with our worldwide position, which I think will provide top-line and then also bottom-line side on a much quicker basis.

And the other thing I think it’s important will be moving Stelmi away from a family health business, very front centric to now an international business, and our customers, the Stelmi customers that we’ve talked to, that’s a real positive and so we think that over time that will have also a significant impact.

Alton Stump - Longbow Research

Okay, great. Thanks guys.

Stephen J. Hagge

Thanks.

Operator

Thank you. Our next question comes from the line of Chris Manuel from Wells Fargo. Your question, please?

Christopher Manuel - Wells Fargo Securities, LLC

Hi, gentlemen.

Stephen J. Hagge

Good morning.

Robert W. Kuhn

Good morning, Chris.

Christopher Manuel - Wells Fargo Securities, LLC

A couple of questions for you, first, if I could get back to the currency issue for a moment, is there any reason to believe that over the next -- I realize that things moved around pretty rapidly and demand level is going to shift at around a good bit in 2Q, and likely or I’d be a bit modeled here, 3Q, but through time, is there any reason to believe that sort of natural linkage between how you’re selling and doing cross border activities won’t sort of re-engage the natural hedging mechanisms that you’ve in place?

Robert W. Kuhn

Yeah, I think, Chris, certainly as you said, it’s difficult because it’s all going to depend on what happens with all the currency rates and we tend to get all focused on the Euro and that’s kind of OTC in the press everyday.

Certainly, our assumptions going into the third is that the dynamics that we saw on the second would repeat in the third, but we’d talk about that again in the third when it comes up, that’s our assumptions going into the third.

Christopher Manuel - Wells Fargo Securities, LLC

Okay, that’s helpful. Next question I had was with respect to Stelmi, I recognize it’s very, very early days, but, Steve, do you’ve any early wins or opportunities you can talk about whether it’s -- maybe opportunities that you talked to folks in other geographies where they’re present or when I look at some of the products that droppers and rubber stoppers and things that seems like a product area that would be very, very right for all of the very innovative solutions you guys typically provide.

Stephen J. Hagge

I think, Chris it’s probably a little early to talk about the individual specifics, but what I found encouraging is when we talked to Stelmi’s customers about the transaction, they’re very positive and see the ability to grow.

We’re taking an early look at where we may want to do some type of additional production using Aptar’s facility to expand the Stelmi line over the next six months to a year or whatever. So, the initial signs are positive, but we don’t have a specific project that I can talk to you about.

Christopher Manuel - Wells Fargo Securities, LLC

Okay, that’s helpful. And then last question is, I recognize you’re under a self-proposed lockout for repurchase, but would there be any reason to assume that you don’t kind of resume more normalize or purchase activities going forward?

Stephen J. Hagge

Yeah, that’s certainly our plan for the third quarter is to get back to more historic levels of repurchases beginning in the third quarter.

Christopher Manuel - Wells Fargo Securities, LLC

Okay, thank you. Good luck.

Stephen J. Hagge

Thank you.

Operator

Thank you. Our next question comes from the line of Adam Josephson from KeyBanc Capital. Your question, please?

Adam Josephson - KeyBanc Capital Markets Inc.

Good morning, everyone.

Robert W. Kuhn

Good morning.

Stephen J. Hagge

Good morning, Adam.

Adam Josephson - KeyBanc Capital Markets Inc.

You mentioned that sales were down 10% to the food market, I believe, what happened in that business?

Stephen J. Hagge

There is a couple of things, actually, we had some significant tooling a year ago, so tooling -- of that 10% drop, tooling accounted for seven of that. So we’re actually down on a 3% level year-on-year.

What we saw on that is we saw customers like Heinz, and if you’ve seen their financials, a lot of that has been driven out of the U.S. It has been actually a bit slow coming back into the period. So I think it is more of a timing issue than it is a change in the marketplace, Adam.

Adam Josephson - KeyBanc Capital Markets Inc.

Okay, thanks for that, Steve. Bob, you provided accretion guidance just on the $0.12 to $0.16 on an annual basis, was that roughly in line with what you’re expecting before going through all the purchase accounting adjustments?

Robert W. Kuhn

Honestly, the purchase price accounting adjustments are such a huge impact on that accretion side, we couldn’t even begin to guess, but if the question really is, are we seeing operating results consistent to where we were projecting? I would say the answer to that is yes, to even slightly positive.

So, as Steve mentioned, we’re very happy with not only the way the integration is going, but the way the business is performing in 2012 and the outlook going forward. So, yeah, I’d say it’s positive from our projections.

Adam Josephson - KeyBanc Capital Markets Inc.

Okay, thanks for that, Bob. And one more, forgive me if I missed this, but to what extent in volume in Europe taper off as the quarter progressed and has July been any better or worse than what you experienced in the second quarter?

Robert W. Kuhn

We don’t talk so much month-to-month, but I can tell you that overall on a consolidated basis; sales are pretty linear throughout the quarter. April was a bit slower, but the May and June were pretty consistent.

Adam Josephson - KeyBanc Capital Markets Inc.

Okay, thanks, Bob.

Robert W. Kuhn

Sure.

Operator

Thank you. Our next question comes from the line of Mark Wilde from Deutsche Bank. Your question, please?

Mark Wilde - Deutsche Bank Securities, Inc.

Good morning.

Stephen J. Hagge

Hi, Mark.

Robert W. Kuhn

Hi, Mark.

Mark Wilde - Deutsche Bank Securities, Inc.

I’m just curious in Beauty & Home at on a (indiscernible) but I’m curious in that fragrance particularly, is there any sign that kind of things slowing down in places like China are having any effect on that business down at the consumer level?

Stephen J. Hagge

Actually we’ve seen pretty strong growth in both Asia and Latin America. We’ve had double-digit growth in both of those. And the second, again, I’ve to come back, it’s a smaller market for us. So it’s a little bit of the lot small numbers, Mark. But I don’t -- we’re not seeing any big change in the consumer side.

In Latin America, what you hear from some of your customers is that instead of maybe 15% growth they’re looking at 8% to 10% growth. So there is a bit more conservatism I think on some of the customers particularly in Brazil, but in China we’re seeing it continue it’s very strong growth.

Mark Wilde - Deutsche Bank Securities, Inc.

Okay. And do you’ve any visibility at this point or what -- some of those customers of yours are planning for the holiday season?

Stephen J. Hagge

Yeah, actually right now it’s interesting when we looked at the backlogs. Backlogs actually look pretty good for the fragrance/cosmetic side. Our customers, this year I think will be even a bigger launch here for new fragrances and cosmetics than 2011 was.

So right now our customers are saying they’re pretty optimistic about the Christmas season, but a bit cautious. So it’s an optimism trying to come back and engage where the consumers got to go, but we’re certainly not seeing anything like what we saw back in 2008 when all of a sudden everybody was getting really nervous and not doing any introductions.

Mark Wilde - Deutsche Bank Securities, Inc.

Okay. And just one other question, it seemed to me in the first couple of quarters of the year that sort of the ramp up in food and beverage has been a little bit slower than I might have expected, do you have any thoughts on that?

Stephen J. Hagge

It’s been a little bit slower than what we had actually budgeted. Some of this is kind of timing-based. For example, as we talked about last quarter, we’re on a product with Tropicana on their orange juice product. What Tropicana has been indicating is that the product sales that we’re on are doing very well. But they’re having some internal production problems in their filling plants in Florida. So, it somewhat delayed their uptake of the product, and they’re continuing to work on that.

So we’re a little bit slower than that in some of the introductions, but outside of it with the new project activity and some of the new things we’re working on, we continue to be very bullish on.

Robert W. Kuhn

And I think Mark, the other thing I’d mention with that is, Steve mentioned a new project activity, we’re seeing an interest in a lot of custom-type projects. And those take time if you’ll to industrialize, to develop and to engineer. So while we remain very bullish on the food and beverage growth, some of those projects that are in the pipeline are just taking a little bit longer to industrialize.

Mark Wilde - Deutsche Bank Securities, Inc.

Okay, that’s helpful, Bob. Thanks as well, Steve. Good luck in the third quarter.

Stephen J. Hagge

Thanks.

Robert W. Kuhn

Thanks, Mark.

Operator

Thank you. Our next question comes from the line of Albert Kabili from Credit Suisse. Your question, please?

Albert Kabili – Credit Suisse AG, Research Division

Good morning.

Stephen J. Hagge

Good morning.

Robert W. Kuhn

Good morning, Al.

Albert Kabili – Credit Suisse AG, Research Division

Just a question, and maybe you could help us parcel across the segments of business, how the U.S. did in terms of sales versus Europe?

Robert W. Kuhn

Sure. If I take a look at the U.S. market, beverage was very strong, okay. Beverage for us is not a big part of the U.S. market. All these are little bit relative, but beverage was up about 40%.

Our Rx business on the Pharma side was up about 10%. That was driven primarily by strong sales to the allergy market.

Fragrance/cosmetic was up about 3%. CHC in the U.S, again not a big element for us in the U.S. was up about 13%. And food was down about 10, as Steve said, the majority of that is in the U.S. and that was primarily tooling. If you take out tooling, it was down about 3%. And personal care was down 2%.

Albert Kabili – Credit Suisse AG, Research Division

Okay. So it does sound like, correct me if I’m wrong, but it does sound like based on what I’m hearing on the U.S. side that why Europe was big part of the weakness, it does selling like the U.S. business, it seems to be slowing at least relative to the rates we saw over the last couple of quarters, would that be fair?

Robert W. Kuhn

Yeah, that’s a fair statement. I mean if you look at it all blended in, we’re up about 1% in the second quarter and we’re up about 7% in Q1. So, yeah, that’s an accurate statement.

Albert Kabili – Credit Suisse AG, Research Division

Okay, all right. And then I guess next question would be on Landmark, the meaner dose and the dose indicators there, what are you seeing there, you know, what’s the opportunity for -- it sounds like you’ve got some good -- you’re getting some traction with it, and I’m wondering if you got a view on sort of what penetration of Landmark could get to over the next few years?

Stephen J. Hagge

Well, again that one is difficult on the timing, Al. I think we’re really encouraged -- frankly, it’s taking longer for it to get out than we thought. We thought this would have been out about a year-ago, and some of the approval sides for our customers getting through have taken a little bit longer. But the fact that we’re going to have actually two projects out with Landmark in the third and fourth quarter we think will help accelerate that.

So it’s hard for me to give you any specifics, but it’s just encouraging that it’s a nice value-added product for us and we think it will have a bigger impact particularly as we get into ’13 -- 2013-2014.

Robert W. Kuhn

I think with any of our new products like that, certainly the ones that are very new and very innovative, it always is helpful as Steve said to get some of those in the markets. I mean you’re going to have some -- the other nice thing is you’re going to have one of those in the U.S. and one of those in Europe. So you’re going to get that product visibility in two of the major markets, and then, it’s early to tell, but certainly that’s got to spur some interest.

Albert Kabili – Credit Suisse AG, Research Division

Okay, all right, terrific. And I guess as a follow-up to that, is there any recent talk, any regulatory requirements along those lines?

Stephen J. Hagge

There’s been nothing, frankly, new in the last six to nine months that I’m aware of. There continues to be -- in the asthma area, it continues to be for all new products being introduced, requirements to have dose counters on. So it’s any new products coming into the market are actually going to be requirement to have those.

Albert Kabili – Credit Suisse AG, Research Division

Okay, great. Thank you.

Stephen J. Hagge

Thanks, Al.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Jason Rodgers from Great Lakes. Your question, please?

Jason Rodgers - Great Lakes Review

Good morning.

Stephen J. Hagge

Good morning, Jason.

Robert W. Kuhn

Good morning.

Jason Rodgers - Great Lakes Review

Just a follow-up on the last question, just looking at the regions overall, Europe, U.S. and other countries, would you provide the performance for the quarter there?

Robert W. Kuhn

Sure. Again reiterating, U.S. was up about 1%. Europe was down 5%. Again, I’m giving you blended here. Latin America was up 19%, and Asia was up 48%.

Jason Rodgers - Great Lakes Review

Okay.

Robert W. Kuhn

And for that Asian number, about 10% was coming from our acquisition in India last year.

Jason Rodgers - Great Lakes Review

All right. And looking at the professional fees of $5.5 million in the quarter, where is that located on your P&L?

Robert W. Kuhn

That will be in selling and G&A.

Stephen J. Hagge

And that also comes, Jason, in the Pharma segment, so…

Robert W. Kuhn

Correct.

Stephen J. Hagge

…you’ll see that impacting the Pharma margins.

Jason Rodgers - Great Lakes Review

Okay. And then just looking at pricing, did pricing have any impact on the quarter and have you seen pricing pressure given the current environment in Europe?

Stephen J. Hagge

I think you’ve got -- we’ve actually seen prices probably come back a little bit as the resins come down. We’ll adjust the resin pass-through. So I don’t think in the quarter it had a significant impact in terms of price pressure from our customers. It’s always been there in certainly in any kind of economic conditions we got now, there is continued to be focused on price. What I can tell you though is we haven’t lost any market share or anything. We’ve looked at several of our markets we probably even gained.

So I think our customers are concerned about price, but even more concerned about differentiating their products on the shelves. So we tend to do pretty well in these kind of economic conditions.

Jason Rodgers - Great Lakes Review

Okay.

Operator

Thank you. Our next question comes from the line of Brian Rafn from Morgan Dempsey Capital. Your question, please?

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC.

Good morning guys.

Stephen J. Hagge

Hi, Brian.

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC.

Steve, would you talk a little bit more on the cosmetic perfume side, did you see any differentiation, stratification between the level of business, and you talked a little bit about the high-end premium line versus some of the lower, more of the economy commodity fragrances?

Stephen J. Hagge

Well, I think on the Prestige line, differentiation is absolutely critical. So, if you come back and if you look at Estee Lauder or [Givenchy] or Dior, every one of the packages will have a differentiated look. If you come back and look at products that Avon may come back with, you’ll see much more of a consistency, there maybe color differences on the dispensing side.

So that trend hasn’t changed over the past several years. So it’s a very different side in terms of how we treat the market.

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC.

Sure, sure. When you guys talked, I think you said that the new product launches, the pipeline are still pretty solid. Can you delineate at all on any of the new product launches, is it still multimillion units, is it still national or international launches or are they smaller and more regional?

Stephen J. Hagge

They’ve gotten slightly larger over the last couple of years in terms of being more worldwide, and again, what I’m talking about here would be on the Prestige lines, you’re going to get some other of the fragrances being much more targeted to the local markets on some of the lower-end brands. But the other ones, they’re looking at major introductions both the U.S, Europe, Latin America, Asia on worldwide basis.

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC.

Okay. And then you talked too a little bit about customers still being really proactive to innovative dispensing and innovative packaging. Steve, is that strictly on look, in design, in ergonomics or might that be on product dispensing volumes or spoilage to the product or is it strictly on [second sizzle].

Stephen J. Hagge

No, no. It is much more than the differentiation. To give you an example of we’re coming back, we have an airless package that we sell would basically allows us our customers not to be put preservatives into cosmetic products and even into food products. That type of functionality is really critical to our customers. So it is much more than just the look, its also the function.

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC.

Okay. And then just one final. Any progress on the milk industry relative to changing some of the dispensing?

Stephen J. Hagge

Again, we just continue – the good news is for us, we continue to do a lot in the non-diary creamer that continues to expand. But in the milk per se, we don’t have anything that’s out there.

Brian Gary Rafn - Morgan Dempsey Capital Management, LLC.

Okay. Thanks, Steve.

Stephen J. Hagge

Thanks.

Operator

Thank you. Our next question comes from the line of Jon Andersen from William Blair. Your question please.

Jon Andersen - William Blair & Company L.L.C., Research Division

Hey, good morning guys.

Stephen J. Hagge

Hi, Jon Andersen.

Jon Andersen - William Blair & Company L.L.C., Research Division

Just wanted to ask about the margins in food and beverage, you did have sequential improvement in operating margins there. With the, I guess, the ramp up of the new facility in Lincolnton, do you expect that kind of move towards at long-term target range of 11% to 14% kind of in the back half of the year?

Stephen J. Hagge

I think it will continue to move up. Its going to be based on some of the timing we get through in some of the volume. But we do anticipate it to continue to progressively move up to the remainder of the year and then hopefully get closer to the target.

Jon Andersen - William Blair & Company L.L.C., Research Division

Okay. And just one other, in the pharma business, you talked about some of the new applications, new approvals that were likely to provide opportunities to shift in the second half. How should we think about that impacting the organic growth rate, looking to the back half of the year? Of course, its more of a 2013 event.

Stephen J. Hagge

Its probably more of the 2013 in terms of – on the ramping to those, and we will see how the product introduction because there is not one of those its going to be let’s call it a needle mover by itself. Its more of a combination of having a lot of those different projects.

Jon Andersen - William Blair & Company L.L.C., Research Division

Okay. Thanks, guys. Good luck.

Stephen J. Hagge

Thanks.

Robert W. Kuhn

Thanks, Jon.

Operator

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to turn the program back to Mr. Hagge.

Stephen J. Hagge

Thanks very much. This concludes our call today and I’d like to thank everyone for joining us. Good bye.

Operator

Thank you ladies and gentlemen for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.

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