Aptargroup Inc
NYSE:ATR
US |
Johnson & Johnson
NYSE:JNJ
|
Pharmaceuticals
|
|
US |
Berkshire Hathaway Inc
NYSE:BRK.A
|
Financial Services
|
|
US |
Bank of America Corp
NYSE:BAC
|
Banking
|
|
US |
Mastercard Inc
NYSE:MA
|
Technology
|
|
US |
UnitedHealth Group Inc
NYSE:UNH
|
Health Care
|
|
US |
Exxon Mobil Corp
NYSE:XOM
|
Energy
|
|
US |
Pfizer Inc
NYSE:PFE
|
Pharmaceuticals
|
|
US |
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
|
US |
Nike Inc
NYSE:NKE
|
Textiles, Apparel & Luxury Goods
|
|
US |
Visa Inc
NYSE:V
|
Technology
|
|
CN |
Alibaba Group Holding Ltd
NYSE:BABA
|
Retail
|
|
US |
3M Co
NYSE:MMM
|
Industrial Conglomerates
|
|
US |
JPMorgan Chase & Co
NYSE:JPM
|
Banking
|
|
US |
Coca-Cola Co
NYSE:KO
|
Beverages
|
|
US |
Walmart Inc
NYSE:WMT
|
Retail
|
|
US |
Verizon Communications Inc
NYSE:VZ
|
Telecommunication
|
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
122.88
176.15
|
Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
Johnson & Johnson
NYSE:JNJ
|
US | |
Berkshire Hathaway Inc
NYSE:BRK.A
|
US | |
Bank of America Corp
NYSE:BAC
|
US | |
Mastercard Inc
NYSE:MA
|
US | |
UnitedHealth Group Inc
NYSE:UNH
|
US | |
Exxon Mobil Corp
NYSE:XOM
|
US | |
Pfizer Inc
NYSE:PFE
|
US | |
Palantir Technologies Inc
NYSE:PLTR
|
US | |
Nike Inc
NYSE:NKE
|
US | |
Visa Inc
NYSE:V
|
US | |
Alibaba Group Holding Ltd
NYSE:BABA
|
CN | |
3M Co
NYSE:MMM
|
US | |
JPMorgan Chase & Co
NYSE:JPM
|
US | |
Coca-Cola Co
NYSE:KO
|
US | |
Walmart Inc
NYSE:WMT
|
US | |
Verizon Communications Inc
NYSE:VZ
|
US |
This alert will be permanently deleted.
Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2022 First Quarter Conference Call. [Operator Instructions] Introducing today's conference call is Mr. Matt DellaMaria, Senior Vice President, Investor Relations and Communications. Please go ahead, sir.
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. If you are following along on our website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. As always, we will post a replay of this call on our website.
Today's call includes some forward-looking statements. Please refer to our SEC filings to review factors that could cause actual results to differ materially from what we are discussing today.
I would now like to turn the conference call over to Stephan.
Thanks, Matt, and good morning, everyone. We appreciate you joining us today and I hope that you're doing well.
Turning to slide 3, as highlighted in our press release. We reported very good performance in the first quarter with core and reported sales growth in each of our segments, resulting in total reported sales for Aptar increasing 9% and core sales increasing 13%. Before I cover our segment results, I would like to spend a few moments talking about our continued resiliency as a company during this uncertain economic environment where we face pandemic uncertainties, rising inflation, supply chain issues, labor shortages, the war in Ukraine and the recent COVID-19 variant outbreaks and lockdowns in China. To briefly comment on the latter two subjects. We are deeply saddened by the invasion and ongoing war in Ukraine. And our hearts and solidarity go out to everyone who is unfairly caught up in the midst of the tragic events unfolding. And on the recent COVID-19 variant outbreaks and lockdowns in China, we are focused on the health and safety of our employees. And we are updating our COVID-19 protocols where needed. While only a few of our facilities have been temporarily affected thus far. We are closely monitoring the impact on consumer consumption levels and demand patterns. Neither the war in Ukraine nor the COVID-19 outbreak in China has had a significant direct impact on our first quarter results. However, we are seeing indirect effects, including soaring energy costs in Europe. And some supply chain disruptions in both regions. We will continue to monitor the evolving situation closely and adapt our approach if necessary to serve patients, consumers and customers to the best of our abilities.
We achieved earnings per share in the quarter that were in the middle of previously issued guidance, despite a variety of headwinds that Bob will briefly touch on. Turning to our first quarter second results, our pharma segment achieve double digit core sales growth, with growth in each market. Significant sales growth in the active material science market, along with increased demand in consumer healthcare and injectables were strong contributors to our results. Demand also began to recover for our drug delivery devices for allergic rhinitis treatments in the prescription market. I am also pleased to share that our elastomeric component capacity expansion in France is progressing nicely.
In our beauty and home segment, increased demand from the beauty and personal care markets and price initiatives related to input cost recovery contributed to double digit core sales growth. We'd also like to share that earlier this month we celebrated with customers and employees the outer shell completion of our new facility in Oyo, in France, where we are investing in a new state of the art Prestige Custom beauty site, which will be operational by the spring of 2023. With this initiative, we are consolidating five legacy operations into a new and dynamic facility. It further asserts our leadership as the driving force behind customizable luxury solutions with more sustainable features.
In food and beverage, we also achieved double digit of core sales growth on top of a very strong prior year. The growth was driven by increased demand and pricing initiatives to recover rising raw material and other input costs.
Turning to sustainability, we were pleased to announce progress in testing and transforming fuel cycle technologies ultra-pure recycled polypropylene. Working with pure cycle we have recently converted prototype material from the pure cycle feedstock evaluation unit into multiple color of hinged closures, a technically demanding application with performances similar to conventional resin for food, beverage and cosmetic applications. This type of industry collaboration, which started with an early stage venturing investment, is essential to achieve and more circular economy where plastic is reused and recycled.
Now I would like to highlight a few recent launches by customers using our technologies in the next few slides, starting with our pharma segment on slide 4. In consumer health care, airless system for dermal which is based on airless technology used on many of our beauty and home facial skincare products is the dispensing solution for facial acne cream like Galderma called TWYNEO in the US. In the eye care market in India, Cipla has launched Brimocom, used to treat glaucoma without ophthalmic squeeze dispenser. Turning to the prescription market, the FDA approved Viatris Inc. and Kindeva, Breyna, a generic version of budesonide and formoterol, an inhaled medication used for the maintenance treatment of asthma and chronic obstructive pulmonary disease, using an Aptar metered dose valve. And our nasal spray pumps are the dispensing solutions for both Ventus and Monax brand allergic rhinitis medications in Brazil.
Finally, our elastomeric components are featured on several animal care antibiotics in Mexico and an animal care sedative in the US.
Turning to slide five, Beauty and Home, in the European prestige fragrance market after spray pumps are the dispensing solution for the launch of several new fragrances by brands such as Chloe, Guerlain, La Perla, Valentino and more. In China, our pump is featured on a perfume called Scent Library.
In addition, a well-known beauty retailer is featuring our airless pump made from post-consumer recycled resin on its line of facial skincare masks. Next, our unique combination between the dropper and the bottle for precise and clean application with SimpliSqueeze flow control valve. The flow control technology often found in our food and beverage dispensing solutions, along with some pharma applications is providing a soft and accurate drop dispensing for two new skincare products in Europe. And finally, our FusionPKG beauty business is providing a customized package for MAC Cosmetic’s skincare, renewal emulsion product.
In Food and Beverage, Aptar continues to see success with inverted closers featuring our SimpliSqueeze flow control technology, which has recently launched in a new range of flavored honey spreads by Kraft Heinz in the US. In addition with its flow control technology, we have entered into new businesses in China with a leading oyster sauce and ketchup brand. Also in the housing market, we partnered with Chacauhaa, Brazil, to convert their former glass with metal cap for its Mel de Cacau honey to an inverted closure with SimpliSqueeze flow control valve. This is yet another example of how we partner with our customers to differentiate the product and provide added convenience to the end consumer.
Finally, in the beverage market, our sports cap is the dispensing system for H2Only’s purified drinking water in Europe. With that, I will now turn it over to Bob who will share some additional comments on our first quarter results. Bob?
Thank you, Stefan, and good morning, everyone. I would like to summarize the quarter starting on slide 6, where you can see our reported and core sales results. When we neutralize currencies and acquisitions, we grew core sales solidly by 13%. About 8% was coming from increased demand, with the remainder coming from price initiatives across the majority of our markets, which I will detail in a minute. As shown on slide 7, we achieved adjusted earnings per share of $0.96 and adjusted EBITDA of $156 million. Adjusted earnings included currency translation headwinds, a net negative inflation impact of approximately $4 million, a reserve against the note receivable of approximately $1.5 million and startup costs related to our last elastomeric component capacity expansion of approximately $2 million. We also continue to face ongoing supply chain disruptions primarily in the US. Prior year’s adjusted earnings per share reflect a lower tax rate. And if we would have equalized the tax and currency rates, our adjusted earnings per share would have increased 7%.
If we isolate net price cost effect including the margin compression impact from passing on the higher costs, our consolidated adjusted EBITDA margin of roughly 18.5% would have been approximately 150 basis points higher. Turning to some of the details by segment. Our pharma segment’s core sales increased 13% with approximately 11% coming from strong demand, and 2% coming from price adjustments related to inflation cost recovery. Pharma’s adjusted EBITDA margin of 34% included customers startup costs related to our elastomeric components capacity expansion, and the impact of the notes receivable reserve.
Looking at sales in each pharma market, core sales in prescription market increased 3% primarily due to the recovery in demand for nasal devices for allergic rhinitis treatments. Core sales to the consumer healthcare market increased 13% on strong demand for nasal decongestant, nasal saline and dermal devices. It was again a solid quarter for solutions for vaccines and other injectable medicines with core sales increasing 7% primarily due to strong demand for our elastomeric components used with biologics and vaccines. Our active material science solution market had a very strong quarter, with core sales increasing 58% and strong demand across a variety of applications led by our Activ-Film technology that enhances the integrity of at home COVID-19 tests. In addition to the strong -- of the business is also putting up strong core growth numbers including vials for probiotics and diabetes related diagnostics.
Turning to our beauty and home segment, poor sales increased 10% over the prior year first quarter, with 6% of the growth coming from price adjustments related to inflation cost recovery. The segment's adjusted EBITDA margin was 11% in the quarter and slightly higher than the prior year and included the net negative inflation effect of approximately $5 million. Had we not had this net negative including the margin compression effect of passing through higher cost, the -- EBITDA margins would have been approximately 200 basis points higher. In addition, we also had approximately $2 million from the significant labor shortage and supply chain disruptions primarily in the US.
Looking at each beauty and home market, core sales for the beauty market increased 16% due to strong demand across all beauty applications led by the fragrance market, especially the prestige market in Europe. Core sales to the personal care market increased 8% due to increased demand for haircare and sun care dispensing systems. Core sales to the homecare market decreased 9%, primarily due to a reduction in demand for surface cleaning products.
Turning to our food and beverage segment, core sales grew strongly in the quarter increasing 18%. In addition to volume growth pricing adjustments related to inflation cost recovery also contributed and accounted for approximately 12% of the segment’s core sales growth in the quarter. This segment’s adjusted EBITDA margin was 14% in the quarter. We continue to pass-through rising costs and therefore the margin compression effect on passing through higher costs and EBITDA was approximately 300 basis points.
Looking at each market, core sales to the food market increased 18% due to price adjustments, and continued steady demand for food service trays, and dispensing closures for a variety of home food staples. Core sales to the beverage market increased 16% due to price adjustments and recovering demand for premium bottled water dispensing closures. Cash flow from operations totaled $92 million for the quarter, up $20 million from the prior year, primarily due to improvements in working capital.
Moving now to slide 8, which summarizes our outlook for the second quarter. As Stefan covered, we are expecting some of the momentum we saw in Q1 to continue. Currency exchange rates have recently reflected a strengthening US dollar and we anticipate that we will face ongoing currency headwinds in the near term, as well as supply chain and inflationary pressures. The Euro rate for the prior year second quarter was 1.21. And our guidance for the coming second quarter is assuming a 1.07 Euro rate. We have said that roughly for every $0.01 move in the Euro rate that equates to approximately $0.02 per share for the full year. So for the coming quarter, you could be looking at approximately a $0.05 to $0.06 currency drag on earnings compared to the prior year.
Based on recently published economic and currency forecasts, we could also potentially be looking at similar headwinds in Q3 and q4. We expect our second quarter adjusted earnings per share to be in the range of $0.92 to $1.02 per share using an estimated tax rate range of 27% to 29%. You may recall that the prior year second quarter effective tax rate was 25%. The midpoint of our guidance range represents an 18% increase over the prior year second quarter adjusted earnings per share when currency translation effects and tax rates are neutralized.
Looking to our current estimate for depreciation and amortization, we expect $240 to $250 million for the current year. For capital expenditures net of any government grants we expect between $300 and $330 million, which includes $109 million net for our three important growth projects that we discussed during our previous earnings call.
In closing, we continue to have a strong balance sheet with a leverage ratio of 1.8, which allows us to continue to invest in a 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 $25 million in the quarter, we repurchased approximately 140,000 shares of common stock in the first quarter for approximately $16 million, leaving $184 million authorized for common stock repurchases at the end of the first quarter.
At this times Stefan will provide a few closing comments before we move to Q&A.
Thanks, Bob. In closing on slide 9, looking ahead to the second quarter, we expect the broad based momentum we experienced in the first quarter to continue with growth in each segment, including strong growth of our prescription drug device business, which will help compensate for lower demand for at home COVID-19 tests. The war in Ukraine and the COVID-19 outbreak and lockdowns in China are expected to have some impact on our business in their respective regions. Though the near-term visibility for both in these situations is expected to remain highly uncertain and fluid for the next several quarters. Nevertheless, the near term overall business outlook is solid with strong demand, and a high focus on mitigating inflation supply chain challenges, improving cost and margin management going forward.
With that, I would like to open up the call for your questions.
[Operator Instructions]
Our first question comes from George Staphos of Bank of America Merrill Lynch.
Hi, I'd like -- or use my first question on margin and particularly in food and beverage you had very strong core growth. Obviously, I think you said pricing and pass-through was 12% of that. But that still suggests that you had 6% or so volume growth, yet the incremental margin so the profit change, relative revenue change was negative. Can you talk about what was driving that bad performance? I recognize there was pass-through effects and so on, and how you can turn food and beverage into much more predictable grower of earnings and margin guys on a going forward basis and then had a follow on?
Sure. Hey, George. I'll take that one. Part of it and the biggest reason obviously is the heavily closures based business. So what's the resin pass-through dollar for dollar is impacted by about 300 basis points. But in addition to that the growth in the quarter was primarily coming from some of our lower margin food service trade business as well as in pooling increasing. So it was also a mix of business issue in a quarter that also had some compression on the margins.
Okay. Thanks.
And we expect that staying little bit and going forward.
Yes, and so looking forward how you turn food and beverage into more predictable growth of earnings? Just to finish up that first question.
Yes. Hi, George. You do follow up on follow up. Look, the economy and business is a very important part of the business for us and clearly, North America this quarter was impacted by some of the supply chain issues. So primarily in the situation for quarter one. Other than that, I think the business keeps chugging along and the closer you are the predictable grow on earning.
Okay. I'll come back at another point. And then just can you talk a little bit and thanks for that. Can you talk a little bit about some of the one off items in the quarter? There was a note receivable on the venture. There was $1.1 million miscellaneous net on P&L. Can you talk about what within those items? Thank you. I'll turn it over there.
Yes, let me take the venturing and then then Bob pulls up on the other one. But you know, we have a mentoring program to complement our early stage R&D. And this is related to a mentoring investment where the business did not work out quite as well as we hoped. And it's being sold. And we still have a note to the venture and we just wrote that down to be proven. Overall, our venture portfolio is actually performing very well and has enabled significant pipeline growth. We talk later maybe about field side of technologies and another but this is one where we needed to break down that middle.
Yes, Georgia, on the miscellaneous net it was a an expense, about $1.1 million comparable really to last year at about $1 million, the majority what goes to that line is going to be OpEx losses. So we've seen a fair amount of currency fluctuations in the quarter. And so that's where that would show and then you obviously can see the rest of it in the P&L, but most of them attended medics and the VFX.
The next question comes from Ghansham Panjabi from Baird.
Great, thank you. This is actually Matt sitting in for Ghansham. Good morning, everyone. And Happy Friday, I was hoping that you could give us a real time sense of how your business is being impacted by the following three factors. So one, the ongoing war in Ukraine and its impact on the operating environment within Europe. Two, the China COVID lockdowns. And then three, at least aside from those lockdowns, the dynamic of growing and improving consumer mobility across the other regions across the globe.
Sure, let me kick off and Bob can chime in, so the war in Ukraine led to the tremendous tragedy, it is impacted three segments differently just as a reminder for everyone, before the war, we had roughly a $60 million business in Russia, and roughly half of that produced locally, the other half imported, and we continue to operate this facility Vladimir to support primarily essential customers and products in the pharma space, basic nutrition, especially infant nutrition and other essential products. And clearly the mainly pharma has not been impacted anecdotally, I can tell you that some customers in Ukraine have restarted essential food products and also not been impacted. Beauty and home has of course been a bit more impacted.
Now, what we do not know and it's almost impossible to know what is the indirect impact of products we sell in the west that would have gone to Russia? Clearly, you've seen many of our customers have shut down their retail locations, but they'll continue operating in [Indiscernible] field or nobody, including ourselves is doing anything new in the country. Now, having said that demand in Western Europe is rebounding so strongly that whatever we use on the back end in Russia, it's hard to decipher so that indirect impact is not as big as we once feared. And that's what you also see solid growth numbers and we expected it to continue.
The much bigger impact of all this is the inflation impact especially on energy in Europe and anything we buy in Europe. If you want materialize energy, we buy a lot of [Indiscernible] transportation, most of our customers do not have lost in some of their energy costs. So that just leads to -- inflation now anything we buy in Europe I think that's probably the biggest impact of the war in Ukraine.
The second point for China, clearly the lockdown has an impact on economic activity. So far most of our facilities have been spared. We have some shut down for a couple of days here and there consuming. Having said that the consumers being locked down and some of our customers not operating. Clearly, demand has been impacted in April. And the big uncertainty for us is what's going to happen in May and June for the balance of the quarter. And ultimately, what will be the impact on overall demand, just as a reminder, about 10%- 11% of our revenue is in Asia, roughly 6% of that is in China. And certainly, if we have a significant drop for a quarter that will have an impact on us. Now, what was the third one?
The dynamic improvement around mobility?
Yes, clearly in the US, in Europe, and mobility between the US and Europe. Things are booming for the lack of a better word. And we see that in the demand, we clearly don't have the mobility in Asia, what we just discussed, but given the overall weighting of our businesses is probably the one time -- someone happy to China is larger for us. The impact of the recovery in Europe and between Europe and the US and in the US is a much bigger impact on us than the headwinds in China.
Great, that's super helpful and excellent detail at across your business just turn positive for -- to implement incremental pricing actions to get there, are we simply waiting for already implemented -- fall through the P&L?
Yes, it's very hard to give you a date certain here. Of course, -- we continue to lay in price increases. Depending on the business, we are on wave five or wave six. And they're not getting easier. Of course, the cost keeps rolling in. And especially since we don't know when the increase in inflationary increases, especially in Europe will stop. It's very hard to give you uncertain when that will be behind us. I am looking at Bob whether –
Beginning in the year, we would not have anticipated the net $5 million negative that I talked about in my opening remarks. So the war in Ukraine has added a whole new element as Stefan has mentioned on the energy prices and in the indirect ripple effect is that rolls through all the different substrates and everything that we buy. So it's really difficult, we are, as Stefan said being very diligent in passing on now it's cumulative, and those pricing increases are taking hold. But we're really at the mercy of where the costs go up from here, right? While we saw some resin abatement in Q1 in North America, and an increase in Europe, we though that resin was kind of on its way down only to see now that resin is starting to trend higher again in both North America and Europe. So it's a very fluid situation, as we said, and it's more dependent than I guess on and where the costs go from here.
The next question is from Mark Wilde of BMO Capital Markets.
Hi, good morning, Stefan. Good morning, Bob and Matt. I want to just to start off if you could give us any sense just of sort of activity levels across the business in April.
Yes, look, we really don't speak about the individual months within the quarter. I gave you some sense -- of course what we see throughout the quarter and just due to repeat, we see resin -- accelerating, we have some tough comps in emergency treatment in our [Indiscernible] in the quarter one and those comps will be much easier in quarter two. So we see good growth in prescription, rolling in consumer healthcare continues to do very well, injectables and develop the consumer facing business. So overall, we see good momentum.
Okay, then for my follow on, I want to go to geopolitics and geopolitical risks, just given what's going on with Russia and the Ukraine. I'm just curious, how has may have affected your thinking around the pace of growth in China. And we've had China hacking fairly aggressively in the South China Sea, and around Taiwan. So I just -- I'd like to get some sense of how you think about this, and whether it's had any impact on your thinking?
Well, I think what we're guided for first and foremost, is really by -- demand, and that's driven by demographics. And certainly that the demographics are now changing. And as one of the most stable trends and despite the political rhetoric that you hear, and animosity you have, which we all can understand, the business goes on and -- at the local level provincial level, governments are extremely supportive of investments. One of the biggest growth drivers for the coming decades. Now, we're not naive and ignorant of stakeholders’ nervousness around that, but I think when you look at the US China relationship, there is tremendous codependency and self-interest, everybody to keep the business moving.
The next question comes from Kyle White of Deutsche Bank.
Hey, good morning. Thanks for taking the question. On pharma, I just wanted to update on with this destocking that you had in prescription that seems like it's largely behind you based on the commentary and the outlook. Is that what you're seeing as well? And then, as you go forward do you have good visibility for prescription getting back to the high single digits or it clear and possibly double digit core sales growth, given the inflation that you're seeing?
Yes, certainly, these are continues to be behind us. And maybe there is no catch up -- and as we get into quarters where the in the comparison would not be surprised if they're touching the double digit for quarter or two. So overall, that outlook seems very solid. If you're only coming back to Mark's point on China, and wanted to make one additional point, clearly, we are living in a very different world today than we were three, four years ago, we all very cognizant that we were in all our business was growing up and when everything was starting to converge, globalization, convergence of trends and so on. And it's a much more complex world with many more tariffs, non-tariff barriers, political issues, and that said it's a lot easier just for a global company to navigate that that has always has a philosophy of local for local with strong local leadership than it is for small and local competitors. So while we see of course, the headwinds from some of the rhetoric we also see fewer threats from local competitors, kind of becoming too aggressive in some of our other markets. And we also see customer behavior changing where customers were maybe buying after Europe because I no longer want to buy only for low cost reasons and the supply chain is long, response times are long, the carbon footprint of transportation is long term, and more complex one there's nothing negative for us, it is actually in the long run a positive for us. So sorry to add that one.
Now, I think it's a core sales – about 58%, talks about potentially--, as a -- begin to decline? How should we think about that going forward in terms of, is there any way to quantify maybe the benefit that at home COVID? The test had for you and to core sales growth over the past year, and maybe what kind of headwind that could present here going forward and that the main reverses.
And COVID was kind of having the first home in maybe quarter four, and especially quarter one, and then our prescription picked up this opponent but it should – overall for the form of growth.
Yes. I would just add, Kyle, it's been super lumpy, right? Inspiring to see at home COVID test kits demand in Q2 of last year. And as Stefan said, again, in Q4, not much in Q3 and then we see -- big when we forecasted a very big growth in Q1. Right now, we're just not assuming that's going to continue. We're going to wait and see what the demand is, obviously, there's a lot of discussions and philosophies around testing and certainly the government doesn't want to get caught off guard with lack of test kits again, that's partly reason why we received that grant to make sure that we had enough capacity should we needed. But I think it's going to be very lengthy going forward but as Stefan said, the resurgence in the prescription side should make up for any decline comparatively speaking with --.
We now have Adam Josephson, KeyBanc Capital Markets.
Thank you, operator. Good morning, everyone, hope you're well. On your second quarter guidance. So on the one hand, you're talking about broad based momentum seeing this momentum in April so you're off to a good start in the quarter. On the other hand, your range is, correct me if I'm wrong $0.02 wider than it normally is. Normally, there's a $0.08 range. Now there's a $0.10 range and you're talking about a highly uncertain environment not only for this quarter but for subsequent quarter so can you just help me square those two things as it relates to your confidence level in the second quarter and why the wider range if you have all this momentum in April and perhaps even into May?
Yes, look the dropping significantly you have the inflationary impact of Ukraine, it isn't so much demand that we are worried about as a massive spike in energy. You saw the cut off to Poland and Ukraine energy costs are through the roof. And it happens very fast including then anything we buy. And then you have the China situation – ahead of Asia in January, but because -- they're in the place and Shenzhen being lockdown, so it's just-- in one meeting in the planning, so if that continues for another two months – is everything we talked about, we see prescription accelerating, we see good demand in Europe and in the US. We still have supply chain issues in the US but they are -- that's why the broad range but yes overall you read it right we're confident at the midpoint to where it's an 18% earnings growth so nothing to sneeze that with uncertainty both on the up and ground.
No, I appreciate that. In fact, the China question I know when you came in China was a big focus area for you. And you thought there were tremendous growth opportunities there. And you fast forward to that I know you talked about reshoring to some extent your customers are looking to re-shore to some extent, but and you fast forward to today with the increased tensions between China and the West. And obviously, the lockdowns, the fact that China's population growth last year, I believe it was the slowest in six decades. It's a rapidly aging population. So I wouldn't think they're the same growth opportunities there that there used to be. How, if at all, has your perspective on China and the growth opportunities there changed Stefan from the time you took over to now?
Look, I'm trying to see whether I have additional things to say than what I said before. Remember that talk about a business -- the Asian including the Chinese consumer basket is over indexed by consumer basket, the duty is very important, continue to be very important. And that has not changed. Food, healthy foods for aging population extremely important. And the numbers are just significant. Now, there will always also a more defensive view, occupy the space before you give too much food to competitors, maybe that defensive view is a little less pronounced and gives us a bit more time to develop our position. But anyone investors in Asia and China from a growth perspective, I think it's not prudent. But you got to manage it. And I think we're growing steadily, I'm very happy with the moves we've made, but the following quarters, we will be back and nonetheless going to forget the -- locked down for 18 months. So China chose a different strategy. And so they are now in lockdown.
The next question is from Angel Castillo of Morgan Stanley.
Good morning. This is actually [Indiscernible] for Angel. And I just wanted to kind of get a little more color, core sales to the beauty market increased 16%. And just kind of here where your expectations were coming into the quarter and just how we should think about how that market is out for the balance of the year. And seems like went back to -- any color on kind of [Indiscernible]
Overall demand has certainly been strong. And we expect that to continue, it did surprises a tad on the upside. March was very strong. And that allowed us to offset some of the headwinds we talked about, the $1.5 million reserve, the FX range with the guidance we gave, so -- with the caveat of the China lockdown I think -- 0:45:58.8.
Got you. Thank you. That's helpful. Just a quick one. I'll turn it over. Regarding the capacity expansion for elastomeric components. Do you expect to have any startup costs in --?
Yes, the sort of cost that we're experiencing in the elastomeric division are expected to we're going to continue to incur those. Remember, this is a kind of multiyear ramp up. So they'll be getting less over time, but we do expect to continue to incur some of the startup costs for the remainder of the year.
John Gillen of William Blair & Company.
Hi, good morning. Thanks for taking my question. I want to focus on the pharma segment here. Regarding your prescription business, is there any key product conversion opportunities coming up, for example, converting injectable to nasal in the short term.
Yes, hey, Justin. Look, a big part of the prescription growth is all about conversion. Whether it's Naloxone that's been converted from an injected to a needle, whether it's some of the other emergency treatments -- Spravato and so on, or the allergic rhinitis business, going from oral dose to nasal delivery. So that is was filling the pipeline, we cannot talk about any individual projects and let customers reveal that, growth in the injectable business is really driven by biologics growth by vaccine growth and the migration from the large multi dose vials to single dose vials and prefilled syringe. You can call that conversion, if you like. But clearly, that injectable unit is all about the power of biotech coming into the pharma space in a major way and being ready with strong products to fulfill that demand.
Got it. And I'm glad you mentioned that, in terms of injectables, how is the quarter in terms of your order book? I understand that is not a big part of your business currently, but are you still seeing COVID orders coming through? And what about non-COVID biologics? Thank you.
Yes, we continue to see good order book developing both these vaccine and biologics. I mentioned earlier, what we see is kind of people focusing on a next generation vaccine. And the annual vaccine made a combination vaccine with the flu and converting that or migrating it from the multi dose vial to single dose and prefilled syringe which will only help us in more favor our premium products.
Okay, I understood and just the last one for [Indiscernible]. Do you have any early read on your client’s view of the cold and flu season coming for this fall? Does world is near normal upcoming season for prescription and consumer health or I guess ask another way where do you think we are versus pre pandemic part?
Well, I am not sure that I can give you a crystal ball. But clearly, this is a normal, maybe strong, cold or flu season year and the colleagues around you getting close to normal colds and flus as opposed to COVID you see is in our consumer healthcare business, which is pulling very strongly. And you would think that people who go through that experience better want to get their flu shot. So this portfolio is not crystal ball gazing I can do.
And maybe I could add that with this time variant of Omicron it has much more cold and flu like symptoms. And so you have people treating it like they would a normal cold and flu anyway, so you kind of have a convergence of the two as well as it is runny nose, sore throat, those types of things. So that's also kind of now melding together.
We now have Daniel [Indiscernible] of Jeffries.
So you have to make an inflationary environment?
Yes, I mean thing that [Indiscernible] what is contractual, which is mainly raw material on the polymer side. Everything else is negotiated prices. And we'll do our [Indiscernible] to go along to those things. And by and large we have differentiated products, and we should be able to hold on to that.
And if things keep going higher, I mean, can we see some demand destruction or continuous? I guess, mix degradation? I mean, just giving consumers pushing back, I guess, is that something that's happened in the past, where you've seen demand destruction amongst your products? I mean, obviously, I would think mostly outside of pharma.
I would say historically in the past, you have certain tradeoffs right. So you may see smaller packaging, right, which is important which is a positive for us, right, more units sold, you may see a shift to private label less expensive products, we serve that market as well. So I would say that past historical pressures on the consumer has been met with different choices. And that's the beauty I think of where we play, we play across the whole spectrum, right? We serve prestige fragrance as well as nasties fragrances, we serve private label on personal care, as well as brand itself. Those are the types of historical patterns that you've seen.
I mean, what I would say is COVID has certainly been a significant net negative for us, including missing a year of demand for a cough and cold and allergic rhinitis, but a generic recession, if there is such a thing we should see fairly well and have done in the past.
We now have gave Gabe Hajde from Wells Fargo Securities.
Good morning, Stefan and Bob. Hope you're well. Bob, not that yes believer and I am trying to revisit the price cost situation, Bob. I just put some numbers around it, I'd want to say you were $27 million on faster. But the expectation would be you get that back at some point. And maybe it's 2023 when kind of margin or price cost restoration. So first, can you confirm those numbers? Two, is a risk that similar to prior question was that you don't get it all back?
So yes, your numbers are pretty close. I had between $27 million - $28 million for last year and roughly $5 million for this year set. So your numbers are pretty spot on to what we're tracking to. Is there a risk we don't catch up? It's really hard to say the further on if you go everything kind of blends together. But I mean, we have put out multiple price increases, right. So those has to kick in and cumulatively, like I said, it's really more on what happens on the cost side, I'm convinced that the price unit we push through should be sufficient for what we've seen in the past. What I can't foresee or foreshadow is how much more it's going to keep increasing, and how much more price increases, we'll have to push through it. So whether it takes the ‘23 or whether it will catch up at ‘22 is really difficult for us to put a target out there.
No understood. And then one, I guess quick housekeeping question. Corporate was a little bit elevated this quarter. And I want to say the $1.5 million that you reference in the final segment. I'm assuming it was directly in there. So is there anything that we should be mindful of kind of forecasting going forward or that occurred this quarter?
Sure. So yes, Q1, we – it’s a limit higher than when I would kind of project going forward, I would probably target more in that $15 million to $16 million range for corporate like we've seen in the past some of our equity awards, the accounting rules change when people hit certain substances vesting thresholds, meaning that awards which normally might have been expensed over the three year LTI period get expensed immediately. So you got a little bit more of an increase in Q1, you've also got comparatively speaking, a higher approval level for SPI due to the improvement in the business compared to the prior year. And we've got a little bit more on the professional fees. But I would say, run rate Q1 will be now historically a couple million higher than the other quarter, so I would target more than a $15 million to $16 million range
We now have a follow up question from George Staphos of Bank of America.
Thanks very much. Hi, guys. Thanks for taking the follow on. It's late in the call, Phil ask these in parallel, first, it seemed like Stefan from the new product discussion that there's a bit more momentum more interest in SimpliSqueeze? Is that a fair assessment? Or is it just coincidental in terms of what you're seeing now in terms of the pipeline? And if it is a little bit more traction, you're seeing in SimpliSqueeze, is there a margin implication across your --x wise, if you can talk to that? And then a lot of questions, obviously on margins on price costs, and so on. And basing that you need. Pharma side, food and beverage, beauty and home has still been sort of lagging on margin, we'll assume a lot of that's just the price cost. Is there anything you have left to do that you don't already have contemplated in the transformation of beauty and home or any of your other manufacturing plans that could improve your cost side. So forgetting direct margin or getting resin, is there anything left that you need to do to improve your margin traction in beauty and home and food and beverage from an ops standpoint? Thanks, guys. And good luck in the quarter.
Thanks George. So, yes, on SimpliSqueeze, I would see, I would say we certainly see also moving to pharma into beauty and home and whenever evolves in there, that is a positive for margin. So remaining no single product launch moves the needle. But if I just pick one from last quarter, the new dish wash product by a major company that -- [Indiscernible] versus P and then G is the game changer. And that they're simply bodes well. On beauty and home and food and beverage from that order. We're never done. We, I think I mentioned the last few, we have some additional ideas what we do there. We are not quite in ’19 levels volume wise clearly. That through but that's not making us rest. So yes, there are additional ideas and the teams are busy with that when we can discuss that we will but we remain committed to get there.
We have no further questions. I'd like to hand it back to Stefan to close.
Thank you. Thanks for joining us. And we look forward to be to see on the road and – including virtual and in person.
Thank you. That concludes today's conference call. Please have a lovely day. You may now disconnect.