Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2017 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session. Introducing today's conference call is Mr. Matthew DellaMaria, Senior Vice President, Investor Relations. Please go ahead, sir.

Thank you, Howard, and welcome, everyone. Participating on the call today are Stephan Tanda, President and Chief Executive Officer; Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. Stephan will begin our call with a brief overview of our quarterly performance. Bob will then discuss a few financial details, and 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 Aptar'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. Aptar undertakes no obligation to update the forward-looking statements contained therein. I would now like to turn the conference over to Stephan.

Thanks Matt and good morning everyone. As you saw in our press release yesterday, we reported core sales growth in each of our three business segments. Our Pharma segment was up against a difficult comparison to the prior year third quarter, as this segment reported some significant custom tooling sales a year ago. However, strong demand across each end market of our industry-leading drug delivery devices and our last summer components offset the decline in tolling sales. Our Beauty & Home segment also reported core sales growth, primarily on increased sales to the personal care of home care market. And our Food & Beverage segment posted sales growth in both end markets. Turning to the Beauty & Home segment's operative profitability, it was negatively impacted by several transitory factors, including the operational issues of our new credit facility in Europe. We're making progress in remediating the situation, although it will take several quarters before we're seeing positive results. Our material costs relative to the prior year and the devaluation of the Argentine peso also were headwinds on operating margins. As discussed last quarter, we're focusing on returning Beauty & Home to sustainable profitable growth and we're on the process of working through for several actions in the initiatives across the business to drive change. We will be sharing more information about our progress with our fourth quarter results. Our corporate expenses were higher than in the prior year, primarily due to higher professional fees. Our earnings per share improved over the prior year, primarily due to certain discrete tax benefits recognized in the quarter related to foreign tax settlements. In a few moments, Bob will go into more detail on different items that impacted our bottom-line. We had several interesting product launches this quarter that I would like to share…

Thank you, Stephan and good morning everyone. I'll briefly cover a few details and then we will turn it over for questions. In looking at how our business segments performed in the quarter, I'll start with our Beauty & Home segment. As you saw in our press release, core sales keeping currencies constant, increased 3%. Looking at sales growth by market on a constant currency basis. Core sales to the beauty market were flat. This is mostly due to the challenges at our decorative facility that provides custom solutions for the prestige fragrance and cosmetics market. Core sales to the personal care market increased 4% due to stronger sales in body care. Core sales to the home care market increased 9% from the prior year, due primarily to an increase in tooling in product sales relating to the automotive sector. When we look at profitability, I will be referring to EBITDA margins. And in the quarter, our Beauty & Home segment had an EBITDA margin of 13%, which was below the prior year's margin of 15%. Margins were negatively impacted by the operational issues at our decorative facility in Europe that accounted for approximately $3 million. Higher material costs relating to the timing of resin cost pass-throughs that were about $1 million, higher metal and other component costs that was an additional $1 million, and lastly, currency transaction losses in Latin America of about $1 million. Our Pharma segment achieved core sales growth of 1%, even with the difficult comparisons the prior year and attained an EBITDA margin of 33%. Core sales for the prescription market increased 2%, primarily due to increased demand from our metered dose inhalers for asthma and COPD. Core sales to the consumer healthcare market decreased 6%, driven primarily by tooling due to the exceptionally large…

[Operator Instructions] Our first question or comment comes from the line of Mark Wilde from BMO Capital. Your line is open.

Good morning Bob, good morning Stefan.

Good morning Mark.

First question I had is, can you just quantify what you expect the impact from resin to be as we think about the fourth quarter?

Yes. It's always a challenge, Mark, because of the timings of the pass-throughs, the volumes and the particular customers as each customer has a slightly different pass-through mechanism. But if I look to the third quarter as a reference, we had about $1 million headwind on the resin cost, primarily in the Beauty & Home segment. And right now, based on our estimates, we would expect that to be about double in the fourth quarter. So, we're thinking about $2 million, but again that could change depending on volumes and customer mix.

Okay. My second question since you kind of called out the professional fees, I wondered if you could just update us on kind of the M&A pipeline right now and kind of what the focus areas are for you?

Yes. Mark, obviously, there's a very active environment. Valuations are challenging. We look -- continue to look at opportunities across all of our segments. And in the end, what's really determining is do we see the value creation opportunity with the opportunity in front of us, we remain a disciplined acquirer. I think what you see transpire here in the third quarter is an example of that, when valuations just get too frosty and we won't do the deal. But certainly, we're looking across all our segments.

Okay very good. I'll turn it over.

Thank you. Our next question or comment comes from the line of Ghansham Panjabi from Baird. Your line is open.

Hey guys, good morning.

Good morning.

First up, the new products that you are referring to in Beauty & Home, is the magnitude of these launches in a different than what you would see in any given year? I'm just trying to get a sense of whether these are truly incremental from a growth perspective?

Yes. Hi, Ghansham. Certainly, our focus is to return Beauty & Home to profitable growth into comprehensive effort. As we talked to you in the Capital Markets Day, we had high urgency and we started with this commercial effort first. So, I would certainly say that what you see is a first sign of the green shoots that we talked about over the summer and the Capital Markets Day. And if you call out product launches, it's certainly contributing to get us back on our growth track.

Okay, that's helpful. And then just in terms of pharmaceuticals. You mentioned you have tough comps in 3Q. Last year, it was a very strong year regardless. How should we think about the fourth quarter from core sales perspective for Pharma in light of the three segments that you had, three sub-segments you have in that segment?

Yes, I think in my remarks, you've heard that we really say that each of the segments will show core sales growth in quarter four as far as we can tell at this moment, then that certainly includes Pharma.

Okay. Thanks.

Thank you. Our next question or comment comes from the line of George Staphos of Bank of America. Your line is open.

Thank you. Hi everyone. Good morning. Thanks for details. And congratulation on the progress so far. My first question is just, as we look out to the holiday sales around perfume and other similar products, what is the outlook at this juncture in terms of launches? We just got a GDP report that showed the economy was accelerating. Are you seeing that start to build in your backlog and your shipments?

Yes, I think really don't want to go at the stage beyond the guidance we've given where we say, hey, will have, of course, sales growth also in the Beauty & Home segment as far as we can tell for Q4. Certainly, an improving economy bodes well for the holiday purchases, but let me not go beyond that.

Okay. The only reason I brought it up so I think, Stephan, last quarter you said you'd be in a position to talk more about this quarter. But we shouldn't read anything negatively from your comments here other than just want to keep it a high level by segment, would that be fair?

Yes, that would be very fair.

Okay. I appreciate your patience with that. Can you comment at all about the trends and the Asian beverage market that's been a bit of a hurdle for you really gone back, I guess, four, five quarters? Given that it wasn't called out, it seems like it was, at least our impression is it's now behind you would that be fair? And could you provide a bit more color on that?

Well, I think George, what we said last time is that we expect that to lap by the end of the year. Certainly, this has been a decent quarter, not to call it out on the plus or the minus. But it will remain somewhat volatile situation as we still expect this to lap by the end of the year.

Okay. And then lastly and I'll turn it over. There's been some acknowledgment in recent quarters that again in Beauty & Home, along with some of the headwinds from an operating standpoint in raw material standpoint, there's been a little bit more competitive activity perhaps that you felt than may be prior years. Is that preventing you at all if that's still the case, pushing through the price increase that you need to offset raw materials? Or has that competitive activity, if we have it correctly framed, lessened in any regard? Thank you guys. I'll turn it over.

Yes, there's really no change in the competitive pressure from when we talked last, I think we've been quite transparent in the Capital Markets Day that indeed, we've been called on the back foot into situations and lost some shares and all the efforts we're doing in Beauty & Home are intended to get us back on the front foot and feel pretty good about that. To be honest, coming into this industry, I'm still amazed about the discipline and resin pass-through, and I haven't seen any change in our ability to pass-through resin increases. Of course, we all know it also goes from the other side of the curve. But that is the future of this industry that I think is very well established.

That's great Stephan. Thank you. I'll turn it over.

Thank you. Our next question or comment comes from the line of Debbie Jones from Deutsche Bank. Your line is open.

Hi good morning.

Good morning Debbie.

Could you quantify just the facility in Europe as having issues? I know you called out the $3 million in the quarter. But if we put in what you have in guidance for Q4, if you could highlight that. And then just for the full year, what does that impact? And are you able to give us a sense of magnitude of how much you think that could come off in 2018?

We're not going to put a specific number out there. Certainly, the focus and the emphasis that we put on it we would expect an abatement of the impact. But we still haven't a certain amount baked into the fourth quarter. We're just not going to quantify what that is.

Okay. All right. The second question, you addressed the professional fees and you have about $1 billion sitting on your cash right now on your balance sheet. And I realize you don't want to comment about what exactly you're going to do. But can you give us a sense for how long does it really make sense to keep that there? It's much higher than your average long-term cash balance. And I realize that the debt rate is not all right attractive, but just kind of give us a sense of how it make sense to keep it there?

Sure. I mean, certainly as you know, we would like to be able to use that for both M&A activity in internal investment and our core sales growth. If you look at what it is, you're right; it's more than we've ever had. But previously, all that money was sitting in Europe and that interest rate environment was really earnings zero to negative interest rates. So we were able to bring it over to time that made sense. From a repatriation perspective, we're earning about 1% to 1.5% on safe secure deposits in the U.S. And on the flip side, that's approximately what we're paying on the borrowings that we had. So, even from a pure financial sense, it made sense to do what we're doing. M&A would be obviously, our first target Stephan talked a little bit about and I mentioned in my comments, we can always put a time frame on when we're going to pull the trigger on that. But certainly, what it does is it gives us ultimate flexibility into looking into that continued reinvestment in our own facilities, continued consistent share buyback. And we're evaluating also our current U.S. borrowings as far as that goes as well.

Okay, that's helpful. I'll turn it over.

Thank you. Our next question or comment comes from the line of Adam Josephson of KeyBanc. Your line is open. Mr. Josephson you may need to unmute your phone.

Sorry about that. Can you hear me all right?

Yes. You sound great.

Sorry. Stephan, Bob, good morning. Stephan, can you remind us of your views of the large acquisitions and the frequency with which they work out at least in your experience?

Yes. Sure, glad to. So, what I really love is bolt-on deals that allow you to clearly quantify and then organize against at least the synergies. So, -- and I think the statistics are very clear on large transformational transactions that they have higher much higher risk profile. So, that hasn't changed as we discussed I think before in my career, been around 20 deals or so and certainly some 15 under my responsibility. And just on the experiences that the bolt-on ones tends to turn out better than large transformational ones. And my views hasn't changed on that.

Thanks Stephan. A couple others. Bob, what you really assuming in your guidance?

The spot rate at the end of the quarter, which was 118.

118. Okay. And then just last one, EBIT for the company last year was up 1%. This year, it's not 4% year-to-date obviously; there have been a number of issues and beating elsewhere. Broadly speaking, what do you think it will take to get back to the company's historical rate of EBIT growth? Is it just better end markets? Is it better execution in Beauty & Home? What is most likely to get you back to your historical path?

May be let me kick it off. I think if you go back to what we covered at the Capital Markets Day, I mean, fundamentally, half of the company has a performance gap, that's Beauty & Home that does need a compressive effort to get back on track to where we wanted to be. And we have our sleeves rolled up with a high sense of urgency. We covered the main thing that we're doing on commercial excellence, operational improvements across all the sites. We got the European decorative facility as the bonus challenge and SG&A. So, it is really compressive effort. And with Q4 results, we're going to give you the numbers that go with that. And certainly, we wouldn't do that effort, we didn't expect to get back where we should be also for that business and that will certainly also help the total company.

Thanks a lot Stephan.

Thank you. Our next question or comment comes from the line of Chris Manuel from Wells Fargo. Your line is open.

Good morning gentlemen and thank you for taking the question. First is, I think you called out $3 million from the decorative facility and I remember that kind of happen in 2Q and it sounds like the commentary is going to continue into 4Q. Could you maybe just give us a sense again as to how long anticipate that lingers? What you -- I forget what the issue, how big the issue was in 2Q, was it a similar magnitude? And again what's your anticipating before its fixed and kind of the resolution there?

Yes, let me kind of step back and remind everybody. So, what happened there is basically the team greatly underestimated the complexity of one major product launch and what it would take to put that product together and get it in the market. And with the facility that was already pretty well booked that brought the whole facility to its knees and not had an effect on the other products that we are being produced there. So, it is a substantial challenge. I think the Q2 impact, we haven't quantified, but it wouldn't be far off to what you saw in Q3. And the product we still have to make all our obligations, we're just customers and we're getting better at meeting the obligations, but the product will not go away. So, it will take several quarters to work its way out. Obviously, over time, the impact will abate as we take corrective actions. But the product will be with us until it restages.

So, just to clarify, I mean, this is something that if you have this sort of product through stages, that could be years or--?

No, I would say we certainly will be a declining impact, make some improvement to it. I think with a few quarters by the end of next year, we should be out of that.

Okay. Thank you. And then my follow-up question was, what's the repatriation of bringing back some of the money? Just so I hope I understand the mechanics, I recognize this was a last quarter event as well, but seeing a drop in the balance sheet kind of makes us much acutely aware, I guess. Was there a tax impact? Or do you anticipate one? Or could that be something you're kind of differing down the road if we have a change in corporate tax rate? What are kind of the thoughts there?

So, there was a tax impact and in fact, you'll see that outlined in the Q that we're going to file. So, there was a tax impact but much less than what we have historically disclosed as to what it would be. So, if you remember, typically repatriations were costing us anywhere between, let's say, 8% and 12%. But because of the crazy mechanics in where the exchange rates were at the time, the tax impact was much less than that 8% to 12%. So, offsetting that, we did hedge once we made a commitment since it was a large number to bring back, we did take out the hedge on that coming back. Now, from the time we committed and took out the hedge, the exchange rates kind of went against us. Fortunately though we had a loss on the hedge that we got a deduction for. So, you won't see it so much in the tax line. But net-net, it's still came through at a very, I would call, tax efficient manner compared to what it historically would have cost us.

Okay, that's helpful. I will look for the disclosure in the Q. Thanks guys.

Thank you. Our next question or comment comes from the line of David Stratton from Great Lakes Research. Your line is open.

Good morning. Thank you for taking the question. I just have one regarding the Narcan at Walgreens. And will moving to a chain and presumed better supply would be a needle mover for you as you gain accessibility of the country?

Yes, I think obviously, if you follow the news, it's clear that there's a tremendous pickup in the opioid epidemic in this country and Narcan clearly can play our own in first responders to help save people's lives when they overdose. And therefore, having a much broader availability of Narcan only makes sense and certainly, it will help our business also if more Narcan is being sold. And the distribution that we call out I think is a major step, it will be stuck behind the counter. But nevertheless, you can think get it without a prescription, which is quite important. I think more on a personal basis that if people get high potency painkillers, it probably should have Narcan at home.

Right. Is Aptar on every single Narcan pump?

I think there are still some our alternative methods that are out there, some of the old modified syringe and things like that. But, clearly, I think the convenience and the ease-of-use and the rapid acceptance of our unit dose, we would expect certainly that would be the device of choice going forward.

I mean, this is really the third generation. When you think about it, it used to be in the syringe and you had to reconstitute the pharma ingredient with water and then inject it. So, it would take first responder several minutes to administer that. And with this unit dose nasal device, you can just without much training administer it right away.

Thank you.

Thank you. Our next question or comment comes from the line of Brian Rafn from Morgan Dempsey. Your line is open.

Good morning Stephan, Bob, Matt guys.

Good morning Brian.

I was going to ask about the Christmas pipeline, but I'll [Indiscernible] question on the perfume side. Can you maybe break out the prestige premium at the perfume cosmetic side for more the mass market site? And just kind of give me a sense as to the two different kind of tranches, how they're doing?

I think in general, Brian, I mean our fragrance business was relatively flat. I think some the flatness was due as we mentioned to the decorative facility, which is providing decorative packaging primarily for fragrance and primarily for prestige and also cosmetics. So, I mean, I think mass is still doing okay in the fragrance side. But overall, if you take prestige as a full category, we're down a little bit in that category in the quarter.

Okay. In that thought, are those end markets themselves in a modestly tepid recovering economy? Are they -- are you seeing any significant changes in those end markets ex the decorative issue?

I have to look at it geographically, but certainly, we're starting to see an improvement in Brazil, which is a heavy beauty market for us. So, I would say that we're going to see a nice rebound in Latin America. I think Europe is going to kind of chugging along right now. We're not seeing any extreme volatility one way or the other. And as we talked about in past calls, the U.S. in fragrance has been relatively flat now for quite a while. So, I would say, positive Latin America, relatively stable in both Europe and the U.S. for the time being.

Okay. You guys had fairly robust product line launches. Let me ask I think Stephan's comments, are those launches in the millions of units or the tens of millions of units? And are you seeing any shifts from historical, may be legacy experience from more of a regional or national or international focus? And then are you seeing any changes in the lifespan of the reformulations? Are they two to three-year product cycles or five to eight or product cycles lengthening or shortening?

Brian, the one thing that we are seeing, I mean, I can't speak to each one of the launches that Stephan talked about. But one thing we are seeing is a surge in what we would kind of term the indie brands. So, smaller customers, people creating new products with distribution channels being through Amazon and e-commerce and things like that. It's becoming more and more important for us to be closer to some of these smaller new start-up type customers. By definition, those volumes are typically smaller. So, the good news is they like innovation; they like to have kind of an eye-popping product right out of the gate. So, we can't neglect those. I would say overall, volumes in general are in terms of launches are much more conservative than they were in the past as customers are still also concerned about inventory levels and things like that. I think just in general, systems and inventory tracking methods improved such that we're not shipped in tens of millions of quantities at that time. I mean there's an expectation that there's upright our customers more in a just-in-time method.

Maybe the one thing I could add is, the retail environment certainly is shifting also for our customers' products. But that doesn't mean that the consumption is decreasing. So, what used to be in the classical purchase in the classical U.S. department store now, you get more in Sephora or an Alta, where you have that retail experience also in a different format, and people can also take care of getting a haircut or getting a face makeup experience. So these kinds of retailers are gaining grounds. And then, of course, we've mentioned it, in Asia, travel retail is very important and in particular for the premium brands. The product still getting the consumer, they're just getting to consumers in different ways. And as Bob said, probably in more fragmented brand environment.

Got you. Hey, I appreciate the visibility there. Let me ask it just one more question, Stephan, on kind of your M&A philosophy. If you look at -- you talked about bolt-on acquisitions, are you more interested in bolt-on acquisitions where you can rapidly grow the multiples of sales, like you guys have done maybe with injectables, where maybe the front-end premium you pay on a $20 million acquisition, that can be $100 million in sales in five years is a little bit dilutive, your little more sensitive. Are you more interested in finding things where you have more sales size but it's above cost containment, margin expansion and things you can do on operating basis?

Well, let me back up. Clearly, when I was talking about bolt-on acquisitions, I was talking about operations with substantial footprint where indeed you can have cost synergies and things that fit together. I think all of us have been around the block, sales synergies are a lot harder to execute on the cost synergies. So, certainly for larger acquisitions in the bolt-on category wouldn't want to rely on sale synergies to make the deal pay. When it comes to kind of innovations, investments, early-stage pipeline, that's a completely different story. But there we also don't talk about hundreds of millions. With Kali Care would be a good example, you talk single-digit millions for innovation-type investments.

Thank you. Our next question or comment comes from the line of Jon Andersen from William Blair. Your line is open.

Hi, thanks for the question. Stephan, just wonder if you could comment broadly on migration of volume online in some of your end markets. And to what extent you see it as an opportunity or risk for your business kind of novel dispensing systems? And how to think about that a little bit, just from an opportunity and risk perspective?

Yes. Obviously, it's really depends by segment. We've talked about the most about pharma where we see the whole digitization as potentially being transformatory. But down the road in terms of connected devices, whether it's in the clinical trial setting or whether it's in the outpatient care setting where you can really track folks take the drugs and take when they take the drugs. It's not so much of this stage we see a change in distribution. Although when you look at today's deals, -- may change. Now closer to your question when you look at the home care, beauty care, I think we talked before particularly in homecare that how that package performs in transit was kind of an Amazon shipping type of scenario, that is very important and that opens the route to innovation. It gets us closer to work together with packaging engineers of Amazon and how we can make sure that product performs also in transit. I think at the Capital Markets Day, we highlighted the two and a half times the number of handling steps if you're in an e-commerce environment compared to a classic retail environment. So, I see that as an opportunity for innovation. And in Food & Beverage, almost the same story. Of course, it's not shifting as rapidly online for our type of format. But beverages but certainly, I can see that coming down the road with home delivery of groceries also. So, overall, I see that more than opportunity for us, but expressing it differently by segment.

That's helpful. One follow-up. Where are you with respect to recruiting new leadership for the Beauty & Home business in North America? And then if you could just comment on progress towards commencing shipments from the Congers, New York facility?

Yes. Sure. I think we mentioned on the Capital Markets Day that we've brought onboard the new leader of Beauty & Home, North America. He comes from the industry, has a good balance between kind of commercial, sales marketing but also operating experience, bilingual, French-English-Canadian national. So, fits very well into the culture and hit the ground running. With respect to the Congress, we still expect to ship by the end of the year, validation, customer validations are ongoing. And there's no change from what we said before.

Thank you.

Thank you. [Operator Instructions] We have a follow-up question from Mr. George Staphos. Your line is open.

Thanks. Hi guys. Just a couple of quick follow-ons. First of all, recognizing that you're looking for broadly core growth in each of your segments in the fourth quarter, is it possible to comment on what you think the margin or margin dollar trend directionally will be for each of the segments up or down, presumably Beauty & Home is still the toughest perhaps because of the issues at the decorative facility, any thoughts on that would be helpful. That's question number one. And then just housekeeping, again I don't recall you mentioning it in this call, I did apologize in advance. Last quarter you mentioned that power outages in China, I'm guessing that became a non-event but just want to clarify that. Thank you and good luck in the quarter.

Yes, may be let me talk about China. That's easier [Indiscernible]. Basically, on the one of the transitory factors it was that we weren't and that was it but we obviously, didn't know that at the time so we highlighted it. But that's it for China.

Yes, on the margin, George, typically we do not go out and give guidance where we think our margins are going to go. But I can tell you that we're going to see some similar headwinds in Q4 that we saw in Q3. So, as we mentioned already, we still expect negatively way on the Beauty & Home results. We are expecting an increase in input cost negatively impacting really more than what they did in Q3. So, those types of things are going to weigh in.

Okay. All right guys. Thanks again.

Thank you. [Operator Instructions] I'm showing no additional questions at this time. I'd like to turn the conference back over to Mr. Tanda for any closing remarks.

Thanks everybody for joining us. Appreciated the catch up with you on the Q4 call and good bye.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day. Speaker standby.