Earnings Call Transcript - ATR Q3 2020

Operator, Operator

Thank you for joining us. Welcome to Aptar’s conference call for the third quarter of 2020. Mr. Matt DellaMaria, Senior Vice President of Investor Relations and Communications, will now introduce the call. Please proceed, Matt.

Matt DellaMaria, Senior Vice President, Investor Relations and Communications

Thank you, and welcome, everyone. Participating on our call today are Stephan Tanda, President and Chief Executive Officer; and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary. You can find a copy of our press release as well as a slide presentation filed that summarizes our results on our website. If you are following along on the website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. We will also post a replay of this conference 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 those projected or contained in the forward-looking statements. Aptar undertakes no obligation to update the forward-looking information contained therein. I would now like to turn the conference call over to Stephan.

Stephan Tanda, President and CEO

Thank you, Matt. Good morning, everyone. I hope you and your families are staying healthy and safe during this time. We appreciate you joining us today. We began navigating this pandemic early in the year, learning from our colleagues in China in late January and forming a crisis team to manage the evolving situation with a focus on our employees and the production of essential dispensing solutions. Our priorities continue to be the health and safety of our workforce and maintaining production to fulfill our commitments and provide drug delivery in consumer dispensing solutions that help millions of people daily. I want to thank our dedicated team worldwide for their significant contributions to ensure supply and support for our customers, end consumers, and patients everywhere. We are continuously adapting our safety procedures and working policies to comply with new insights and local regulations. Our COVID-19 action team is closely monitoring the pandemic, and we have been holding regular town halls and other communications with our employees. Most of our travel restrictions and visitor limits to our facilities are still firmly in place. Like many, we have quickly embraced electronic collaboration. To enhance customer engagement and share our broad solutions expertise during this time, we have significantly increased the use of digital engagement formats and trained our employees in their effective use. Our segments are conducting virtual events, digital co-creation sessions, and webinars with customers, potential prospects, and industry partners. Our Pharma segment has launched a knowledge hub with our latest scientific content and digital event information to inspire and foster innovation. We are encouraged that our business development and innovation pipelines remain strong across all segments. Now, regarding our quarterly financial performance, I am pleased to report growth in both the top and bottom lines, particularly given the current pandemic conditions. Our diverse product portfolio serves multiple attractive and long-term growth markets. Currently, two of those markets are temporarily affected, while the others are performing well. Our recent acquisitions, particularly FusionPKG and Noble, are also doing well. Along with organic core growth over the prior year, we are generating strong cash flow, exceeding prior year levels through the first nine months. In our Pharma business, recognized globally for its drug delivery solutions and services, we have consistently achieved growth. We saw core sales growth of our devices and primary components in each end market, although increased sales of drug delivery devices were partially offset by lower custom tooling sales in the prescription market. The segment experienced 11% core growth, which follows a very strong quarter a year ago. Current growth was mainly driven by rising demand for primary components used in injected medicines, including existing seasonal flu vaccines and initial orders for upcoming COVID-19 vaccines. Since the pandemic began, we have consistently seen an increasing recognition of our technical capabilities in the injectable field and more inquiries from pharmaceutical and biopharmaceutical customers, a trend we expect to persist. Additionally, we benefitted from increased demand for our consumer healthcare and active packaging solutions. We remain optimistic about the global demand for primary components used with injected medicines, including those related to COVID-19 vaccines and therapies, at least in accordance with our market share. Recent product and technology launches from our Aptar Pharma services company, Noble, include AdhereIT, a connected, user-friendly onboarding solution for patients with chronic conditions who use auto-injectors at home. This is the first fully interchangeable connected add-on solution compatible with various auto-injector platforms and represents a significant advancement for patients managing their own therapies. In the quarter, we also assisted P&G in launching Vicks Sinex Severe Ultra Fine Mist in the U.S., featuring our Bag-on-Valve system and actuator. Our metering valves for inhalers for asthma and COPD are present in medications across Mexico, Turkey, and South America. Lastly, our Unidose nasal system is included in a new naloxone nasal spray in Sweden designed to reverse opioid overdose effects. Moving to Beauty + Home, we continue to see strong demand in personal care for our dispensing pumps and closures for hand sanitizers and liquid soaps, as well as increased sales in the home care market primarily related to cleaners and disinfectants. While there were positive trends in the beauty market early in the quarter due to store reopenings, this market remains negatively impacted by COVID-19, and sales have decreased compared to last year. We were encouraged by retail sales activity, but it is uncertain if this consumer movement will continue as winter approaches in the Northern Hemisphere. Customer engagement is strong, particularly around sampling systems, which we consider a positive sign. We are also implementing cost control measures and streamlining our operations. Recent global product launches include our pumps and closures featured in various sanitizing and cleansing products amid the fight against COVID-19. We assisted Unilever in launching a new Zest antibacterial spray in Mexico, which includes our spray pump, along with an antibacterial hand soap that features our closure. Our lotion pump appears on a new antibacterial handset for Unilever’s Vaseline and Lifebuoy brand in Thailand. We also helped Colgate launch a mouth protect spray with our pump in India and supplied new perfumes and colognes, including TriBeCa by Bond No. 9, 10 Forward by Estée Lauder, and Penrose by Avon, among others. In the Food + Beverage sector, we reported strong core growth in the food market; however, this was somewhat offset by lower beverage market sales due to pandemic-related effects. The food market's growth stems from increased demand for pantry staples as consumers continue to dine at home more. Additionally, passing on lower resin prices to customers also contributed to the segment’s overall growth. Recent product launches include our closure used on a new Big Mac sauce available in McDonald’s in Brazil, along with our closures equipped with SimpliSqueeze valves featured in the new inverted Old El Paso taco sauce and a new oral hygiene water enhancer for pets called Tally-Ho by Ocean Spray. Lastly, we have recently joined the Gender and Diversity KPI Alliance with over 50 corporate leaders to promote diversity in the workforce. We will use key performance indicators to measure gender and representation of underrepresented groups. We also announced that our science-based targets have been validated by the science-based target initiative, and we set an emission reduction goal to keep global warming well below two degrees Celsius by 2030. This approach includes our operations and broader value chain activities. Our business strategy emphasizes reducing our environmental impact while fulfilling our societal responsibilities. We remain committed to making our operations increasingly energy efficient throughout our value chain. I will now turn it over to Bob for further comments on our results.

Bob Kuhn, Executive Vice President, CFO

Thank you, Stephan, and good morning, everyone. I will walk through some of the details concerning our third quarter performance, starting with Slide 8. For the third quarter 2020, reported sales, including positive effects of currency translation rates and recent acquisitions, increased 8% and core sales increased approximately 2%. As Stephan mentioned, our Pharma segment had a terrific quarter that achieved core sales growth of 11% and an adjusted EBITDA margin of 36%. Looking at sales growth by market, core sales to the prescription market were even with the prior year. Prescription drug delivery device sales grew 4% on a core basis against a very strong quarter a year ago. This was due to increased demand for our metered dose inhaler valves for asthma and COPD treatments and nasal spray devices for allergic rhinitis. This growth in devices was offset by lower custom tooling sales compared to the prior year. Core sales to the consumer healthcare market increased 6% due to increased sales of our Pharma systems for nasal decongestants and nasal salines. Core sales to the injectables market increased 27% with the higher demand for primary components used with injected medicines, such as existing seasonal flu vaccines and other treatments, as well as some beginning orders in anticipation of coming COVID-19 vaccines. Core sales of our active packaging solutions grew 56% as a significant increase in tooling sales accounted for 46% of the 56% increase. Nevertheless, product sales were also strong, accounting for 10% of the 56% growth. Turning to our Beauty and Home segment, results were mixed across the markets with growth in the personal care and home care markets being offset by decreased sales to the beauty market. Core sales decreased 5% for the segment and Beauty and Home’s adjusted EBITDA margin was 10% in the quarter. It was negatively impacted by the reduced volumes at our locations that produce dispensing systems for the beauty market. We are continuing to right-size our footprint and have recently announced facility closures in Ireland and Spain. However, we are very much dependent upon volume growth in the beauty market in order to meaningfully improve our overall margins. Looking at sales growth by market on a core basis, core sales to the beauty market decreased 21% due to a significant reduction in orders from customers selling both prestige and masstige beauty products, mainly in the travel retail and standard retail settings. Core sales to the personal care market increased 12% due to increased sales of our products used on personal cleansing applications, mainly for hand sanitizers and liquid soaps. Core sales to the home care market increased 6% due to higher demand for household cleaner and disinfecting products. Turning now to our Food and Beverage segment, core sales increased 2% due to increased demand for pantry staples in the food market. The Food and Beverage segment achieved an adjusted EBITDA margin of 19%. Looking at each market, core sales to the food market increased 15% due to increased demand across several applications for pantry staples, as consumers continue to cook at home during the pandemic. Core sales to the beverage market decreased 22% as sales of our single-serve bottled water and on-the-go functional drink products continued to be negatively impacted with consumers traveling less during the COVID-19 pandemic. Turning to Slide 9, third quarter adjusted earnings per share totaled $1 per share, and were an increase over the prior year comparable earnings per share of $0.97, adjusting for currency effects. Slides 10 and 11 cover our year-to-date performance and show a 2% core sales decline in adjusted earnings per share, which was $2.72 compared to $3.15 a year ago, adjusting for currency effects. Slide 12 outlined our outlook for the fourth quarter as we expect the company to achieve core sales growth. Rising demand in many end markets is expected to more than offset COVID-19 related declines in some of our other end markets. We expect our Pharma business to continue to do well with existing business and increased opportunities indirectly and directly related to the pandemic. We expect our adjusted earnings per share range to be $0.84 to $0.92 in the fourth quarter. Now I will share a few more details around our cash flow and capital expenditures, and then turn the call over to Stephan for the closing remarks. In the quarter, reported cash flow from operations was strong and totaled approximately $154 million. Capital expenditures were approximately $50 million. And as shown on Slide 13, our free cash flow was $103 million compared to $97 million in the prior year. We continue to have a strong balance sheet and on a gross basis, debt-to-capital was approximately 41%, while on a net basis, it was approximately 36%. In addition, we continue to evaluate and challenge our capital expenditure needs and are forecasting a range of $240 million to $250 million. At this time, Stephan will provide a few comments before we move to Q&A.

Stephan Tanda, President and CEO

Thanks, Bob. So in closing on Slide 14, we had a strong third quarter with top and bottom line improvements over the prior year, driven primarily by our Pharma and Food and Beverage segments. We are proud of the way our employees have responded to the difficult year. And we are encouraged by the level of dialogue with customers in the beauty market who saw some positive consumer spending patterns when retail stores opened. We expect our best of breed Pharma business to continue to do well with existing business and increased opportunities related to the pandemic. Our balance sheet is in great shape, and we are generating cash flow above last year’s level. We will continue to focus on furthering a sustainable, diverse, inclusive business, and a more circular economy. I would now like to open the call up for your questions.

Operator, Operator

First question comes from John Kreger with William Blair.

John Kreger, Analyst

Hi, thanks very much. Stephan, could you just expand a little bit more on what you’re hearing from innovators around the pandemic? Is the early demand you’re seeing more driven on the vaccine side or therapeutic side or sort of indirectly from other products dealing with respiratory illness? Thanks.

Stephan Tanda, President and CEO

Hi, John. Yes, it’s really all of the above. In terms of quarter three results, the strong performance is really related to increased demand for the flu vaccine, increased demand from COVID-related treatments as well as robust demand, the increased demand for traditional in-home treatments like COPD, like allergic rhinitis, like saline rinses. People just want to stay healthy, take their chronic disease treatment regularly. And also, let’s not forget, most COVID cases are not super severe, but people still need decongestants and take their regular medication to make sure the outcome is as good as possible. Towards the very end of the quarter and heading into quarter four, we see people starting to make at-risk purchases to ramp up some of the early vaccine candidate manufacturing of that. But as we said, that only started late in the quarter and into quarter four. I think in general, this pandemic really has put a spotlight on our injectable business, our technical capability. And for the first time, we see dual sourcing as the supply chains for the vaccine productions are being organized, and customers are pleased with our overall capability and having multiple options. So overall, we are very optimistic about the future. But so far, what you’ve seen in the demand uptick is mainly related to secondary effects.

John Kreger, Analyst

Thank you. And just a follow-up on your comment there about the injectable part of your Pharma business. I realize there’s uncertainty about whether or not any of these vaccines will be effective. But if the sort of 27% demand that you saw in Q3 were to be sustained through next year. Do you have capacity to handle that? Or are you needing to add additional capacity at this point?

Stephan Tanda, President and CEO

Well, we have, of course, added capacity over the course of the last 18 months to the tune of about 25% or so. We’re continuing to ramp up investment to add additional capacity to the tune of $15 million to $30 million, and we’re reviewing the need regularly. So right now, we’re comfortable with our capacity situation. And of course, whether the 27% will be repeated next year, that’s – we’re not giving any guidance on that. But certainly, we see a bump in the growth rate indirectly and directly related to COVID. What exactly it is, maybe a 5%, maybe a 7% growth bump over kind of the baseline growth that is already in the teens, mid-teens for this business.

John Kreger, Analyst

Excellent. Thank you.

Operator, Operator

Next question comes from Ghansham Panjabi with Baird.

Ghansham Panjabi, Analyst

Hey guys, good morning. Hope everybody is doing well. Stephan, maybe on the last – following up on the last comments, as you think about the four different sub-verticals that you’ve outlined in Pharma, injectables and prescription and so on and so forth. Can you just sort of stack rank for us the COVID impact on each of those subsets? Which ones would have obviously been the most – I would assume it’s injectables, but maybe just more color on that in terms of what you’re seeing at this point.

Stephan Tanda, President and CEO

Well, yes, of course, in the top line growth rate, it’s injectable, but also realize it’s off a smaller base compared to the other businesses. We certainly have been positively surprised in the quarter about the strength of our prescription division and the use of our traditional products and medications, and certainly tie that to people making sure their medicine cabinet is full, but also just treating light COVID symptoms, same for consumer healthcare. Now injectable certainly has had a step change driven by the flu vaccine, driven by COVID and other treatment in hospitals that are in injectable form. And just the overall activity level gearing up significantly and providing sample quantities, qualification quantities and so on. Overall, we have about, at this time, north of 80 active projects. By now, it’s kind of a more stabilizing number. New projects come in, some products get stopped, but it’s a pretty stable number. And then let’s not forget active packaging. Active packaging is doing very well. We’re starting to get good traction in the oral solid dose category, which is new for us, while the kind of chronic disease, diabetes treatment remains solid. And also, some of the more consumer healthcare applications are very much in demand as people take care of themselves in these tough times. So it’s really across the board. But clearly, the step change in the trajectory is our injectable business.

Ghansham Panjabi, Analyst

Okay. And then on that last point on injectables, there are many drug candidates out there in late stages of the trials, et cetera. Is it fair to assume that you are going to be a participant no matter who wins in terms of the vaccine? Or is it going to be more specific to customers? And I guess I’m referring to that comment that you made about dual sourcing. Is that a relatively new dynamic for this type of rollout relative to maybe the previous baseline?

Stephan Tanda, President and CEO

Yes. I think the pickup on the last point that is new usually would be people get specked into a particular project, and then you’re in that project for the life of the project. And in these particular cases where demand is ramping up quickly and people want to make sure they got the bases covered, we see dual sourcing and situations, and we have been qualified in several projects as a second source. The other overlay I would remind you of is, of course, geographic. We have certain strengths in certain geographies. In some geographies, it will be more prefilled syringe with that product mix. In other geographies, it will be more multi-dose vials with stoppers coated, uncoated stoppers. So as we said before, and I think it’s very safe to assume that, at least in line with our market share in the overall injectable ecosystem, we will benefit no matter who or which vaccines win out.

Ghansham Panjabi, Analyst

Thanks so much, Stephan.

Operator, Operator

Next question comes from George Staphos with Bank of America.

Unidentified Analyst, Analyst

Hello. I am sitting in for George Staphos. Thank you for taking my questions. My first question is about COVID and the comments made earlier. Last quarter, you mentioned around 100 COVID projects. How many are currently active, and what is their status? How is the progress on those projects? Thank you.

Stephan Tanda, President and CEO

Yes. Thanks. I just said earlier, north of 80, so somewhere between 80 and 100. This is a dynamic number, so it’s not – it doesn’t keep increasing. As typical with a new project, some die and some new ones get added. So it’s somewhere between 80 and 100.

Operator, Operator

Okay. Thanks. That’s helpful. Next question comes from Mark Wilde with BMO Capital Markets.

Mark Wilde, Analyst

Good morning, Stephan, good morning, Bob.

Stephan Tanda, President and CEO

Good morning.

Bob Kuhn, Executive Vice President, CFO

Hi Mark.

Mark Wilde, Analyst

So just to come back to this COVID question one more time. Before you had talked about getting incremental business sort of in proportion to your market position, and today, you’re really suggesting something a little different. Can you just put a little more color on that? I hear you in talking about the dual sourcing. But I’m trying to figure out what is leading you to say you might actually have volume gains beyond your share.

Stephan Tanda, President and CEO

Well, not to parse every comment period, but we say, okay, at least in line with our share, is it a little bit more optimistic? I guess so. And that has to do indeed with what we perceive as broader-based technical recognition of our technical prowess and the ability to be just as good as anybody else across our product line. And that’s been confirmed with the dual source operations also. We do a lot more now on the biotech side, biologics, vaccines, obviously. So it’s just playing back the confidence that we see among our customer base about our capabilities.

Mark Wilde, Analyst

Okay. That’s fair. And then I’m just curious, if Pharma continues to outgrow the rest of the portfolio. And at the same time, as you’ve been attending some healthcare conferences over the last couple of quarters, do you feel like you’re making headway, Stephan, with the investment community and getting them to think about you as more than just a packaging company?

Stephan Tanda, President and CEO

Yes. It’s a journey. In the previous life, the journey took very long, but to be recharacterized and obviously, the multiple following that. But we are well along the journey. I think it’s just the fact of life that Pharma investors understand this kind of business better than somebody who has to follow materials, mining and packaging, and that’s no judgment. It’s just a fact of life. And clearly, when Pharma investors look at our business, the margin profile, the growth, and then what it trades at, they see a lot of value. But it’s at the beginning of the journey, but we are certainly committed to that journey because, I think, we are an attractive option for Pharma investors.

Mark Wilde, Analyst

Yes. Well, for what it’s worth, Stephan, a lot of the packaging analysts also see a lot of value at the company. I’ll turn it over.

Operator, Operator

Next question comes from Neel Kumar with Morgan Stanley.

Neel Kumar, Analyst

Hi, good morning. Thanks for taking my questions. In Beauty + Home, could you provide more details on the player you mentioned and the current status of your transformation plan? What are your expectations regarding the timeline for margin recovery in the business from this point forward?

Stephan Tanda, President and CEO

Yes. I didn’t quite phonetically understand the first part of it, but let me just cover the field here. As a reminder, in our Beauty + Home business, we embarked on a transformation back in the beginning of 2018, late 2017, with four pillars: one is to accelerate and upscale the front end of the business, sales and marketing, sales force segmentation, customer project management, and so on. That is very well advanced. Quite happy with the performance. I’m very happy we did it before the pandemic when I see the skill base we have in the team, and the rapid switch to virtual and electronic interactions and the tracking we do in customer projects, pipeline conversion, and so on. So that’s number one. Number two was addressing some of the underperforming operations. It took a little longer, but as I mentioned before, I feel very good about that. Nearly all of the underperforming factories are now at very good efficiency levels – service levels recognized by our customers. There’s always more to do, so don’t get me wrong, but very good progress. I realize you haven’t seen the benefit of it because of the significant underleverage from a volume point of view of our beauty facilities. But when we dive into the personal care home care facilities, we already see significant gains from the volume leverage, confirming their improved performance. The third part was reduction of fixed costs and overhead. In there, progress is still being made. It’s a bit slower than the other two. And then last but not least, corporate support functions, and very happy with that. Bob can maybe speak a little bit to the shared service centers he started up in the Czech Republic, and that’s performing very well, and we pull more and more activity into that shared service center. Having said that, of course, we continue now also to address the strategic gaps that we had, which is an underexposure to the more rapidly growing skincare, color cosmetics in Asian markets. That’s partly organic and partly through acquisitions. I remind you of the Reboul acquisition in color cosmetics, BTY acquisition in color cosmetics in China, and being more responsive with fast beauty. We are very happy with the FusionPKG acquisition that’s, even in the pandemic, performing well, confirming that rapid reaction, agile model. And over time, we will build that out in select countries in Europe, of course, in China. You’re never done, and I’m a big believer in the old Andy Grove, Only the Paranoid Survive, and we’ll continue to make sure that we adapt our product and market portfolio. Last but not least, with all that comes, of course, paring down footprint in the West. And when I look over the last two years, we’ve made a lot of progress there. We’re, of course, in the middle of the North American footprint project. And as Bob mentioned, we announced recently the closure of our Ireland facility and now also a smaller facility in Spain. So we will continue to adapt our footprint as we position the business toward the faster growing segment and geography, notably Asia, where beauty is very much over-indexed compared to the West. I hope I answered your question.

Neel Kumar, Analyst

Yes. Great. Thanks for all that detail. And then within the injectables and Pharma, is there a way to quantify how much of the growth in the quarter came from more people getting the flu vaccine this year? And do you expect that benefit to continue to the same degree in the fourth quarter?

Stephan Tanda, President and CEO

Well, we – I think I mentioned before, we estimate – and that’s really what it is, an estimate that maybe a quarter, maybe a third of the growth bump is due to COVID directly and indirectly, especially indirectly. And of course, that will now also transition more to vaccines directly, in candidates, 5% to 10% growth premium. We expect to continue until, of course, we lap it. I think that’s probably as much transparency as we can give you.

Operator, Operator

Next question comes from Adam Josephson with KeyBanc.

Adam Josephson, Analyst

Thanks. Good morning, everyone. Congratulations on a really good quarter. Stephan, one more question along the lines of what you were just talking about. So you grew 11% in Pharma on a really difficult year-ago comparison as you referenced earlier. You mentioned some of these trends are going to continue for some time just as the vaccines and therapeutics get rolled out and as people pay more attention to their health for obvious reasons. You have this long-standing core sales growth target of 6% to 10% in Pharma, and you’ve been on top of that for the last two years, and it sounds like – and you were on top of that in 3Q on what was a really difficult comp. Is there a reason to reassess that long-term target given this bump you’re seeing from COVID? Do you expect to remain at or above the high end of that range for the foreseeable future as a result?

Stephan Tanda, President and CEO

Yes. I mean, look – thanks for the congrats, Adam. We’re proud of the quarter, of course. A 6% to 10% target did not anticipate COVID, and we’re getting a bump here. but even with the bump, there’ll be grew 11%. Let’s remember, a couple of percentage of that is tooling. In injectables also, we took about 3% in price. So – and the 6% to 10% is kind of a volume range. So, even with all the bumps, we’re recommending in to the 6% to 10% range if you strip out the tooling and the pricing. I do not see a change in targets here in the middle of the pandemic. But certainly, if we step back next year and take stock for the maybe next normal, we may take another look at that. But I wouldn’t hold my breath. I think 6% to 10% is a pretty good target.

Adam Josephson, Analyst

Sure. Fair enough, Stephan. And just, I think to Mark’s question earlier about just going to healthcare conferences, et cetera, do you think the Beauty and Home business impedes kind of the ability for investors to see the value in this company, given the extent to which it drags down your returns, your margins, your growth, et cetera or do you continue to view it as so integral to the Pharma business that the two just go together, period, end of story?

Stephan Tanda, President and CEO

Well, the short answer is your last sentence. but the longer answer is, we are not holding back thing in Pharma or in any way, other than the rigorous disciplined management that you would expect. We are – the Beauty market realizes that right now, we have depressed demand and beauty. But we see the bounce back in China, eclipse pre-COVID levels, and that bodes very well for the rest of the world once COVID is in the rearview mirror. And as I said before, I understand, of course, the capital market multiple logic of a pure play, but the industrial logic is just not there; we do the same things often in some cases at shared sites. We do high position and injection molding. We do high-speed assembly, rotary, continuous motion assembly. We practice just across the company, and we do very specialized metal processing that we shared facilities between Pharma and beauty. So, I’m not saying it can’t be done, like this is it – before I can put a wall through my house, create a separate entrance and rent out the backdrop of the house. It can be done. It’s just industrial logic. What we do hope is that by eliminating the frontend business, where the broader investor base, including asking investors, that people do a fair evaluation of the total company and some of the products we have of two parts doesn’t seem too hard to do.

Adam Josephson, Analyst

Thanks, Stephan.

Operator, Operator

Next question comes from Salvator Tiano with Seaport Global.

Salvator Tiano, Analyst

Yes. Hi, thanks for taking the questions. First one, in Pharma again, I just want to look forward roughly, next 12 months, assuming that we do get one or several vaccines, against Q3 – in Q3 of 2021, could your volumes that receive this COVID boost for pre-COVID treatments, flu vaccines, could they actually decline, and obviously, in this scenario, injectables would benefit. So, what would be the net effect of a flu vaccine against Q3 2020 volumes next year?

Stephan Tanda, President and CEO

Yes. I think the short answer is we really don’t give guidance for next year at this stage. You do have a mixed effect; always in Pharma with the profitability being high is for our prescription division and then consumer healthcare, then active packaging and then injectables. So, but when you look at the performance for quarter three, you also see by deduction that injectables have been quite successful in boosting their margins. So, the negative mix impact of their higher growth has been muted. So, but you will always have that mix impact if there’s a stark difference in growth rates, and yes. Clearly, if you put some high numbers on the board, you’re going to have tougher comps. and certainly, we alerted you to that fact especially also for quarter three. With COVID as the booster, we were able to grow also nicely again, but that’s not a guarantee forever.

Salvator Tiano, Analyst

Yes. Okay, perfect. And for my second question, can you provide a little bit of data on how you think about M&A, any areas that you particularly like, and is the pressure on beauty volumes providing the opportunity, perhaps some targets that you could acquire at attractive valuations?

Stephan Tanda, President and CEO

My mind is very active. So maybe, surprisingly, we have a lot of deal flow and look at different targets. We have been able to pull the trigger on some very small things that you may have seen connected reusable packaging company in Europe, MIWA and connected device company, Cohero, very small investments, but larger premium assets still come at premium prices, especially with the interest rates, where they are and sponsors are able to get money again. And so – we remain disciplined. So, the themes certainly, digital for us is important, especially in Pharma. So, we continue to look at digital, we look at services opportunities, geographic is important. The demographic imperative of Asia has not diminished and maybe, the opposite. So, we continue to look at Asian opportunities and at the same time, stay disciplined. So, I think I don’t know Bob, whether you want to go ahead.

Bob Kuhn, Executive Vice President, CFO

Yes. I think you summed it up. I mean, it’s – there are not any bargains out there to be honest with you. And I think we just need to stay true to our form and remain disciplined and not overreact here on assets that are out in the marketplace today. So, I think, we’ll stay the course and if we see something that makes sense from a strategic point of view, certainly will be aggressive and go after it. But I don’t see any real big positives or negatives at this point in the M&A environment.

Salvator Tiano, Analyst

Okay, perfect. Thank you very much.

Operator, Operator

Next question comes from Daniel Rizzo with Jefferies.

Daniel Rizzo, Analyst

Hey, guys. Thank you for taking my questions. You mentioned with the growth in food and beverage because of consumer pantry demand, I was wondering if you anticipate a dip in demand maybe in 2021 given kind of, I guess what I would call inventory built by consumers?

Stephan Tanda, President and CEO

Yes. Again, given guidance for next year. It’s something we want to get into, I think, it’s common sense, thinking about it would be if that’s the case, that would mean that the economy is opening up, people eating out more to those, it would help our beverage business a lot more. that is depressed right now. So, I think there’s kind of an offset built-in. Clearly, demand has been very robust in quarter three. Perhaps there has been some pantry restocking, but we’re kind of, I guess, in here also a lot of it is now moving on to online e-commerce and as you’ve seen from the economic number overall in the consumer-facing businesses, the economic numbers have helped. People are shopping a bit more. And yes, I don’t have more insight for you than that.

Daniel Rizzo, Analyst

Okay. Thank you very much.

Operator, Operator

Next question comes from Kyle White with Deutsche Bank.

Kyle White, Analyst

Hi, good morning. Thanks for taking the question. I wanted to get a bit more clarity or color on beauty and the core sales growth throughout the quarter. How did volumes trend throughout the quarter? Did you see month-to-month progression? Has any of that kind of recovery stalled here into October?

Stephan Tanda, President and CEO

Yes. Certainly, we’ve seen a good build throughout as the months progressed and, as we highlighted, particularly also in sampling formats. Clearly, there is – the brand owners and retailers have retooled and are looking for a big Christmas season. A lot of this sampling is now not in-store sampling, but sampling that you get with your online purchases. So as retailers and brand owners retool how they can accelerate the top line, we certainly have good dialogue, good project discussions. But let’s be clear, retail traffic and a lot more travel certainly would help a lot more than at these depressed levels. But we’ve seen good progression from the bottom in April, and it has continuously built from there. What all of us really don’t know, and let’s be clear, is the very latest, the shutdowns in Europe, although factories remain open – all the factories remain open and what the pandemic will do here.

Bob Kuhn, Executive Vice President, CFO

Yes. Maybe I can just add that from a Beauty + Home perspective, Q3 is always a little bit different than how the other quarters trend. Typically, August is a slow period for us with European vacations. And so we saw really good strength out of the box in July. And then we saw an expected reduction in August. And then September was pretty near July levels. Now traditionally, what we see then is we’ll see that September bump flatten out in October a little bit, and then we typically trend lower in the back half of the year as most of the beauty orders have been already filled and in the store shelves by then. And then we wait until Q1 before we get kind of – if it’s a good sell-through season, another bump for downtime pay and Mother’s Day and things like that. So I would say it was – it’s not a progressive trend throughout the quarter, but that’s normal for us in Q3.

Kyle White, Analyst

That’s helpful. And you touched on it a little bit, with France imposing kind of new restrictions, I assume your direct production and facilities are still open, but are there anything that we need to be mindful of in regards to maybe your supply chain or any indirect impacts related to this?

Stephan Tanda, President and CEO

We don’t think so. Certainly, everybody has become more sophisticated about how to manage things. And at the moment, it’s not even restricted to essential business, but all businesses can remain open, just being much more diligent and rigorous in how they manage it. Now we can’t divorce ourselves from the general population so yes, we do see higher COVID counts but still overall relatively low, and we are better able to manage it. So I don’t see us shutting facilities or anything like that. I think we’re now all experienced in how to manage the situation.

Kyle White, Analyst

Thanks. Good luck in the quarter.

Stephan Tanda, President and CEO

Thanks.

Operator, Operator

Next question comes from Gabe Hajde with Wells Fargo.

Gabe Hajde, Analyst

Hi, Stephan, Bob. Good morning.

Stephan Tanda, President and CEO

Hello.

Gabe Hajde, Analyst

Thank you. I was hoping maybe you could talk about what came in better in the quarter, kind of driving the upside on – versus my model in Beauty + Home. I mean I think tax was maybe $0.03 or so, and FX could have been $0.01 or $0.02. But – and then, I guess, if we kind of get advanced Emergency Use Authorization of a vaccine in the fourth quarter or something like that, it would potentially drive upside to the fourth quarter?

Stephan Tanda, President and CEO

Bob, do you want to take it?

Bob Kuhn, Executive Vice President, CFO

Sure. So I would think, Gabe, overall in Q3, all three segments and our models and our forecasts performed better than what we had expected. Obviously, Pharma was a significant growth driver. And there, part of that outsized growth, at least in the active packaging division, was some tooling validations by customers that we weren’t anticipating until Q4 or later. So that’s – that was a positive bump that we were expecting. But the Food + Beverage definitely performed well as the quarter progressed. And I would say the same thing really for Beauty + Home as well. They picked up some nice business in the quarter, and some of that fell to the bottom line. Also getting some business on the diagnostic side and the active packaging as well, which is nice to see. So overall, I would say it was broad-based improvement from where we had expected it to be.

Stephan Tanda, President and CEO

On the question, of course, a steep ramp-up of the vaccine would be beneficial to quarter four.

Gabe Hajde, Analyst

All right. Thank you. And then I know you tell us always, I think, Bob, to not think about increased tooling sales as foreshadowing future growth, and they tend to be lumpy. But it seems like in active packaging, you guys are working on a couple of things that could, in fact, drive future growth in that. I don’t know what the range looks like, but maybe above what your long-term target traditionally is in Pharma. Can you talk about maybe timing as to when some of this stuff could hit? Or it’s just part of your…

Bob Kuhn, Executive Vice President, CFO

Sure. So yes, we do have a number of active projects in active packaging that we’re excited about. The tooling sales in this one is, I would say, a classic example of a customer who’s already in the market with the first-generation product. And due to the success of that, what we validated was kind of the second-generation product as well. And so to me, that’s a good sign in that the customer’s product is successful in the market, and they’re anticipating needs for kind of next-gen product and quantities, and they’re already in discussions for kind of a third phase. So this is kind of what we’d like to see in this. So it’s not necessarily a new product. It’s just the follow-on success of a customer’s project.

Gabe Hajde, Analyst

All right. Thank you. And last one real quick. You called out, I think, in Slide 11, some temporary operating inefficiencies. And I don’t know if that’s specific to Beauty + Home. I suspect it is. If you’re able to quantify that for us? And then relatedly, on the two facility closures in Europe, what kind of maybe savings would you expect going into 2021?

Bob Kuhn, Executive Vice President, CFO

Sure. On the inefficiencies, it’s definitely Beauty + Home-related. In particular, it’s the beauty factor, as you might suspect. I mean we get certain breakeven points. And as we’ve said numerous times, we need to kind of run in a low-idle mode in those facilities until we’re not getting the volume throughput. You just can’t absorb all of the fixed overheads. And as Stephan said, we’ve made great strides in reducing a lot of that fixed overhead, but there’s some of it that you just can’t without literally shuttering the facility, which we don’t want to do. In terms of some of the plant closures here, you’re looking at – run rate, and again, this is – there are several projects here we’ve talked about in the past and U.S., which has been slightly delayed due to the positive bump on the lotion business. But I would say all in, you’re probably looking at $14 million, $15 million on an average run rate basis when all these get done and closed. But again, it’s going to take some time before that happens.

Gabe Hajde, Analyst

Great. Thank you. Good luck.

Operator, Operator

Last question comes from George Staphos with Bank of America.

Unidentified Analyst, Analyst

Hi everyone, I wanted to quickly ask about the on-the-go beverages market. I know you mentioned there has been significant demand due to the pandemic. I’m curious if you’re observing any rebound either sequentially or year-over-year, or anything else to note? Also, what percentage does this end market represent within the overall food and beverage segment? Thank you.

Stephan Tanda, President and CEO

Yes, I mean, we see clearly a bounce back in China. It’s as you would expect kids have been going back to school and sequentially that’s year-over-year, and it’s looking up, and the other geographies are much more mixed because of the lack of people movement in terms of the relative importance; I’ll let Bob answered it.

Bob Kuhn, Executive Vice President, CFO

Yes. So beverage for us on an overall app per basis is about 5% overall sales that we’ve been working off of kind of last year’s figures right now. And then within the food and beverage segment, it’s about one-third, two-thirds beverage concerns.

Unidentified Analyst, Analyst

Thank you.

Operator, Operator

Next question comes from Adam Josephson with KeyBanc.

Adam Josephson, Analyst

Thanks for my follow-ups. I appreciate it. Bob, forgive me if I missed this, but can you talk about what price cost was in the quarter for the company, and what you’re seeing in the resin markets? Obviously, there has been some inflation going on. I’m just wondering what – how that’s playing into your fourth-quarter guidance, excuse me, and then what you’re anticipating perhaps thereafter?

Bob Kuhn, Executive Vice President, CFO

Sure. So on the resin side, so it did have a negative impact on the top line in beauty and home, food and beverage a little bit more predominant in food and beverage as you might expect. It was less than a 0.5% on the top line for beauty and home negative impact. And it was about 3.5% on the food and beverage side, so pretty significant there. On a bottom line impact, you had kind of two different things going on and you had a little bit of a positive on the beauty and home side on the EBITDA side to pass-through. And that was more or less on a consolidated basis offset by negative on the EBITDA flow-through side food beverage. Looking forward. I mean, it’s a crap shoot really in terms of what we’ve got baked into the forecast. I can’t really give you specifics on what we’ve got in there. I will tell you that, we’re looking at slightly lower prices in Europe, but as of right now, we’re expecting slightly higher prices in North America. So it’s all independent, Q4 typically is a weaker quarter in terms of overall revenue. We’ll have to wait and see what impact that has for our results.

Adam Josephson, Analyst

Appreciate it, Bob. And just on the restructuring, primarily beauty and home restructuring. I think that’s pretty much winding down now, correct me if I’m wrong there. Do you anticipate any more restructuring in beauty and home, or are you finished with that for the foreseeable future you think?

Bob Kuhn, Executive Vice President, CFO

Well, again, when you say we’re done, I would say it’s more of a mindset change right now, right? I mean, it’s really now embedded in the culture of the organization. And so, some of the plant closures that we’ve talked about, those are kind of ongoing evaluations of the business and cost-out structure and reacting to the environment and the benefits as the fund set of some of these efficiencies that are gained through transformation process. So in terms of the formal program, yes, we’re about two-thirds through with that, but we’re still executing on some of the initiatives, some of the broader more complex initiatives and those are related to some of these plant closures, which we’ve always said were going to be kind of in the third year. So there’ll be some lingering effect to that, and then I think we’ll just have to see which way the market goes. And does it require any more heavy lifting or not.

Stephan Tanda, President and CEO

Maybe just say the same in different words, as far as the large program, large one-time costs that’s winding down. But in terms of mindset and offshoot project, secondary projects, it’s becoming a way of life. And so it should be in terms of vigilance. So there are smaller projects that are running in all three segments, and by the way, coming back to one of the earlier questions, I mean, what we’ve learned in the muscles we’ve trained, we’re also deploying now in the other segments. I mean, for example, the food and beverage margin expansion, it’s not by coincidence, that’s a lot of those muscles not being applied in the other segments and even Pharma has its own improvement drive, of course. So the big one, yes, winding down, the mindset and the follow-on is a way of life.

Adam Josephson, Analyst

I appreciate that, Stephan. Thank you.

Operator, Operator

Last question comes from Salvator Tiano with Seaport Global.

Salvator Tiano, Analyst

Yes, hi. Thanks for taking the follow-up. A couple of quick ones, firstly, on taxes, there have been some more specific rulings recently I think by the IRS for foreign taxes. How does this affect your tax rate? Is there going to be any change here? And any change in the long-term tax rate that you’re assuming going forward? And I assume you won’t do specific CapEx for next year yet, but we’ve drilled in Pharma, new investments, is it safe to assume that it’s going to be trending higher next year?

Bob Kuhn, Executive Vice President, CFO

So on the tax side, I mean, one thing is for certain in this environment, every government is looking for taxes. So we’ve seen an amplification on the audits and the scrutiny and the challenging, and some of the governments are – where you used to be able to have a dialogue with them are now kind of drawing lines in the sand and saying, well, if you disagree with our assessment and then take it to court. So we’ve got a few small ones like that. But I would say we benefited in this quarter really from a couple of things, one, slightly higher equity comp, exercise new options in the quarter that was probably about 1.5%. And then we had a recent ruling by the IRS in the U.S. on the treatment of some guilty taxes. So that was also a positive for us in the quarter of about 1.5%. So going forward, like I said, the scrutiny is there, and certainly, I’m expected to lessen any heading into the future.

Operator, Operator

And at this time, I’ll turn the call over to Mr. Tanda.

Stephan Tanda, President and CEO

Thank you all. Thanks for your continued interest. We’re obviously proud of the numbers we put on the board, and we look forward to discuss it with you in more detail in the coming weeks, and please everybody stay safe.

Operator, Operator

This concludes today’s conference call. You may now disconnect.