AptarGroup, Inc. (ATR) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2024 Fourth Quarter and Annual Results Conference Call. At this time all participants are in a listen-only mode. Later, we will conduct a question and answers. Introducing today's conference call is Mrs. Mary Skafidas Senior Vice President Investor Relations and Communications. Please go ahead.

Good morning. Hello, everyone, and thanks for being with us today. Joining us on today's call are Stephan Tanda, President and CFO (sic) [ CEO]; and Vanessa Kanu, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website under the Investor Relations page. During this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measure and the reconciliations are set forth in the press release. Please refer to the press release disseminated yesterday for reconciliations of non-GAAP measures to the most comparable GAAP measures discussed during the earnings call. As always, we will post a replay of this call on our website. I would like to now turn the conference call over to Stephan. Stephan, over to you.

Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our fourth quarter results as well as our performance for the full year. Later in the call, Vanessa Kanu, our CFO, will provide additional details on key drivers for the quarter. Starting on Slide 3 for the fourth quarter. I'm pleased to report that Aptar achieved core sales growth of 2% and delivered adjusted earnings per share of $1.52. We exceeded the top end of our guidance range due to both, better-than-expected operational performance and a lower-than-anticipated effective tax rate. The positive results in the quarter were driven by strong ongoing demand for our Pharma proprietary drug delivery systems, especially for allergic rhinitis, emergency medicines and central nervous system therapeutics as well as royalty revenues and increased demand for our food closure technologies. In addition, we benefited from productivity gains across the entire company. This quarter, Aptar's adjusted EBITDA margin was at the top end of our long-term range at 23%. Vanessa will give you more details on the quarter so now I will focus on the full year. Our Pharma segment achieved 8% core sales growth within its raised long-term target range. Additionally, Pharma achieved an adjusted EBITDA margin for the year of approximately 35% driven by increased sales of higher value products and royalties. Often when asked about Pharma's future growth potential, my answer is clearly that Pharma is a pipeline-driven business and the continued expansion of our pipeline over the last 5 years is a major reason where we raised our core sales long-term target in 2023 to 7% to 11%, and we see the pipeline continuing to grow. Pharma performance this year was driven by continued growth in emergency medicines, allergic rhinitis and central nervous system therapeutics. Our proprietary drug delivery business is the core profit engine of our Pharma segment, creating and manufacturing, innovative, safe and highly reliable technologies that support our customers and improve the lives of patients around the world. We anticipate continued strength for this important franchise. For our Injectables business, we saw growth in antithrombotics, GLP-1 drugs, small molecules and vaccines. Injectable component sales grew 10% in 2024 but the growth was offset by lower tooling and service revenues. The team has done a tremendous job of completing a large capacity expansion project and industrializing our higher-value offerings boding well for the future. Active Materials Science sales were up [ 13% ] for the full year 2024 due to increased demand for diabetes diagnostics, probiotics and oral solid dose solutions. Since we acquired CSP in 2018, the sales of that business have grown at a compound annual growth rate of almost 10%. Looking at our Beauty segment for the year, we had good growth across a number of end markets, including Personal Care, Masstige Beauty and Home Care. However, growth in these end markets could not offset the decline in Prestige beauty. The Beauty segment saw unit growth in 2024 and sales of Personal Care Technologies grew nicely. Overall core sales declined, however, due to the unfavorable mix. Beauty remains a highly regional business. Europe, our largest region, maintained its adjusted EBITDA margin within the segment's long-term target range. North America continued to recover progressively with Indie brands leading the growth. China remained challenged for most of the year. However, towards the end of the year, the country had a better-than-anticipated 11/11, which is China's equivalent to Black Friday, and we see some green shoots with local brands. We saw good growth in India, albeit from a low base. Looking ahead, new project activities encouraging across most regions, and we anticipate progressive improvement for the segment in 2025. In the second half of the year, our Closure segment returned to its core sales long-term target range, driven by increased demand around the world for food and beverage dispensing and food protection technologies. A focus on converting end markets to higher-value dispensing closures and a reinvigoration of innovation globally helped to improve top line sales. The segment's increased margins were also positively affected by the higher value mix as well as a consistent focus on reducing cost and a steady improvement in plant utilization, supported in part by the midyear closing of a loss-making plant in France. The segment improved its plant utilization by over 12% in 2024. Closures adjusted EBITDA margins were also within the long-term target range in the second half of the year and improved by more than 110 basis points for the full year. Now turning to Slide 4. We are very proud of our long record of returning capital to shareholders. Over the last 5 years, we have returned nearly $800 million to shareholders through dividends and share repurchases. 2025 is expected to mark our 32nd consecutive year of paying an annually increasing dividend. Now I would like to highlight our products and technologies on Slide 5, which feature examples for both the year and the quarter that exemplify our focus on innovation and the value that we bring to our customers and their end users. In Pharma, you've heard us talk about our nasal Bidose system for Johnson & Johnson SPRAVATO medication to treat treatment-resistant depression. Recently, the FDA approved SPRAVATO as a mono treatment, meaning it can now be used alone and not requiring additional oral solid dose drugs. Also, as shared during our last earnings call, the FDA and European Medicines Agency approved neffy and EURneffy nasally delivered epinephrine, which is now in the market. In Consumer Healthcare, we continue to increase capacity for our previously highlighted patented lateral control system technology with a one push button dosage actuation, providing convenience, efficient relief and ease of use for Haleon Otrivin Nasal Mist. We also continue to grow our Pharma innovation pipeline. As previously mentioned, during the year, we acquired all technology assets from SipNose, increasing our proprietary portfolio of intranasal delivery platforms. We also entered into an exclusive agreement with Cambridge Healthcare Innovations for it's Quattrii Dry Powder Inhaler platform, where we see opportunities for this platform in delivering larger amounts of medication to the lungs. In addition, our agreement regarding Pulmotree's Kolibri Non-Propellant liquid inhaler platform will further strengthen our leadership in the respiratory space. In Aptar Digital Health, the migraine body app continues to be the #1 migraine app with a community of over 3 million users. The latest release of the app optimizes the way users can share migraine reports with doctors, including sleep records and more. Finally, in Active Material Sciences, our N-Sorb technology, which is part of the FDA's emergency technology program, delivers an active packaging-based solution to mitigate the risk nitrosamine impurities. Our technology can enable pharma companies to meet the FDA's August 2025 deadline for full compliance with nitrosamine regulations while avoiding costly and time-consuming reformulation processes. Turning to Beauty highlights from the year. Our new Prestige fragrance dispensing technology INUNE features a more lightweight design and gentle actuation and is dispensing solution for Lancome's refillable version of Idole Eau de Parfum. We also adapted our pump technology to meet the growing demand for alcohol-free fragrances. Alcohol-free fragrances are typically oil and water based, making the formulation more difficult to dispense. Our pump is highly compatible with these formulations, providing consumers with the same optimal gentle mist fragrance experience and is now featured on [indiscernible] First Alcohol-free Fragrance. Also in 2024, our custom beauty plant in Oyonnax France, supported the launch of a major beauty customers reformulated facial serum product, which features our patented dual pump technology and locking feature using post-consumer recycled presence. FusionPKG, our beauty turnkey packaging solutions business supported Indie brands, Saie and [indiscernible] with full pack solutions. In our fourth quarter, Hermes selected our Prestige Fragrance pumps for its line of Barenia performance and the [indiscernible] brand [indiscernible] care mist is featuring our e-commerce capable locking pump with components made from post-consumer recycled resin where no overcap is required. Turning to Closures. Throughout the year, we continue to partner with a major Dish care brand on their Easy Squeeze inverted packaging with Flow Control, allowing for a single hand operation without any leakage. Positive consumer feedback has led to major category expansion due to this innovation. If you're planning to watch the big game in the U.S. this weekend, you will see commercials for condiments that feature Aptar solutions, including our SimpliSqueeze valve in closure. As we continue to bring convenience and cleanness to consumer products that line the grocery store shelves. During the quarter, our custom flip top was featured as the dispensing solution for McCormick Grill Mates spices and Holiday Sugars in the U.S. Finally, in Asia, Nestle introduced a new adult powered milk products featuring our lighter weight costume closure. Now turning to recognitions on Slide 6. We recently received confirmation that we have secured a place on the prestigious climate A list with the global environmental nonprofit CDP for our leadership in corporate sustainability, environmental transparency and efforts to tackle climate change based on our 2024 disclosures. Also during 2024, Aptar was named a World's top companies for Women by Forbes for the fourth consecutive year and is ranked 41 out of the 400 companies who were evaluated in 3 categories, including employer brand, public opinion and leadership. For the sixth consecutive year, we were named one of America's most responsible companies by Newsweek, ranked #71 out of 600 companies. We are proud to continuously raise the bar on sourcing renewable energy, certifying sites as landfill-free through our internal program and developing products that are more recyclable, reusable, refillable and incorporate more sustainable materials. Now I would like to turn the call over to Vanessa.

Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter. Starting on Slide 7. Our reported sales increased 1%, which included a foreign currency translation headwind of approximately 1%. Therefore, core sales grew 2%, primarily due to continued demand for pharma's proprietary drug delivery systems as well as healthy growth in closure technologies for both the food and beverage markets. We achieved adjusted EBITDA of $195 million, an increase of 9% from the prior year and adjusted EBITDA margin of 23% compared to 21.4% in the prior year, driven by expanding margins in the Pharma and Closures segments and the impact of cost mitigation measures executed across the business. These strong margins, combined with a lower effective tax rate, translated into adjusted diluted earnings per share of $1.52, as shown on Slide 8, a 27% increase over the prior year at comparable exchange rates. The effective tax rate for the fourth quarter was 13% compared to 23% in the prior year due primarily to the realization of deferred tax assets, which were previously not recognized as well as increased tax benefits from stock-based compensation. Now turning to some of the details by segment. Our Pharma segment's core sales increased 4%. Breaking that down by market, starting with our proprietary drug delivery systems, Prescription core sales increased 15%, primarily due to continued strong demand for dosing and dispensing technologies for allergic rhinitis, emergency medicines and central nervous system therapeutics. Consumer Healthcare core sales decreased 17%, driven by decreased demand for nasal decongestants, nasal saline rinse solutions as well as cough and cold medicines due to a weaker 2023, 2024 cold and flu season and inventory management at the customer level. The healthy growth in Q4 product sales for ophthalmic and dermal treatments could not offset this decline. Injectables core sales decreased 8% due to lower service revenue in tooling. Injectable component sales were up slightly, led by healthy GLP-1 growth. And for our Active Materials Science Solutions, core sales increased 35%, aided by a large tooling sale in the quarter. Demand for our products used on probiotics and diabetes diagnostics also contributed to the positive results. Pharma's adjusted EBITDA margin for the quarter was 35.7%, a 160 basis point improvement from the prior year. The margin improvement was driven by increased sales of higher-value products and services, including royalties and cost efficiency initiatives executed. Moving to our Beauty segment. Core sales decreased 3% in the quarter, with lower tooling sales contributing about 1/3 of the decrease. Looking at the Beauty segment by market, fragrance, facial skin care and color cosmetics core sales decreased 9% due largely to lower sales of higher-value prestige products, particularly in EMEA, which more than offset increased demand for masstige products. Personal Care core sales increased 3%, with continued demand for body care and hair care applications across several regions. Home Care core sales increased 15%, primarily due to continued growth of air care applications in North America. This segment's adjusted EBITDA margin for the quarter was 12.4%, a 230 basis point decline, primarily due to the top line shortfall, particularly in higher-priced prestige products. Additionally, you may recall that this segment received a onetime insurance claim settlement that benefited the prior year's margins. The impact of this nonrecurring item from prior year Q4 overshadowed the impact of operational efficiencies executed successfully within this segment. Moving on to the Closures segment. Core sales increased by 7% compared with the prior year, driven by increased demand across a number of end markets and across all regions. When looking at the market field for closures, core food sales increased 9%. The increase in sales was driven by solid growth across all regions, led by strong continued demand for sauces and condiments in North America, our largest food market. Beverage core sales increased 10%, fueled by healthy demand for bottled water and sports drinks. Personal Care core sales decreased 5% due to lower demand across several regions, while our other category, which includes beauty, home care and health care, core sales increased 12%, driven by higher sales for dish care and laundry care solutions. This segment's adjusted EBITDA margin was 16.1%, representing a 260 basis point improvement over the same period last year, primarily due to volume expansion and cost and productivity management. Our total CapEx spend for Q4 was $66 million, with the majority going to our Pharma segment. Now moving on to the full year results. Slides 9 and 10 cover our year-to-date performance and shows 3% core sales growth, which includes the impact of an $11 million decline in [indiscernible] . Our gross margins expanded by 160 basis points due to top line growth, favorable mix towards higher-margin revenue streams as well as productivity and cost efficiency measures executed across the business. These cost efficiency measures benefited both cost of sales and SG&A. Offsetting the cost reductions in SG&A were increased investments in R&D, particularly for pharma to support our innovation and higher noncash share-based compensation expense. As a result, SG&A as a percentage of net sales remained relatively consistent year-on-year. Adjusted EBITDA margins expanded by 130 basis points to 21.6%. Indeed, all of our segments expanded EBITDA margins on a full year basis, including our Beauty segment. While our adjusted earnings per share, which were $5.64, were up 18% compared to $4.79 a year ago, including comparable exchange rates. Turning to Slide 11. We ended 2024 with a 12.5% return on invested capital, which was our second consecutive year of increased ROIC, driven by our increased earnings and realization of returns on our capital investments. Cash flow from operations was $643 million, up from $575 million in the year ago period. Capital expenditures for the year were $276 million, down from $312 million in the prior year. The reduction in capital expenditures signifies the completion of our large capital projects. Slide 12 shows our capital allocation over the last several years with the majority going to pharma. Free cash flow was $367 million for the year, up from $263 million in 2023 due largely to our increased earnings. Our strong cash flow has allowed us to neutralize any impact of our interest expense coming from rising interest rates by paying down a portion of our debt that had come due and increased the amount we returned to shareholders. Speaking of which, in 2024, we returned $183 million to shareholders in the form of $114 million in dividends and $69 million in share repurchases, up in combined total by 20% from 2023. Finally, we ended the year with a strong balance sheet, reflecting a cash balance of $224 million as of December 31, net debt of $800 million, which was down $116 million from the prior year and a leverage ratio of 1.08. Now moving on to outlook. Slide 13 summarizes our outlook for the first quarter. We anticipate first quarter adjusted earnings per share, which, as a reminder, excludes any restructuring expenses, acquisition costs and changes in the unrealized fair value of equity investments to be in the range of $1.11 to $1.19 per share, which includes approximately a $0.07 headwind for currency effects compared to the prior year quarter. Our effective tax rate range for the first quarter is 25% to 27% due in part to an anticipated increase in the French corporate tax rate, which is an $0.08 headwind compared to the prior year quarter. At this point in time, we expect to have an approximately $0.15 impact due to currency and tax compared with the prior year quarter. Currency impacts are driving a larger headwind in the first quarter than typical because of the U.S. dollar's renewed strength against many currencies, which for us includes the euro, the Brazilian real, the Mexican and Colombian pesos, amongst others. While our rule of thumb on currency impact is that for every $0.01 movement in the euro, there is a $0.02 annualized impact on earnings per share. Please keep in mind that we are subject to other currencies besides the euro, some of which I just highlighted. In closing, we're pleased with our strong operational performance for 2024 and are looking forward to the ample opportunities that 2025 will bring. As I mentioned earlier, we ended the year with a very strong balance sheet and a leverage ratio that will provide us with significant optionality. At this time, Stephan will provide a few closing comments before we move to Q&A.

Thank you, Vanessa. We fully anticipate 2025 to be another strong year for Aptar. Having said that, for the first quarter, we expect softer demand in certain end markets such as dispensing technologies for prestige fragrance and skin care as well as for nasal saline and decongestions. Results in the first quarter will also be negatively impacted by significant foreign currency effects and a higher effective tax rate compared to the prior year quarter. As Vanessa stated, the impact in Q1 will be about a $0.15 headwind on EPS. Additionally, we are seeing healthy demand for our higher-value elastomeric components, but anticipate a more gradual beginning to the year, especially as the new capacity comes online and is being validated. Looking ahead, Pharma will continue to be the main driver of growth with our proprietary drug delivery systems and emergency medicines and central nervous system therapeutics leading the way. We expect demand for our injectables divisions, higher-value products to continue to grow throughout the year, and are seeing strong interest for our premium code and ready-to-fill solutions. Injectables has a strong pipeline and order book, and we are ramping up new capacity for our higher-value products cautiously to ensure the quality of our products continue to meet the stringent regulatory requirements. The Active Material Science business has returned to growth and is poised for solid 2025. We anticipate the Beauty's topline will improve as the year progresses. Beauty has a nicely building project pipeline that has made significant structural improvements. Over the last 4 years, Beauty has reduced its plant count by 10 and over the last 2 years has reduced its workforce by 11%. Managing costs is an ongoing effort. And while there is always more work to be done. These changes should continue to positively impact the bottom line as the top line improves. Closures has made great progress on several fronts, including reigniting its innovation engine, improving plant utilization rates and ongoing cost management efforts. Our innovations help customers win market share and there's tremendous interest in the dispensing technologies that we are developing. When adjusting for currency effects and tax impacts, we anticipate 2025 will continue to deliver solid earnings growth and increase shareholder value. With that, I would like to open up the call for questions.

Thank you, Mr. Tanda. We will now begin the question-and-answer session. [Operator Instructions]. The first question we have on the phone lines comes from George Staphos with Bank of America.

Hi, everyone. Good morning. Hope you can hear me okay. Stephan, Mary good morning. Vanessa, welcome. My 2 questions. First of all, can you talk a little bit about the green shoots that you are seeing in China? And what momentum, what impact that might be able to have to generate for 2025? The second question, recognizing it's tough to call, if you held currency rates where they're at and taxes do what you expect them, do you expect that earnings per share will grow in 2025 off a very tough comparison '24. Would that be too difficult? Maybe a different way to handle the question. If we exclude those effects, what -- how would you define solid earnings per share growth. Thanks guys, good luck in the quarter.

Hi, George, we could hear you great. Let me take the first one, the higher math of the second one, I'll let Vanessa handle. Look, as you know, the beauty market in China, in general, is still the largest country market for beauty with a particular emphasis on skin care. And all our customers have waited for that market to show additional or renewed vitality. And some of our larger customers have been struggling with that. What we see is that clearly, local brands gain share. and continue to gain share versus the multinationals. You all know the story of one U.S.-based large multinational. But in general, 11/11 was pretty solid. The beginning of the year was pretty solid. So -- but it's more with local brands. And of course, ultimately, who serves the consumer, we are neutral to that. So I'm quite hopeful that we will see China building over the year and that will benefit particularly our skin care business. Fragrance is also growing, but it's still very small in China, but growing. I think that's about it. As a reminder, we serve in region for region. So all this speculation about the tariffs for us is not that meaningful. And what we're really looking for is where is the Chinese consumer at. Anecdotally, we also see the Chinese consumer traveling more internationally again at the high end, and I think that should also bode well for the beauty business in general. And I'll hand over to Vanessa.

George, it's right that you called out the tax and FX headwinds. We haven't seen these kind of headwinds in the recent past. The tax headwinds being driven by a lot of what we talked to one about the French tax legislation that just came or is in the process of coming into effect as we speak. Look, when you normalize for FX and you normalize for tax, we are cautiously optimistic that we will have another potential double-digit EPS growth for 2025. A lot of the drivers, Stephan talked about in his prepared remarks. You're aware that we've done a lot of work around cost reductions. Those cost reductions will accrete to EBITDA and EPS in 2025. So we are cautiously optimistic that once you normalize for consistency in FX and tax, we'll have an another strong EPS growth year.

Vanessa does the tax -- is it only a 1Q effect? Or does it impact the whole of the year?

Yes. No, that's okay. It impacts the whole year. It impacts the whole year. So really, what happened in the last -- so you may recall, George, this is -- we thought this was going to happen in Q4 because it was heavily reported by the French media. It didn't happen in Q4. It just -- it's happening now. It passed both the lower and upper Chambers of Parliament, and we think it's going to be an asset in the coming days. It will be a full year impact. And so we've built the Q1 effects into the Q1 guidance.

Thank you. We now have the next question from Ghansham Panjabi with Baird. You may proceed.

Vanessa, just following up on George's question on the EPS bridge items. So if currency holds at current levels, what sort of year-over-year headwind would that be on EPS? The same with tax? And then in corporate, 4Q was quite a bit lower than the trend line from previous quarters. How should we think about that as a variance for '25 versus '24?

So in 4Q, there are a couple of things. If we talk year-over-year or we talk versus guidance. So year-over-year, we did get some tax benefit from our tax planning. I called out in my prepared remarks that we were able to recognize some deferred tax assets from some loss carry-forwards that we had not previously been able to recognize as a result of some of our ongoing tax planning. So that did result in sort of the win that you're seeing in Q4 year-over-year. Separate from that, there's the delta to guidance. And so that win was actually built into our guidance. The delta to guidance was really this French tax impact that we had built into our guide in Q4 that did not materialize. And now we're seeing that come into effect in Q1 of this year. You asked what is the impact in Q1? We called it out. It's $0.15 for the 2 factors combined. So I'm not clear on what incremental impact you might be looking for.

Yes. So I meant for 2025 versus 2024. 2024 baseline EPS is $5.64, the variances for FX, tax and corporate.

Yes. So we're not guiding for the full year. We're not -- so I'll find it hard to give guidance on ETR, for example, independence of guiding on income just because we know that the jurisdiction mix of earnings can be a pretty significant impact. What I will say is, at this point in time, given what we know, especially with what's happening on the French taxes, we expect ETR to be higher in 2025 versus 2024. We haven't gotten into exactly what the number will be. We'll guide as the quarters progress. And then the FX headwind, I mean, it's pretty significant in Q1 with the $0.07. I expect that to continue for the rest of the year. Now depending on which forecast you're watching, we're seeing or hearing some commentary around perhaps the FX environment improving as the year progresses. But based on what we see now, we expect this double-digit impact to continue.

Okay. And then the corporate below trend for 4Q, what was that due to?

So there weren't any sort of unusual items there in Q4. What I will call out is typically as you get to the end of the year, you typically have your year-end true-up, which includes adjustments for bonuses and short-term incentive accruals. So as you have pockets of the business where we didn't hit our targets, some of those accruals got reversed. So that's probably what you're seeing. That's mainly what you're seeing in the corporate line in Q4, nothing more unusual than that, primary driver.

Got it. And in terms of -- just second question, I guess, in terms of the destocking that you're seeing in cold and flu and the time line for that to sort of normalize? And then also in Prestige, you called out weakness, I think, in the EMEA region as well. Just based on some of the customers that are reported, it seems like volumes seem relatively stable across the board from a customer level standpoint. So what do you think is going on there specific to Aptar?

Yes. So let's take consumer healthcare first. We see some bottoming out. And in fact, the last 2 months, we saw sequential increases again, a lot will depend again on how the flu season unwinds. I just heard this morning that we might have another peak in the U.S. And so sequentially, I think it will start to go up again, but we still face tough comparables in quarter 1 into quarter 2. Now on the Beauty side, we -- I pointed out that unit volume actually was up in Beauty slightly. So what you're really seeing is the mix effect as masstige fragrances picked up significantly and the high-end luxury prestige launches did not repeat. So that it's more of a mix effect as opposed to an underlying volume effect.

The next question comes from Matt Roberts with Raymond James.

Stephan, you noted that you're expecting a more gradual ramp-up in injectables. I believe last quarter, you said that, that business could potentially be high single digits to low single digits based on GLP and biologics growth, albeit stopping short of any official guide there. But based on the new ramp-up expectations, do you have better visibility or comfort in firming what that injectables core sales growth number could look like in 2025? Or given strong underlying growth rates in those drugs, what factors could dictate either coming in above or below any expectation?

Yes. I wouldn't change my answer there. The pipeline looks good. The order buildup looks good. There will be quarter-to-quarter variance also in terms of our ramp-up and when we get certain pieces of equipment validated. It's always after you -- the moment the customers want it, they want it now and say well now I still need to get this press done or this thing done. So overall, the demand picture is good. All we are being a bit cautious and able to exactly match that in the first quarter, but I'm quite bullish about that business.

Okay. That's helpful. And then maybe on the proprietary delivery system side. So 2024 had continued strong performance, and you noted that category will lead the Pharma segment. So as we look to '25, what type of growth do you think is achievable there? And as we've heard positive commentary on some of the newer drugs you've had, whether that's Spravato broadening or neffy coming out of the gate in 4Q, would you say that 2025 growth in proprietary is more so dependent on further new drugs coming to the market or more so underlying secular trends for nasal delivery and drugs that are already on the market?

Sure, Matt. Look, fundamentally, that core engine of pharma is fully humming. We feel very good about the continued growth there. We were at JPMorgan earlier in January and also the J&J CEO called out Spravato. [indiscernible] was there. So we see continued good growth in the emerging treatments, the central nervous system drugs as well as the underlying allergic rhinitis franchise continuing. As we just discussed, the cold and cough is a little wobbly, but I think we're at the other end of the trough.

We now have a question from Daniel Rizzo with Jefferies.

Well, the first thing I wanted to ask you about is tariffs. Obviously, it's a very fluid situation, and I don't expect you to have any answer to what's going to happen. But I was wondering what happened last time there were tariffs on Chinese products, if it had any effect to you guys at all or not necessarily you directly, but also on your customer demand or customer order trends?

Yes. Look, obviously, it's not in our guidance. For the most part, we produce in region for the region. And as I said, about China. So there are, of course, some special situations. In those cases, we pass it on or will pass it on and have passed it on. Of course, it's a commercial negotiation. But out of all the things you could worry about, the tariff is not one that I worry terribly about.

Okay. And then you had a pretty solid improvement in ROIC over the last couple of years. I was wondering what -- and maybe you mentioned this in October or something and I forgot, but what the goal is if you can get this up to, I don't know, 15% or if there is a goal for that metric?

Yes. We're not in the habit of changing long-term targets. On the quarterly calls, we have an Investor Day coming up, I think, in September. If we revise it, we would do it then. But clearly, the increased operational performance, the more distant acquisition of CSP and continued discipline in CapEx is helping ROIC, and we'll take a look at that as we get into September, and we'll update you then.

[Operator Instructions]. And we now have Matt Larew with William Blair. Please go ahead.

You've talked a little bit about the cough and cold side and the injectable side of pharma. I wanted to ask about royalties. Obviously, that's something that you've been mentioning more on the call in the last year or so, and I presume was a driver of some of the margin improvement in '24. Was there anything sort of onetime in nature in either the quarter or the year? Or are they all structured as royalties rather than milestones? And then how should we think about the contribution moving forward in '25 and beyond?

Sure. Yes. Look, first and foremost, those are recognition of the value we add during the development process of a drug product that can be a decade or longer. And sometimes -- sometimes if we're dealing with really small companies and they bulk it our service fees, then we get something on the back end. And what we call out royalties is indeed that there might be some smaller milestone payments, but it's fundamentally royalties on finished product sales. They are lumpy, but they make a bigger part of our overall revenue base, but still, you're talking a few tens of millions for the company.

Okay. And then I did want to just follow up on injectables. Obviously, that was up significantly in Q1 '24, so a tough comp and then was down the last 3 quarters. When you say a slow ramp to the year, I guess we should think about that being maybe down in the first quarter and then growing from there.

Yes. We're not guiding by the individual business line, but it's not too far away from the commentary we gave. But having said that, unit volume continued to grow throughout the year. There are some other things in the injectables that we report like service revenue that is more lumpy.

Thank you. We now have Gabe Hajde with Wells Fargo.

I wanted to focus on the capital allocation side of the business. You talked about wrapping up a couple of big investments, as we know, to add capacity in injectables. And I think it's a good thing, but it still seems you guys are kind of guiding $280 million to $300 million for capital. You also gave us a slide where you're showing a lot of your internal investments are directed at your Pharma segment. So I think all in, we interpret that as a positive signal. But just any color that you can provide in terms of what options you're seeing for investment internally?

Sure, Gabe. Why don't I take that? And Stephan, please add any incremental color. So Gabe, the capital allocation policy, as you know, has been a pretty healthy balance of organic capital, which, as you call out, has been largely geared towards pharma, not exclusively, but largely so, M&A, dividends and share buybacks. And I think as we get into 2025, you'll see a level of continuation of that. And you did call out our CapEx expected investments in 2025. Pharma will once again get a big piece of that. From an M&A perspective, I'm not foreshadowing anything imminent, but we do regularly evaluate potential M&A candidates where we see strong strategic fit and accretion potential. And you've heard Stephan talk about that in the past. And that, again, more geared towards pharma, but not exclusively so. So I think that would continue in terms of the evaluation process. And then from a dividend perspective, we just ended our 31st year, as Stephan called out in his prepared remarks, of increasing dividends. So I would expect that also to continue in 2025. And then lastly, just on the share buyback, you know that the Board approved a refreshed $0.5 billion buyback program in October, and that is the more discretionary component of our capital allocation. We're already active in the market with the repurchases, and it's a lever that we have, and I would expect that to also continue in 2025. Anything you want to add, Stephan?

No, perfect.

And any particular projects or discrete things that are in that capital that you guys would want to call out?

Not really. As we discussed, we built these 3 respectfully called boxes, the one in France and Oyonnax, the state-of-the-art facility in China and the injectables. Now we're really creeping investments and gradually growing capacity not in on those 3 locations, but everywhere, and I think the single largest investment for us is $5 million in that $300 million -- $280 million to $300 million envelope. So it's a lot of just good organic growth investments, maintenance investments, capacity creep investments across the company.

Okay. And then I guess switching gears a little bit. You guys have been pretty active. I think you called out closing -- and I apologize if I misheard 10 facilities in Beauty. But just we're kind of on the other end of what was a multiyear kind of efficiency initiative across the organization. Again, I know you're not done. You're always trying to get better. But as we look forward, do you see anything else that you need to do from a footprint standpoint or cost reduction?

Yes. Just to clarify, what we said, Beauty reduced its plant count or its site count by 10, not that we built 10, but we reduced by 10 and also over the last 2 years, reduced its headcount by 11% -- and as you rightly said, you're never done. We have some ideas, nothing is imminent here. And productivity is increasingly coded in our DNA, and I'm very encouraged with the productivity plans all 3 businesses have brought to the table for this year, and we're tracking that closely. But beyond that, really nothing to report at the moment.

Thank you. I would now like to conclude the question-and-answer session and hand it back to Mr. Tanda for some closing comments.

Wonderful. Thank you. So let me end by zooming out. As usual, quarter 4 was a solid finish to a very strong year, 2024 on top of a very strong year 2023. We delivered back-to-back double-digit earnings per share growth for both years and followed through on our raised margin targets. Driving productivity, as I just said, is increasingly firmly coded into the DNA of the company in addition to innovation and sustainability that remain alive and well. Looking at '25, we are excited to continue the journey. Our customers are taking very much note of our increased focus on competitiveness and on meeting their needs more rapidly and flexibly with our much upgraded footprint. We are back on the front foot. Our project pipelines across the company are in very good shape and the pipelines continue to grow. Having said all that, as we discussed, we are operating against a more challenging macro, especially with foreign exchange and the anticipated higher French corporate income tax rate. It doesn't mean that our tax planning activities are done. You always look for ways to abate impacts like that. We had a good start of the year, but faced some spots of tough comparables that we discussed in fragrance, consumer health care, but both of these are fully expected to be transitory. A gentle reminder, I know we're all focused on the quarter, but several of you were able to look under the hood, so to speak, just a few 4 months ago, when you visited some of our facilities, we're still the same companies that you saw 4 months ago. And even in a slowing economy, we are confident in our future trajectory given the resilience of our product portfolio and the strength of our pipeline. We discussed the balance sheet. We're on track for our 32nd year of paying an annually increasing dividend and our balance sheet affords us a lot of strategic flexibility. Thanks for joining the call, and we look forward to discuss more on the road.

Thank you all for joining the Aptar's 2024 Fourth Quarter and Annual Results Conference Call. I can confirm today's call has now concluded. Thank you for your participation. And you may enjoy the rest of your day.