Aptar (ticker: ATR), a leading provider of a wide range of dispensing systems, reported a strong start to the year with notable first-quarter results. The company experienced a 5% core sales growth and a significant 30% increase in adjusted earnings per share (EPS) to $1.26 from the previous year.
The Pharma segment displayed strong performance, particularly in proprietary drug delivery systems, while the Beauty segment maintained stable core sales. Aptar's leadership anticipates continued recovery in North American markets and plans to enhance shareholder value through strategic investments and cost management. The company's adjusted EPS is expected to be between $1.30 and $1.38 for the second quarter.
Key Takeaways
- Aptar's Q1 core sales grew by 5%, and adjusted EPS increased by 30% to $1.26.
- The Pharma segment saw high single-digit core sales growth, driven by proprietary drug delivery systems.
- Beauty segment core sales remained flat, with the fragrance dispensing solutions expected to grow moderately.
- The company plans to reduce fixed costs and optimize its operational footprint.
- Aptar expects Q2 adjusted EPS to range from $1.30 to $1.38.
- Strong balance sheet with a leverage ratio of approximately 1.4.
- The company is set to continue investing in the business and returning value to shareholders.
Company Outlook
- Aptar anticipates strong momentum to carry into the second quarter and beyond.
- Proprietary drug delivery systems and consumer dispensing are expected to drive growth.
- The fragrance segment is projected to end the year with 3% to 6% growth.
- Capacity expansions in the Pharma segment are nearing completion, with potential for further capacity within existing facilities.
- The company remains committed to improving EBITDA margins through cost management and operational performance.
Bearish Highlights
- Core sales decreased by 5% due to a decline in beauty closures.
- A slight decrease in cash flow from operations was noted, attributed to working capital changes.
Bullish Highlights
- Positive impact observed in the Americas and Latin America across various segments.
- Demand for products like Narcan and nasal delivery of epinephrine is expected to continue.
- Positive economic conditions in Latin America, market recovery in China, and strong performance in India bolster confidence.
Misses
- Cash flow from operations was approximately $92 million, with free cash flow around $17 million, indicating a potential area for improvement.
- Capital expenditures were high at approximately $76 million, mainly due to Pharma segment investments.
Q&A Highlights
- The company discussed the strategic importance of supplying products in non-competitive regions.
- Over-the-counter approval for Narcan has enabled significant bulk purchases by various agencies.
- Aptar is enthusiastic about the nasal delivery of epinephrine but does not expect a single product to be a game-changer.
- SG&A expenses are expected to stabilize at around 15.1% of sales by the fourth quarter.
- Maintenance CapEx will account for 45% to 50% of total CapEx, with the rest largely allocated to pharma projects.
Aptar's first-quarter performance sets a positive tone for the year, with the company leveraging its strong position in the Pharma segment and maintaining stability in the Beauty segment. The leadership's focus on cost management, operational efficiency, and strategic investments are poised to contribute to sustained growth and shareholder returns.
Despite some challenges in cash flow and core sales in certain areas, the overall outlook for Aptar remains optimistic, supported by a robust order book, project pipeline, and favorable market conditions in key regions.
InvestingPro Insights
Aptar's recent financial data and market performance reflect a company that is navigating its growth trajectory with strategic precision. With a market capitalization of $9.71 billion, Aptar stands as a significant player in the dispensing systems industry. The company's commitment to shareholder value is underscored by its impressive track record of maintaining dividend payments for 32 consecutive years, a testament to its financial resilience and management's confidence in its business model.
InvestingPro data highlights a P/E ratio of 28.23 for the last twelve months as of Q1 2024, indicating that the company is trading at a high earnings multiple. This could suggest investor confidence in Aptar's future earnings potential, especially considering the company's positive adjusted EPS growth in the recent quarter.
Moreover, Aptar's revenue growth of 6.16% over the last twelve months signals a steady upward trend in sales, reinforcing the bullish sentiment around the company's market position and its ability to capitalize on demand for its products.
The company's stock is trading near its 52-week high, with a price percentage of 99.3% of that peak, illustrating investor optimism and the stock's strong performance in the market. This aligns with the company's forward-looking statements about strong momentum carrying into the next quarter.
InvestingPro Tips for Aptar highlight two critical aspects:
1. Aptar is trading at a low P/E ratio relative to near-term earnings growth, which could indicate that the stock is undervalued based on its future earnings potential. This presents an opportunity for investors looking for growth at a reasonable price.
2. The company's stock generally trades with low price volatility, suggesting that Aptar could be a suitable investment for those seeking stability in their portfolio.
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Full transcript - AptarGroup Inc (NYSE:ATR) Q1 2024:
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2024 First Quarter Conference Call. [Operator Instructions] Introducing today's conference call is Ms. Mary Skafidas, Senior Vice President, Investor Relations and Communities. Please go ahead.
Mary Skafidas: Thank you. Hello, everyone and thanks for being with us today. Joining me on today's call are Stephan Tanda, President and CEO; and Bob Kuhn, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during this earnings call. As always, we will also post a replay of this call on our website. And now, I would like to turn the conference call over to Stephan.
Stephan Tanda: Thank you, Mary and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our first quarter results. Later in the call, Bob Kuhn, our CFO, will provide additional details on key drivers for the quarter. Starting on Slide 3. For the first quarter, I'm pleased to report that after achieved core sales growth of 5% and delivered adjusted EPS of $1.26, a more than 30% increase over the prior year quarter. Strong demand for our Pharma segment's proprietary drug delivery systems and improved performance for the injectables unit as well as the recovery in North American consumer end markets contributed positively to our quarterly results. Our Pharma segment continued to see robust sales of our proprietary drug delivery systems with high single-digit core sales growth in the quarter following more than 30% core growth in the first quarter of 2023. Demand was broad-based with growth in every region and across several end market categories from emergency medicines through allergy treatments and central nervous system therapeutics. As a reminder, our proprietary portfolio of drug delivery systems is expected to grow within our 7% to 11% long-term core sales range target also this year after strong [indiscernible] core sales growth in 2023. The injectables unit saw a marked improvement over the prior year quarter as the ERP system implementation headwind from the first quarter of 2023 did not repeat and demand for elastomeric components for the biologics market continue to grow nicely. 2024 continues to be a build-out year for injectables as the final phases of the capacity expansions announced in 2020 [ph] for France and the U.S. come online and are expected to be validated for commercialization in early 2025. In our Beauty segment, first quarter core sales growth was basically flat year-over-year with a challenging comparison of a strong first quarter 2023 that was driven by exceptional sales in Europe for fragrance dispensing. As a reminder, last year, market growth was driven by a boom in fragrance launches [indiscernible]. As previously mentioned, we expect continued growth for Fragrance dispensing solutions for the year but at a more measured pace. Even as sales in Europe normalized, adjusted EBITDA margins for the region were well within the Beauty segment's long-term EBITDA margin range. Turning now to North America. While some end markets remain soft. Overall, the region is showing clear signs that the widespread destocking is coming to an end. We continue to expect that recovery will not be linear and will be different end market by end market across our Beauty and Closure segments. Our focus on footprint rationalization and reducing fixed costs remains a top priority in 2024. Over the last several quarters, we have improved margins. As a reminder, since 2022, we initiated formal cost reduction programs in several European countries, including 2 social plans in France. We are reducing the Beauty segment's European workforce by about 5% and as previously mentioned, the closing of a facility in France that serves closures is expected to be finalized by midyear. This is in addition to the facility that was closed last year in North America. Additionally, quarter-over-quarter, we have reduced selling, general and administrative of an SG&A as a percentage of sales by 50 basis points. Looking ahead in the second half of the year, we plan to close our manufacturing operations in Argentina for beauty and for closures but maintain our pharma manufacturing operations in the country. We will continue to review and streamline our footprint during 3 operational leverage while meeting market demand. Now moving to Slide 4, highlighting recent corporate awards and recognitions. We firmly believe operating in a sustainable manner in developing more sustainable product solution is an important competitive advantage for Aptar. As a reflection of our progress during the quarter, we were named one of Barron's most sustainable U.S. companies for the sixth consecutive year, ranked number 29 out of 100 companies for 2024. CDP, formerly known as the Carbon Disclosure Project, also means that as a supplier engagement leader for the fourth consecutive year due to our contributions to emission reductions throughout the value chain, a recognition that is highly valued by many of our customers. Lastly, Capital magazine identified Aptar is one of the 2024 best employers in France where we are now number 14 in the health care and pharmaceuticals category. Before I turn the call over to Bob to share further details on quarter 1, I want to speak about innovation and highlight recent technology product launches as shown on Slide 5. Starting with several launches in our Pharma segment, our Airless plus system is the drug delivery solution used to treat [indiscernible] recently approved by the National Medical Products Administration in China. Our proprietary ophthalmic sweet dispenser is used for [indiscernible] brand of an over-the-counter lubricant eye drop treatment in the U.S. Next, our PureHale technology is used to dispense treat our Babies ultrafine natural sterile sailing mist in children's cough and cold. Finally, in Turkey, our nasal spray pump is used to deliver a new allergic renals treatment. Turning to beauty, Cody's new Marc Jacobs, daisy rouge [ph] fragrance featured our fragrance pump customer up and green colored DP2. After recyclable Airless dispensing system is the delivery solution for dermocosmetic, Euroscan. Our reloadable ALS technology is featured on a skin care launch by Chinese beauty brand, Zubin and our fully recyclable ocean pump is featured on a new men [ph] skin care line in the U.S. Moving to closures. Our sports cap is the dispensing solution for PepsiCo (NASDAQ:PEP)'s new Gatorade Water. And our mono material temper everything closure is featured on the line of BOSS water, both found here in the U.S. Our fully recyclable [indiscernible] is used for Unilever (LON:ULVR)'s St.Ives Brand skin scrub. Finally, our Tempur evidence snap top closure that features a customizable in molded SCP is featured on Nutrapharm’s protein supplement in Latin America. Now, I would like to turn the call over to Bob.
Bob Kuhn: Thank you, Stephan and good morning, everyone. Starting on Slide 6, I would like to summarize the quarter. Our reported sales increased 6% [ph]; this included a currency translation benefit of approximately 1%. Therefore, core sales grew 5%, primarily due to strong growth in Pharma's proprietary drug delivery systems and improved injectable sales as well as in recovering North American market. As shown on Slide 7, we reported first quarter adjusted earnings per share of $1.26 which is a 31% increase over the prior year's adjusted EPS. During the quarter, we achieved adjusted EBITDA of $179 million which increased from the prior year's first quarter by 16% and driven by expanding margins in all 3 segments. Improved operational performance and a lower tax rate led to a higher earnings per share result versus the rain [ph] in our outlook. Turning to some of the details by segment for the quarter. Our Pharma segment's core sales increased 13% due to volume growth, especially in our proprietary drug delivery systems and elastomeric components. Looking at in the pharma segment by market, we will start breaking out our proprietary drug delivery systems which performed extremely well in the quarter. Prescription core sales increased 10% and driven by strong sales of allergic rhinitis, asthma, central nervous system therapeutics and emergency medicines. Core sales for Consumer Health care increased 2% and due to higher demand for nasal saline and nasal congestion solutions which more than offset the decline in dermal. Injectable Core sales increased 54% over the prior year quarter which was adversely impacted by an ERP system implementation, affecting operations and shipping days which did not repeat. We saw increases in several end markets, including elastomeric components for biologics and small molecules. Core sales for our active material science solutions proved in the quarter, increasing 2% with returning demand for our products used on probiotics and oral solid dose applications. Adjusted EBITDA margin was 32%, a more than 1 point improvement in the prior year's quarter. Turning to our Beauty segment. Core sales decreased 1% in the quarter. As anticipated, sales of our fragrance dispensing solutions slowed after a period of rapid growth in 2023. Volume growth for beauty increased but was offset by resin pass-throughs. Core sales for the beauty market were flat in the quarter. Overall, difficult comparisons for prestige and mass fragrance dispensing solutions in the prior year quarter contributed to the muted results. Regionally, sales in North America showed signs of recovery with strong facial skin care sales. Core sales for the personal care market decreased 4% due to widespread market softness, primarily due to the suncare applications. Home Care core sales increased 2%, driven by sales in North America and Europe. This segment's adjusted EBITDA margin for the quarter was approximately 13%. The money improvement was due to improved operational performance, along with our continued focus on cost management. The closures segment's core sales increased by 1% compared with the prior year's quarter due to an improving North American market with increased personal care and home care sales. The positive impact from the improving North American market was offset by lower beverage sales in Europe as customers continue to transition to a new environmentally friendly closure. When looking at sales by market for closures, food core sales increased 3%. This includes strong tooling sales in North America for food closure capacity expansions in the first quarter. Strong growth in our dry spices and food protection products contributed positively to the results, while North America and Europe led regionally. Beverage core sales decreased 4%, primarily due to market timing around customer conversions to tether [ph] caps in compliance with European regulations. Core sales for personal care closures increased regionally, rebounding demand in North America and Latin America had a positive impact fourth category which includes beauty, home care and health care, Core sales decreased 5% due mainly to a decrease in beauty closures. The segment's adjusted EBITDA margin was 15% for the quarter, a slight increase over the same period last year. In Q1 2024, cash flow from operations was approximately $92 million. Free cash flow was approximately $17 million for the quarter. In the first quarter of 2024, we had capital expenditures of approximately $76 million, the majority of which were in our Pharma segment for capacity expansions in North America, Europe and Asia. Reported depreciation and amortization expense increased 9% over the prior year quarter to approximately $64 million or 7% of sales. Moving to Slide 8 which summarizes our outlook for the second quarter, we anticipate our strong momentum to continue and expect second quarter adjusted earnings per share, excluding any restructuring expenses, acquisition costs and changes in the unrealized fair value of equity investments to be in the range of $1.30 to $1.38 per share. The estimated tax rate range for the second quarter is 22% to 24%. We are expecting currencies to have a small positive impact compared to the prior year quarter. We currently estimate depreciation and amortization for 2024 to be between $260 million to $270 million. We expect our capital expenditures in 2024, net of any government grants to be between $280 million and $300 million, with the majority of capital allocated toward our Pharma segment. In closing, we continue to have a strong balance sheet with a leverage ratio of approximately 1.4 which allows us to continue to invest in the business, pursue strategic opportunities and continue to return value to shareholders in the form of dividends and repurchases. In addition to our cash dividend payments to shareholders which totaled approximately $27 million in the quarter, we repurchased about 86,000 shares for approximately $12 million. At this time, Stephan will provide a few closing comments before we move to Q&A.
Stephan Tanda: Thanks, Bob. In closing, following a very strong start in quarter one. We see our momentum continuing in quarter two and the balance of the year. Demand for our proprietary drug delivery systems will continue in the second quarter as well demand for elastomeric components for biologics. As a reminder, we expect our proprietary drug delivery systems to grow within our long-term core sales target range of 7% to 11% for the full year. We see demand for our consumer dispensing, especially for our closure technology to build in order 2 as the North American market continues to recover from this token. Improving EBITDA margins through cost management and operational performance continues to be a strong focus. With that, I would like to open the call up for your questions.
Operator: [Operator Instructions] The first question comes from the line of George Staphos with Bank of America.
George Staphos: Stephan, you mentioned again that you expect pharma to grow in its normal core growth range of 7% to 11%. And that's terrific given the comparisons, obviously, saying you're doing 2 different things but taking that at base value, how should we expect the various end markets or product categories really to trend this year within that 7% to 11%. That's my first question. Second question to you both. In terms of the timing issues that you mentioned in terms of beverage closures in Europe, should we be worried at all about what the implications are longer term for plastics and beverages in Europe? Yes, you're benefiting from the tethered closure but is the tide going out to see, so to speak and that's something else you're going to have to worry about longer term.
Stephan Tanda: Thanks, George and we could hear you just fine. Look, within pharma, the proprietary drug dispensing solutions are growing really, really nicely and we don't see that to change for the year. And then, of course, in biologics, we are rebounding from the situation with last year; plus we see continued good growth. For us, the COVID hangover was not significant in injectables, so we just benefit from the growth. Now the year-over-year comparisons for every quarter is going to be a bit scary, sorry, for the technical term. But overall, we see good growth in injectables as well, same for active material solutions returning to growth. So it's really broad-based, led by the proprietary drug dispensing solutions and that obviously bodes well for the business. Now in terms of beverage, look, right now, everybody is transitioning to the tablet caps. There is some inventory effect. There's some technical effect of getting machines adjusted to the new caps. But overall, we don't see any concern to the beverage business. I think we have passed plastic peak panic even in Europe now that might not be true for some capital. But overall, the reality of carbon footprint and total life cycle analysis in prevails, you saw Unilever also pushing out their goals to 2030. I think there's just a general pragmatism that returns.
Operator: The next question comes from the line of Ghansham Panjabi with Baird.
Ghansham Panjabi: Obviously, very, very strong growth in pharma and I know the reasons for that in terms of the base effect from last year. Did the operating margins come in in line with what you thought they would? I'm just asking because last year, in the first quarter, obviously, margins were down on a year-over-year basis. And you have built up very nice operating leverage over that level but I just thought there would be a little bit more -- just given the extent of growth? And maybe a parallel question. Is that mix related just because of injectables having that sort of outsized growth?
Stephan Tanda: I would say pretty much in line with expectations. Remember that when injectable grows much faster and 50% is much faster, that has a negative mix impact on overall pharma. And therefore, you don't see bigger expansion than you might have liked. So overall, this is fully in line. The other point I would make, if there's one business we keep reinvesting in including cost is, of course, pharma. We keep reinvesting in innovation and new business development. So margins are in line with what we expected.
Ghansham Panjabi: Okay, sure. And then for fragrance, just to expand on your sort of outlook for the rest of the year. I mean, obviously, comparisons are going to be difficult. We've talked about that in the past. Are you expecting growth to still remain positive for that segment? What's the customer sentiment at this point specific to that market?
Stephan Tanda: Yes, remains positive. Of course, the comparison quarter 1, in particular, given the boom of launches last year is difficult but we would expect fragrance to continue to end the year somewhere in the 3% to 6% range. We see the regions continuing to perform well. And as a reminder, what we sell in Europe ends up all over the world, especially in this segment and also some good strength in Latin America. So overall, I think the 3% to 6% makes sense.
Operator: The next question comes from the line of Daniel Rizzo with Jefferies.
Daniel Rizzo: You mentioned that the capacity expansions in pharma are coming to an end. I was just wondering post that, what your capacity utilization would be in those segments? And I don't know at what point you would think you would have to expand further, like what we can expect, I guess, over the next 5 years?
Stephan Tanda: Yes. I think we are done with big new buildings. And again, if you come on the trip with us later this year, you will see it. I mean it's a phenomenal state-of-the-art new building. We're done with that kind of -- but within the building, we can further create capacity. So certainly, we have ample capacity as this new capacity is being validated and then the capacity increments if they need it down the road in the 5-year period, they will be more of a smaller increments as we increased cavity counts, as we further automate within the existing building. I mean, we may be another wing in Congress but that's nothing like what we had to do [indiscernible].
Daniel Rizzo: When you do the expansions within the facility, is it easier or in terms of getting approval or making sure it makes inspections that you [indiscernible]?
Stephan Tanda: Of course, every new tool has to be validated. Every new machine has to be validated. But it is in the context of an ecosystem where the crew is fully up to speed and that can be happening in the ordinary course. It's not a massive big investment like the new facility [ph]. I mean, we've made investments all along. We didn't make a big deal out of it. As we upgraded per se, as we upgraded [indiscernible] is really massive.
Operator: The next question comes from the line of Matt Larew with William Blair.
Matt Larew: I wanted to circle back to injectables. And just get your updated thoughts on participation rate. And really now that we've emerged from the pandemic, your assessment of how customers in the space view referencing sole source or multisource arrangements and perhaps within multisource, if there's a greater preference to spread volume. And to the extent your participation rate has improved, just how important your expanding global footprint has been to those discussions?
Stephan Tanda: Yes. We could spend hours on that question. Look, fundamentally, just to back up, you have basic SKUs, you have plungers, you have stoppers, you have needle shields and they can be coated or uncoated. Now there are many more, depending on the level of quality assurance, the level of data that you provide as we said, the dynamic has really helped us to demonstrate to the industry that our capabilities are equivalent to the market leader. That allows that we participate in every new project in a new molecule, long-term biologic project, people don't start having dual sourcing. They pick the horse, they're going to ride. If you have a massive big product like we were with the COVID vaccines, people did want to have a second source just for security of supply. You don't want to run out of a covet vaccine. That's all behind us. In general, I can say our product pipeline for biologics is very strong and keeps building. And whether people choose us or other providers has a lot of factors. Technical capability, obviously, is an important 1 that's almost a qualifier but then it has to do with geographic footprint, ability to provide the support for a particular biologic molecule or vaccine in a particular geography. And then what is not talked about that much but also a very important business model. We fundamentally have a business model with some other people. We are not getting into the auto-injector business. We are not competing with our customers. And sometimes, customers prefer to deal with somebody who's not competing with them. So those all play a factor and absolutely, having the ability to supply in region for region is critical.
Matt Larew: Okay. As a follow-up, just wanted to check on emergency medicine and if you've seen any sort of change in demand for the Narcan product would be one. And then obviously, there's maybe an opportunity on the nasal delivery of epinephrine which could start to develop in the back half of the year. So just curious for your assessment of what that opportunity might look like.
Stephan Tanda: Sure. Let's talk Narcan first. We've spoken before about the importance of the over-the-counter approval. Now it's not -- it turns out it's not so important for people walking into a CVS or Walgreens or Rite Date and picking up an organ that business is not so meaningful. But what it has allowed is for states to make bulk purchases of Narcan and then to distribute that in the states to harm reduction agencies to schools, police stations and so on, and disburse the settlement money each state has received and will be receiving for the next 10 to 20 years. So it has greatly facilitated much broader distribution into schools, into community centers into prime responders. And who knows maybe 1 day, we all have a set of Narcan our homes. So that's really helping the Narcan distribution. On epinephrine, we're all very excited about it but I would caution in the end product launches day 1 and no single product changes the game for us. But of course, in totality, they start to build. A lot will depend on what is the reimbursement philosophy of the health insurers and the payers. But certainly, we think this product makes a ton of sense. And if patients are really excited about it, eventually it should receive good reception.
Operator: The next question comes from the line of George Staphos with Bank of America.
George Staphos: Bob, just looking at net cash from operations, it was down a touch from first quarter '23. There probably was just some timing effects here but could you remind us what was going on in terms of CFO being a little bit lower this first quarter versus last quarter? And then if you could talk more broadly about your goals for SG&A as a percentage of sales, this year, if you care to update us. Obviously, you have progress in the first quarter. What should we expect for this year?
Bob Kuhn: Thanks, George. The slight decrease in the cash flow from operations, I think it was primarily due to more working capital, in particular, in some of the inventory areas and also in receivables. Remember, the first quarter was a little bit strange because you had the holiday weekend right at the quarter end. So our receivable balance was a bit higher than what we'd normally expect but then all those were collected once we got into April. So I wouldn't look too much into that. And then when we look at the SG&A as a percentage of sales, we haven't really changed our target. We expect to be at a run rate of 15.1% by the fourth quarter. That's not for the full year, of course, that's kind of run rate going out and we haven't really modified where we stand on that.
Operator: The next question comes from the line of Gabe Hajde with Wells Fargo.
Gabe Hajde: Two quick ones. Remind me, again, you guys are carrying $0.01 to $0.02 of commercialization start-up costs and pharma associated with the injectables ramp. Is that true? And then would we see that flip next year or go away, I guess, maybe how to think about that?
Stephan Tanda: Yes, you go right.
Bob Kuhn: $0.01 to $0.02 is kind of where we're looking at for this year. And yes, in theory, then you'll have that go away and then we'll have to see where we are from a fixed cost absorption in a new plant as business comes in for next year.
Gabe Hajde: Okay. And then one we spent there's been a lot of ground covered on the CapEx side but maybe bigger picture looking out over the next few years. Can you remind us what maintenance CapEx kind of looks like? I have a note here in our model, 125 to 150. You mentioned adding some pharma capacity, I think, in 3 key regions. And so I guess as a portion of the targeted spend this year, can you break out what's still the injectables investment carryover versus maybe what's new in pharma.
Bob Kuhn: Okay. I don't know if I have in front of me what the runout is on the injectables rollout but on your maintenance number, $125 million to $150 million. I think as we talked before, it's sometimes difficult for us to really categorize between a maintenance of investment and, call it, a productivity improvement or cost savings, right? Very rarely will we invest like-for-like, meaning that if we're replacing an old mold or replacing an old assembly line. We're typically doing it with a more efficient, higher output type of thing. So we would say that between true maintenance of business and some of those in-betweeners that cover also productivity cost savings, 45% to 50% is of total CapEx would be in the ballpark. So I think you're $125 to $150 million is in the right range.
Gabe Hajde: Okay. And some of the discrete projects that you have going on this year, I heard you say not on injectables but the capacity expansions, is it just safe to say that maybe everything that you're spending above that $150 million this year is mostly pharma related?
Bob Kuhn: Yes. I mean we've talked a little bit but we do have some capacity increases in some other isolated areas. But yes, I think that's a fair bet that a lot of the excess above the big rollouts are predominantly in the pharma area.
Stephan Tanda: If you look at the growth in proprietary drug dispensing systems, it's so strong and obviously think about the product like NARCAN, you don't want to run out of capacity. So you need to expand ahead of the curve and we're having a keen looking there and do know hesitate to expand capacity.
Operator: Thank you. There are currently no additional questions registered. So I would now like to pass the conference back to Stephan Tanda for any closing comments.
Stephan Tanda: Great. Well, thanks for the questions. As you see, we are fully executing on the ambitious plans that we shared with you last September at the Investor Day with a strong focus both on the top line and on delivering structural and ongoing productivity gains. This is all to ensure our bottom line grows faster than our top line. You have seen that play out throughout 2023 and we're now off to a very strong start in and we see that momentum continuing into quarter 2 and the balance of the year. Our order book and project pipelines remain strong, our customer is engaging very positively with our innovations and the overall value that we can bring to their brands and drug products, including our overall sustainability contributions. A significant number of the productivity and cost reduction efforts are well underway in all regions. We mentioned a few on the call and they will keep adding to the bottom line throughout 2024 and 2025. In addition, our teams are energized to find additional productivity opportunities. This is becoming a point of pride in the company and taking root into our culture. We are increasing the competitiveness of our regional footprint with all the actions in Europe, Asia and North America. And now you've also heard about Argentina and we expand capacity in Mexico. As Bob said, our strong balance sheet allows us to continue to invest in growth, productivity and we also find the both sized acquisitions and partnerships and have a solid track record of delivering value for shareholders. So when you consider all the puts and takes for the coming period, proprietary drug delivery systems will continue to grow even after a year of double-digit growth and we expect them to remain inside our overall pharma target growth. Injectables has a strong pipeline and has additional capacities coming online and validated through the year will be able to serve this demand digital health, we haven't talked about but is continuing to improve with project wins. Fragrance will continue to grow after a year of double-digit growth, albeit at the lower rate. The destocking in North America for beauty and closures is coming to an end. And our Latin America team is executing very well against actually, a generally very positive economic background, of course, with the exception of Argentina which we are addressing. We haven't talked about Asia but China is progressively recovering and India is pulling very strongly. And as we talk, SG&A expenses and overall manufacturing fixed cost as a percentage of sales are coming down. So all of this makes us very energized for '24 and we're looking forward to discuss more with you on the road.
Operator: This concludes today's conference call. Thank you all for your participation. You may now disconnect your lines.
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