AptarGroup - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered adjusted EPS of $1.20 (+5% ex-FX and tax) on sales of $887.3M, with adjusted EBITDA up 3% to $183.3M and margin expansion to 20.7% (+120 bps).
• Results vs consensus: EPS beat (+$0.05) and EBITDA beat; revenue modestly below Street; Q2 EPS guidance of $1.56–$1.64 implies sequential strength across segments. Values retrieved from S&P Global*.
• Segment mix: Pharma core +3% on strength in emergency/CNS therapies and Active Materials; Beauty pressured by Europe prestige fragrance; Closures improved margins despite lower tooling sales and exit from Argentina.
• Shareholder returns ramped: $80M buybacks (548k shares) and $0.45 dividend; net debt $870M and leverage 1.16x support flexibility.
• Catalysts: EPS/EBITDA beat, margin gains, robust Q2 guide, accelerating tooling activity, and tariff-driven local sourcing opportunities in North America.

What Went Well and What Went Wrong

What Went Well

• Pharma margin expansion to 34.8% (+230 bps), supported by higher-value mix and royalties; proprietary drug delivery systems core +4% with 12 straight quarters of reported growth.
• Consolidated adjusted EBITDA margin expanded to 20.7% (+120 bps), gross margin +160 bps, driven by improved revenue mix and cost productivity.
• Strong shareholder returns: $110M returned ($80M repurchases); CFO highlighted balance sheet strength (net debt $870M; leverage 1.16x).
• Quote: “We expect to build on our solid start…with positive contributions from all three segments” — CEO Stephan Tanda.

What Went Wrong

• Beauty: prestige fragrance weakness in Europe; segment core -3%, adjusted EBITDA margin down 50 bps to 12.1%.
• Closures: core -2% due to meaningfully lower tooling and cessation of unprofitable Argentina sales (otherwise core +3%); margin improvement but topline headwind.
• Consumer Healthcare destocking (nasal decongestants/saline/cough & cold) outside U.S. persisted; management expects at least “another quarter” before inflection.
• Higher effective tax rate (26% vs 20% LY) pressured reported EPS; France 2025 surtax and lower share-based comp benefits cited.

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2025 Q1 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Introducing today's conference call is Mrs. Mary Skafidas, Senior Vice President, Investor Relations and Communications. Please go ahead.

Mary Skafidas (SVP of Investor Relations and Communications)

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

Stephan Tanda (President and CEO)

Thank you, Mary, and good morning, everyone. We appreciate you joining us on the call today. I will begin my remarks by highlighting our first Q1 results. Later in the call, Vanessa Kanu, our CFO, will provide additional details on key drivers for the quarter. Starting on slide three, for the Q1, we delivered adjusted earnings per share of $1.20. Neutralizing for currency effects and tax, earnings per share would have increased approximately 5% over the prior year period. We saw solid demand for our pharma segment's proprietary drug delivery systems, especially technologies for emergency medicines, central nervous system therapeutics, asthma, COPD, and ophthalmic treatments. Additionally, strong active material sales in diabetes solutions and royalties contributed positively to our quarterly results. Core sales for our proprietary drug delivery systems grew 4% in the quarter, following high single-digit core sales growth in the prior year period.

As we expected, Q1 2025 was impacted by softer demand for dispensing technologies in nasal saline and nasal decongestants. The strong cold and flu season is helping to deplete some of the inventory buildup. At this time, aside from the U.S., we are not yet seeing an inflection point in our order book, indicating that there is still inventory in the system. Our proprietary drug delivery systems' reported sales have grown over the prior year period for 12 quarters in a row, growing double digits in six of those quarters. We are very proud of the success of the team, fueled by record launches, new innovations, and the quality and the reliability of our products, essential in administering lifesaving medications. While we anticipate there will be phases of rapid growth and more moderate growth, we remain confident in our growth prospects.

Our long-term growth is driven by strong macro trends such as the decentralization of healthcare, growth of generic medicines, the switch of drugs to over-the-counter markets, and always worsening allergies. The injectables division had a challenging comparison over the prior year period. Our order book for injectables in 2025 is robust, and we expect to continue to see good demand from GLP-1 and biologics. We continue to ramp up equipment capacities and our validation efforts to service the attractive growth in this end market. In our beauty segment, prestige fragrance and facial skincare end markets remain challenged. However, we saw sequential improvements in sales, including in Europe from certain fragrance companies, and progressive improvement in China. Turning to the closure segment, the solid product sales results in the quarter were offset primarily by meaningfully lower tooling sales and the discontinuation of activities in Argentina.

Improving utilization rates and continuous cost management efforts, coupled with our strong innovation pipeline, are contributing to top-line and bottom-line results. Moving to slide four, I am proud to highlight recent corporate awards and recognitions. We believe operating in a sustainable manner and developing more sustainable product solutions is an important competitive advantage for Aptar. As a reflection of our progress during the quarter, we were named one of Barron's most sustainable US companies for the seventh consecutive year. We also achieved the coveted EcoVadis Platinum level rating in recognition of our sustainability efforts for the fifth consecutive year. The Platinum rating places us among the top 1% of more than 150,000 companies rated by EcoVadis across all industries. Turning to innovation, I want to highlight a few recent technologies and product launches as shown on slide five.

Starting with our pharma segment, our nasal delivery system is the solution for nasal saline rinse in Germany. In China, our ophthalmic squeeze dispenser is the solution for the multi-dose preservative-free drops by VisionX Lab. Last but not least, we recently announced a clinical validation study for our SmartTrack services platform after almost a decade of development, aiming to reduce the need for clinical trials in generic inhaled drug approvals by leveraging in vitro, in silico methods to predict clinical outcomes. The validation study is scheduled for the Q2 of 2025 and is a key step forward in proving the platform's effectiveness. We expect that SmartTrack will help our customers speed up ANDA approvals and make generic inhaled medicines more accessible to patients.

We anticipate the study to also support efforts such as creating low global warming potential powder meter dose inhaler formulations, developing new drug combinations, repurposing drugs, and advancing new chemical entities. In beauty, our refillable fragrance pump is the dispensing solution for L'Oréal's new Yves Saint Laurent fragrance in Europe. In Latin America, O Boticario has selected our pump for a new men's fragrance, and our custom dispensing pump is on the Beiersdorf Eucerin brand lotion. In Asia, our customized cosmetics pump is used on P&G's Olay Serum facial skincare product. Our buildable drop-by-drop dispenser is featured on the Boema suncare brand in the US. Moving to closures, Hidden Valley Ranch's inverted salad dressing features our new lightweight closure with fully recyclable valve, now on the grocery store shelves in North America.

In Latin America, L'Oréal is featuring our fully recyclable, e-commerce-capable disc top solution on its Garnier Fructis haircare products. In China, our sports closure is featured on the New Lean brand sports drink. Before I turn the call over to Vanessa to share further details on the quarter, I want to highlight that we ramped up our share repurchases in the Q1, repurchasing more than 500,000 shares for about $80 million. Our share repurchases underscore our belief in the future trajectory of the company. Now, I will turn the call over to Vanessa.

Vanessa Kanu (EVP and CFO)

Thank you, Stephan, and good morning, everyone. Let me begin by summarizing the highlights for the quarter. Starting on slide six, our reported sales decreased 3%, which included a foreign currency translation headwind of approximately 3%. Therefore, core sales were flat compared to the prior year period. As shown on slide seven, we achieved adjusted EBITDA of $183 million, an increase of 3% from the prior year period. We reported adjusted diluted earnings per share of $1.20 versus the prior year's $1.22 at comparable exchange rates. The effective tax rate for the Q1 was 25.8% compared to 20.5% in the year prior. The higher effective tax rate reflects the estimated impact of the temporary 2025 surtax enacted in France during the quarter, lower tax benefits from share-based compensation, and certain non-recurring incentives received in the prior year quarter.

If we were to adjust Q1 2024 earnings per share, keeping tax rates constant, the comparable adjusted EPS would be $1.14. Neutralizing for currency effects and tax, EPS would have increased 5% over the prior year quarter. With those high-level comments, let's take a closer look at segment performance. Our pharma segment core sales increased 3%. Let me break that down by market, starting with our proprietary drug delivery system. Prescription core sales increased 10%, primarily due to continued strong demand for dosing and dispensing technologies for emergency medicines, as well as central nervous system, asthma, and COPD therapeutics. Consumer healthcare core sales decreased 10%, driven by softer demand for nasal decongestions, nasal saline rinse solutions, as well as cough and cold medicines, as inventory management continued at the customer level. The continued growth in sales for ophthalmic solutions could not offset this decline.

Injectables core sales decreased 8% due to a tough comparison from the prior year's quarter, a catch-up quarter post the division's implementation of its enterprise resource planning system. For our active material science solutions, core sales increased 11%, driven by increased demand for our diabetes and probiotic solutions. In addition, we benefited from higher tooling sales in the quarter. Pharma's adjusted EBITDA margin for the quarter was 34.8%, a 230 basis points improvement from the prior year. The margin improvement was driven by increased sales of higher value products and services, including royalties and continued cost efficiency initiatives. Moving to our beauty segment, core sales decreased 3% in the quarter. Looking at the beauty segment by market, fragrance, facial skincare, and color cosmetics, core sales decreased 11%, due largely to lower sales of higher value prestige fragrance products, particularly in Europe.

While core sales of masstige fragrance grew double digits, it could not offset the softer demand for dispensing solutions in prestige fragrance and facial skincare. Although we do believe that sales for dispensing technologies in these end markets should start to improve progressively. Personal care core sales increased 9%, with continued demand for body care and haircare applications. Home care core sales increased 15%, primarily due to continued growth of haircare applications and surface cleaning products. This segment's adjusted EBITDA margin for the quarter was 12.1%, a decline of 50 basis points, largely driven by lower prestige fragrance volumes. In the closure segment, core sales decreased by 2% compared with the prior year. The segment saw product sales growth in virtually all end markets. These positive results were offset by lower tooling sales and unprofitable sales that the company chose to no longer service.

Without these headwinds, core sales would have increased by 3%. When looking at the market fields for closures, food core sales were flat. Higher product sales were offset by significantly lower tooling sales compared to the prior year period. Product sales for food were driven by increased demand for granular powder, Asian sauces, and salad dressing, somewhat offset by a decline in sales for food protection. Beverage core sales were flat. As with food, the higher beverage product sales were offset by significantly lower tooling sales compared to the prior year. Product sales growth was driven by increased demand for functional drinks and concentrates. Personal care core sales decreased 15% due to softer demand in two of its larger categories, body skincare and haircare products.

While in our other category, which includes beauty, home care, and healthcare, core sales increased 7%, driven by higher sales for dishcare and laundry care solutions. This segment's adjusted EBITDA margin was 15.8%, representing an 80 basis points improvement over the prior year, primarily due to product volume growth and continuing cost management. The contribution from our segments resulted in our consolidated gross margins expanding by 160 basis points, while consolidated adjusted EBITDA margins expanded by 120 basis points to 20.7% compared to 19.5% in the prior year period. Indeed, driven by improved revenue mix and the positive impact from our ongoing cost improvement and productivity efforts. Moving over to cash flow, free cash flow was $26 million for the quarter, resulting from cash from operations of $83 million net of capital expenditures of $57 million. Free cash flow increased by $9 million from the prior year quarter.

As Stephan mentioned, we stepped up our share repurchases in the quarter and returned approximately $110 million to shareholders in the form of roughly $30 million in dividends and $80 million in share repurchases. You may recall that in October 2024, our board authorized a repurchase of up to $500 million of common stock. As of the end of Q1, there was approximately $383 million of authorized share repurchases remaining under the existing authorization. Finally, we ended the quarter with a strong balance sheet once again, reflecting a cash balance of $126 million as of March 31, net debt of $870 million, and a leverage ratio of 1.16. Now, moving on to outlook. Slide eight summarizes our outlook for the Q2.

We anticipate Q2 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 $1.56-$1.64 per share. Our effective tax rate range for the Q2 is 19%-21%, primarily due to a one-time tax benefit as well as ongoing tax optimization planning. Additionally, I wanted to touch on tariffs before handing over the call to Stephan. With the evolving tariff situation, we are closely monitoring potential impacts. At this point in time, the net effect is expected to be limited. In our portfolio, we have some pharma products exported from Europe, while our beauty and closure segments have more exposure to Mexico, both in terms of manufacturing and material sourcing. Given how quickly things are changing, it's difficult to draw definitive conclusions at this stage.

Once the landscape settles, we expect supply chains will adapt as they have in the past. What positions us well is our truly global footprint, operating in 20 countries with around 49 manufacturing sites, giving us the flexibility to shift and respond as needed. At this time, Stephan will provide a few closing comments before we move to Q&A.

Stephan Tanda (President and CEO)

Thank you, Vanessa. In times of economic uncertainty, our resilience becomes our greatest asset. At Aptar, we are dedicated to providing the essential products that keep our communities strong and healthy. Our position as a leader in dosing, dispensing, and protection technologies across a number of resilient end markets, including medications to treat chronic conditions and consumer staples that are relied on by millions of people every day, underpin our business. Additionally, our robust, largely in-region, four-region supply chain structure that we adopted decades ago allows us to adapt with agility and flexibility to the changing needs of our customers. Regarding tariffs, while we need to remain watchful, changing dynamics also bring opportunities, especially with our strong North American footprint.

As a reminder, we have 11 plants in North America, nine of those in the US and two in Mexico, giving us a competitive edge in production capacity across each of our segments. Our large and unique North American footprint strengthens our reliability and responsiveness. Additionally, we are expanding distribution opportunities for our beauty segment as market demand increases, particularly in response to tariff-related concerns, leading to a notable rise in sample requests. When it comes to our closure segment, our mostly localized approach ensures proximity to customers, enhancing service and efficiency. The environment around us continues to change almost daily, and while we will remain vigilant, we are also aware of the opportunities that this disruption will bring. Looking ahead, we expect a strong Q2 with positive contributions from all three segments.

In addition to the contribution from our strong pharma franchise, we anticipate a stronger Q2 for beauty and for closures. We are excited and encouraged by the order book and by our innovations that are winning the hearts and minds of our customers, patients, and consumers. As we navigate the challenges and opportunities ahead, we remain committed to supporting and investing in these fundamental needs that have propelled our company's growth. With that, I would like to open up the call for your questions.

Operator (participant)

Thank you, Stephan. We will now begin the question and answer section. If you would like to ask a question, please press star followed by one on your telephone keypad. If you change your mind and would like to remove that request, you can do so by pressing star then two. As a reminder, that is star followed by one to ask any questions. We'll pause here briefly whilst questions are registered. Your first question comes from George Staphos with Bank of America. Please go ahead.

George Staphos (Managing Director)

Hi everyone. Good morning. I hope you're doing well. Thanks for the details. I guess first question I had, Stephan, if you can give us a little bit more color in terms of what you're seeing in terms of order patterns and inventory levels. You mentioned that you haven't gotten past perhaps the inflection point in pharma and restocking on CHC. Add and amend as you wish there. Just appreciate a bit more color there. Can you give us a bit more color in terms of what's happening with GLP-1s and how that's helping injectables? I don't know if you're going to be in a position to quantify, but if you can give a bit more color there, that would be helpful too. I had one follow-on.

Stephan Tanda (President and CEO)

Great. Good morning, George. The general sense is that the companies, after a somewhat slow Q4 and Q1, are re-accelerating into Q2 across a broad range of end users. We see good poise in new orders and new projects in beauty. We see continued good strong demand in closures. On the pharma side, proprietary drug delivery engine is humming along. Injectables is doing well. Good demand. Frankly, it's more about us ramping up our capability and validating equipment. As you saw, active material is doing well. Indeed, the notable exception is cold and cough. We certainly see that US inventories have been not depleted but come to a more normal level based on the strong US flu season. We have not seen that yet in other areas. At this point, we probably see another quarter of the stocking. The visibility is not great.

We'll know more at the next quarter. Having said all that, when we get in these inventory build-up and then destocking cycles, it's a non-trivial exercise to tease apart all the variables. Just for argument's sake, let's say we are short a particular SKU and cannot meet demand for customer and short-ship the customer. Next time the customer places an order, they add a little extra for good measure. We didn't expect that additional demand, so we again cannot meet. The story keeps going on until the customer has hoarded a bunch without obviously telling us. Otherwise, they're concerned that we short-ship them even more. You have this multiplied by four levels in the value chain. Of course, we track retail sales in the US, but we don't see IQVIA comes out as a significant lag. It's a non-trivial exercise.

We're not trying to be evasive here or have that as an excuse, but more as an explanation. Usually, the supply chains are pretty steady, but here with cold and cough, it's a little tricky. Now, coming on the GLP-1, we see very strong demand and continue to ramp up capability. I think you've seen one of our lines run, see that run in Le Vaudreuil. We continue to meet that demand. We get good traction with customers. Yeah, generally positive on that. You had a follow-up.

George Staphos (Managing Director)

Thank you, Stephan. Point of clarification, you said other areas have not seen it yet. So meaning outside of the U.S., you have not seen cough and cold inventories necessarily depleted. You do not have to go into detail. I just want to make sure I got that right. And then, Vanessa, I know tax rates kind of circular. Thank you, Stephan. I know tax rates circular because it relies on the full year, and you do not cut on the full year. But if you are in our seats and we need to model AptarGroup, what tax rate would you use broadly for the second half of the year? Thank you.

Vanessa Kanu (EVP and CFO)

George, thank you, George. Thanks for the question. Maybe before I dive into that, I'll just quickly touch on the Q2 guide tax rate then because I'm certain somebody would ask what's driving the Q2 guide. We did guide 19%-21%, so 20% at the midpoint. We did mention that that was largely due to a one-time expected tax benefit. Really, where that's coming from is the expected realization of deferred tax assets that were previously not recognized. We're now in a position, through all the work that we've been doing around increasing profitability, etc., in certain of our entities that were previously loss-making, we can now recognize that tax asset. That's really what is driving that for Q2. That is a big anomaly.

If I think about the balance of the year and sort of isolate this one-time impact, but also other ongoing tax planning work that we're doing, I would expect somewhere in the sort of 22%-24% ETR range.

George Staphos (Managing Director)

Okay. Thank you very much.

Operator (participant)

Thank you. Your next question comes from Ghansham Panjabi with Baird. Please go ahead.

Ghansham Panjabi (Senior Research Analyst)

Thank you, Aptar. Good morning, everybody. Just following up on George's questions on the cold and cough, where do you think the inventory lies? Is it in distribution? Is it in the upstream in terms of production at the pharmaceutical level? Just any color there. What is the realistic sort of timeline for that inflection if you kind of look at parallels in the past where the company's gone through these before as well?

Stephan Tanda (President and CEO)

It's very hard to tell. I think the color we can give you is that in terms of our order book, we've seen the inflection happen in the U.S. We have not seen it yet outside the U.S. As you can imagine, the visibility at the different levels of the supply chain is even lower outside of the U.S. Our best call right now is that we extend this for another quarter, and we'll give you an update at the next Q. I mean, even when it was extreme, I think we rarely had this extend for more than a year. We're now about by the summer, we'll be three quarters into it.

Ghansham Panjabi (Senior Research Analyst)

The U.S. was how many quarters? You mentioned an inflection. How many quarters was the correction, you think?

Stephan Tanda (President and CEO)

I would say two quarters in the US. Quarter four and quarter one, I think now we quartered. Yeah.

Ghansham Panjabi (Senior Research Analyst)

Got it. Okay. Thank you for that. In terms of GLP-1 and your targets you outlined a couple of years ago at your analyst meeting about doubling the sales base, etc., how does the potential for an oral pill change the catalyst of that, if at all, for injectables?

Stephan Tanda (President and CEO)

Yeah. Certainly, the way we think about this is this is not a short-term prospect. You have a lot of capacity going in for auto injectors, for CMO capacity. There's a lot of consumer adaptation to these auto injectors. I don't think anybody will abandon these investments. In the end, it's a decision by customers what to launch, not to launch. In addition, you've seen distribution growing for some of these auto injectors with the Novo Telehealth investment. For the next few years, I would not look at that. Personally, I would expect it to be maybe more of a sequential thing. First, you get the weight off with the auto injector, and then the oral will be more of a maintenance regime. I'm speculating at this point. Certainly nothing that our customers flag in the foreseeable future.

Ghansham Panjabi (Senior Research Analyst)

Got it. Just one final one. The divergence in sales between mass-tige fragrances and prestige, is that just a bit more color on that in terms of your share position? Is it obviously different one versus the other, or is it just the market conditions and maybe customer mix?

Stephan Tanda (President and CEO)

It is more what our customers' decisions went to do launches. Clearly, coming out of COVID, the first big swing was with Prestige fragrances. We are almost lapping that, whereas Mastiche came later. Of course, it is always a question: are you on the launches that are successful? In terms of share position, we feel very good. Certainly, if you ask our teams, they are positive and maybe even saying that they are gaining share. You are talking to salespeople, no disrespect. We have a pretty sophisticated tracking, so I am confident that we are certainly gaining a bit of ground there. As we indicated, going into the Q2, we see some of the Prestige launches coming back, especially also in Europe. On the broader beauty picture, we also see the Chinese consumer coming back. The overall sense has been quite positive there.

Now, who knows what the whole trade and negotiations will do to that? For now, it looks pretty good.

Ghansham Panjabi (Senior Research Analyst)

Okay. Perfect. Thank you so much.

Operator (participant)

Thank you. We now have a question from Matt Roberts with Raymond James.

George Staphos (Managing Director)

Hey, Stephan, Vanessa, Mary, good morning, everybody. If I could first expand on Ghansham's question there on the Prestige fragrance, I believe you said it was isolated to Europe. Are you seeing any early impacts of lower discretionary spending amongst that Prestige income cohort? Are your customers passing along tariff-related price already that is being absorbed? If so, would Aptar have to share in any of that cost?

Stephan Tanda (President and CEO)

I mean, let's start with the second part of your question. When it comes to tariffs, we are mainly in region-for-region in terms of our supply chain setup. So while we have some tariff exposure, for example, for aluminum and for some isolated cases, our region-for-region supply chain setup makes us pretty resilient here. Plus, whatever tariff we encounter, we pass on. We see a bit more muted engagement in terms of new launches based on just the uncertainty that we may have compared to what we would have expected three months ago. Nevertheless, we see a solid increase compared to prior year. That is why we are confident about the Q2 contribution of beauty to growth.

Now, when it comes to what our customers do in terms of their sourcing decisions and where they send products, those are secondary, tertiary facts, and that will take some time. More kind of CEO math. The Prestige products probably have the biggest room to pass on things. Remember, the selling price is not a transfer price. And there is a lot of room in absorbing or passing on tariffs in the short term.

George Staphos (Managing Director)

That's helpful, Stephan. Thank you. Maybe if I could, if I could ask a more holistic question because I can't keep up with regulatory agent headlines and whether the odds or pace drug approvals is any better or worse. I'm not sure you can make that easier for me. When you think about the longer-term 7-11% core growth in pharma, how does the evolving approach at regulatories change your conviction on that here in the medium term, maybe over the next two to three years? Are there certain areas you're more or less comfortable with in the pipeline given your customers and you span small biotech companies to very large pharma companies? How is each end of that customer range approaching their respective pipelines? Thanks for taking the questions.

Stephan Tanda (President and CEO)

Yeah. As you know, our average project is about a decade. If an approval process gets pushed out by 6-12 months, I'm not sure we will find it in the P&L. Most of our medications are treatment of chronic diseases, whether it's diabetes, whether it's COPD, or asthma. We see that continue ongoing. Clearly, customers are concerned if the FDA is not as responsive as it used to be in terms of getting on cases. So far, we have not really seen a lot of evidence of that. I think right now, it's more concerns. Overall, pharma R&D budgets were up in 2024, and our pipeline continues to grow. I would let the dust settle here for a little bit before making any calls. We feel very good about the pipeline, and the long-term trends I referred to are really good.

I wanted to come back on your earlier point on beauty, though, and the tariffs. I would also like to point out, again, that given our local presence in the U.S., and here the U.S. is particularly impacted, we see a lot more requests. In fact, our requests for new quotations are up 30% for people who need to switch away or want to switch away from having things coming from China. For us, the tariff situation is as much an opportunity as it is keeping us busy with passing on things.

George Staphos (Managing Director)

Appreciate that and providing a little comfort going into the weekend. Thank you, Stephan.

Operator (participant)

Thank you. We now have Daniel Rizzo with Jefferies on the line.

George Staphos (Managing Director)

Hey, thank you for taking my question. Just to kind of—how are you doing? Just to kind of go with the tariff thing, is it also possible that tariffs could have a benefit for—I mean, from my understanding in beauty, you produce in Europe, or your end products are in Europe, and they are shipped to China. Are we seeing—or can we see that demand go up because of issues between the U.S. and the rest of the world, if you kind of follow what I'm saying?

Stephan Tanda (President and CEO)

Sure. Hi, Dan. The Chinese market is evolving, I would say. We certainly see more confidence, but we also see more patriotism given geopolitics. There is a gaining of market share of local brands. Now, since we are in China and producing for China, we are quite happy supplying the local brands. Some of the multinationals have local operations there, like L'Oréal has a big footprint in China. Whether there is some rerouting of luxury products rather than shipping them to the U.S., shipped them to China, I think it is a good hypothesis. I think it is too early to have data on that.

George Staphos (Managing Director)

Okay. You mentioned tough comps in injectables. I was wondering, I think in Q1, I was wondering if that's something that's going to be kind of an issue or just something that's highlighted for the remainder of the year.

Stephan Tanda (President and CEO)

No. I know it's some time ago. Remember, we had this ERP deployment where the prior year, we were almost not able to ship for, I think, half the quarter. Last quarter one, we caught up with all of that. The comparison was, I think we were up like 56%. We shipped for a quarter and a half last year. When you compare to that, it starts to show growth. Demand is not an issue in injectables. For us, the demand is there. We're catching our breath or our little window catching up with it. We are getting equipment installed, getting equipment validated.

George Staphos (Managing Director)

Okay. Finally, with FX, you guided to $1.14. What was, I guess, the average rate in Q1? Was it like $1.08 or $1.09? What's the kind of the change? Or that's what's expected versus what was?

Vanessa Kanu (EVP and CFO)

Yeah. If you're thinking of where we guided at the end of when we guided Q1, that was about $1.04. There was a little bit of an uptick. January and February were pretty consistent with that. March came in at about $1.08. Current spot rates are about $1.14. That's what we're guiding at right now. The impact of that, if you're thinking about sort of year over year, is roughly about $0.04.

George Staphos (Managing Director)

That's perfect. That's exactly what I was looking for. Thank you.

Operator (participant)

Thank you. We now have Matt Larew with William Blair.

Matt Larew (Research Analyst Healthcare)

Good morning. I wanted to follow up on growth in pharma. Obviously, you've called out sort of the cough and cold destock. You also referenced on the call continued strength on the emergency med Narcan side. If I think about the last decade here, the CAGR is around 9%, so sort of right in that 7%-11% range. The quarters themselves, particularly over the last couple of years, have been much choppier. Maybe if we think about the next few quarters as the destock ends, do we get back to a more normal cadence? Maybe as part of that answer, it would be good to hear an update on where emergency medicine stands as a percentage of sales. Thanks.

Stephan Tanda (President and CEO)

Hi, Matt. Emergency medicine today are about 5% of overall company revenue. That's not only Narcan, but Narcan is an important part of that. Yeah, I can only agree with you. This is much more of a choppy business. Distribution chains are non-traditional. You're dealing with state harm reduction agencies. In addition to that, you had, after emergence, coming in a bunch of generics who fight for share and stock up, de-stock, and so on. It is a much more choppy business, a lumpy business. Overall, as we mentioned before, with deaths from opiate overdoses being clearly reduced through the availability and wide availability of Narcan and this having bipartisan support, we continue to expect this business to develop nicely. I think it's also reasonable to expect that at some point, it will kind of resume a more normal growth trajectory.

Beyond that, of course, if you look at the last five years, we had the tremendous whiplash with the COVID supply chain. I think I would be prudent to say we do not guide for future quarters or the year. We do stand by our long-term targets. We feel very good about the long-term growth trajectory. As you mentioned, we will not hit it every quarter. We will maybe not even hit it every year. We feel good about the 7-11%. Over the longer period of time, we have shown that we do that. If anything, it is driven by our pipeline, and our pipeline is in good shape.

Matt Larew (Research Analyst Healthcare)

Okay. Very good. Vanessa, I just wanted to make sure on tariffs. You referenced that the net effect is expected to be limited. Does your guidance, or at least the way you're thinking about the year, incorporate that net effect? Does it incorporate sort of a gross effect with an expectation you might mitigate? This year, I think each company seems to be thinking about it differently in terms of the impact they expect versus what they incorporate into their outlook. I want to make sure we're clear about that.

Vanessa Kanu (EVP and CFO)

Yeah. Thanks, Matt. We saw little to no impact in the Q1 results. In Q2, our guidance does incorporate the limited net effect. For the balance of the year, we expect that to essentially be the same. Stephan mentioned earlier that where we are seeing an increase in tariffs, we are already passing it on. He also talked about the fact that it is not only a potential headwind, but it is also a potential benefit as well as there are other opportunities available to us depending on how all of this unfolds. At this point in time, we are expecting the net impact to be limited.

Matt Larew (Research Analyst Healthcare)

Okay. Very good. Thank you for the questions.

Vanessa Kanu (EVP and CFO)

Thank you.

Operator (participant)

Thank you, Matt. We have another question on the line from Gabe Hajde with Wells Fargo.

Gabe Hajde (Equity Research Analyst of Paper & Packaging)

Stephan, Vanessa, good morning. Just one

Stephan Tanda (President and CEO)

Hey Gabe

Gabe Hajde (Equity Research Analyst of Paper & Packaging)

quick point of clarification.

Hello. A point of clarification and maybe a little data point for us. Consumer healthcare, you talked about some de-stocking, and you were very transparent about it. I think on your prepared remarks, you said U.S. was actually starting to get back to normal in terms of order patterns. Rest of the world, maybe not so much. Again, we could probably sit here and speculate all day about how things move around and what the inventory supply chain looks like. How big is that piece of business relative to U.S.?

Stephan Tanda (President and CEO)

Yeah. I don't think we give you that detail, but you wouldn't be wrong to have the US share at or maybe less than the company average, which is about 30% of the business. It might be even a little bit less than that.

Gabe Hajde (Equity Research Analyst of Paper & Packaging)

Okay. Got it. I guess in pharma, maybe what we're all trying to understand is it feels like there's been a little bit of noise across a couple of the different product lines. Vanessa, did you give us specifically the number? I apologize if I missed it, injectables, what the volume was in Q1. If I'm hearing you correct, we get through sort of this de-stock in OTC/consumer healthcare. Is it fair to say, Stephan, that there's nothing that you see sort of over the next 12-18 months that would kind of prohibit you from being in that long-term window?

Stephan Tanda (President and CEO)

Vanessa looks at that information for injectables. Again, we do not guide for the year. If the last five years have taught us anything, that would be a fool's errand. We feel comfortable about the long-term targets and have demonstrated that. I am not going to get into, okay, it will be there in 18 months or it will be there in 8 and a half months. I do want to, though, remind you next to the regional split of consumer healthcare that you talked about, also remind that consumer healthcare itself is maybe a bit over 20% of our total pharma sales. That is why Rx up 10%, consumer healthcare down 10%. That does not even top up. We still have growth because Rx is a much bigger part of the proprietary drug delivery systems.

Vanessa Kanu (EVP and CFO)

Gabe, we did not talk about injectables volume.

George Staphos (Managing Director)

Got it. Thank you.

Vanessa Kanu (EVP and CFO)

Yeah.

Stephan Tanda (President and CEO)

Again, demand is not an issue in injectables. It's our ramping up and validating of supply.

Operator (participant)

Thank you. We have another question from George Staphos with Bank of America. Please go ahead when you're ready.

George Staphos (Managing Director)

Thanks so much. Two quick follow-ons for me. Stephan, to the extent that you have any view on this, and I realize it'd be very difficult to have one. With the pressure on the consumer that we keep hearing about, reading about, obviously, tariff considerations and what that might mean for supply chains and cost of material, recognizing on that latter point, material costs usually aren't that big of a deal for you anyway. Are you seeing any emerging trends in terms of the types of constructions that your customers are looking for across any of the key segments? Maybe less of an issue in pharma, but perhaps in beauty and/or enclosures. Second question, I'll turn it over. Overall, what's the outlook over the next quarter, two quarters?

If you had a view for 2025, we'd obviously love to hear it on sort of tooling and sort of the appetite for new products, new opportunities for you as measured by your tooling activity. Thanks and good luck in the quarter.

Stephan Tanda (President and CEO)

Thanks, George. Maybe best is to first say, in terms of recessions or lower consumer confidence, in general, Aptar is very well positioned. I mean, just as a reminder, we supply patients with their everyday medications to treat chronic diseases: asthma, COPD, allergic rhinitis, and diabetes, and so on. Plus food staples, personal care, home care staples. Those are not the things people cut back on. They may go to a private label brand. They may go to smaller sizes. All of those things are neutral to net positive for us. We are not that concerned about a garden variety recession, if that's even a thing that is possible. Those who go back to 2008, 2009, remember pharma was about 20% of the company at that time. Today, it's almost half.

The consumer pressure, while clearly something that some people are forecasting in the U.S., is not causing deep concern for us. At the same time, the situation is pretty unique to the U.S. Of course, the U.S. will impact the rest of the world in certain ways. That recession talk is not as strong in other parts of the world. Latin America is doing really nicely. As I said, China is much more on the front foot. Let's see how things develop over the next few months. Europe will invest a lot more in its defense, which means there's a lot more government spending that will stimulate the economy. I'm not so negative about the world at large. Having said that, even then in a recessionary environment, Aptar is very well positioned. Second, at the end of the day, our customers pay for our innovation.

They look to differentiate themselves. What that way of differentiating is might be a little bit different when the consumer money is a bit more tight. Clearly, customers look to continue to differentiate themselves. Sometimes that's with having a more lighter-weight product or having a changing product format. In the end of the day, that's innovation, that's project activity, and that is good for us. Yeah. We do not guide for the year. We do not guide for the quarter. Everything I just said tells me the world's not going to end after Q2.

George Staphos (Managing Director)

I'm sorry. What was that, Stephan? Everything we just said means that tooling activity is probably doing fairly well given customers are exploring different ways of continuing to differentiate but in a very sort of quickly evolving world. Would that be a fair summary?

Stephan Tanda (President and CEO)

Yeah. That's fair. We certainly see tooling on the way up in Q2.

George Staphos (Managing Director)

Okay. Thank you very much.

Operator (participant)

Thank you. Just as a quick reminder, it's star followed by one to ask any further questions today. I can confirm that does conclude the question and answer session. I would like to hand it back to Mr. Stephan Tanda for some closing comments.

Stephan Tanda (President and CEO)

Very good. Thanks for all your questions. Let me end the call by attempting to cut through the noise and remind us all of the bigger picture here. Our teams have delivered a very solid start to the year. While we started the year with softness in demand in certain end markets as well as tax headwinds and foreign exchange headwinds, we now head into the Q2 with confidence based on a few points. First, we see a re-acceleration of demand in several end markets and geographies across all segments, albeit with the temporary exception of cough and cold. The profit engine and proprietary drug delivery systems is humming along smoothly. The demand picture in injectables and active materials is solid. As we discussed, our long-term pharma end market trends are solid, and the pipeline is solid.

Our teams have found some innovative ways to mitigate the tax headwinds somewhat. The FX headwinds have largely abated, at least for the moment. Importantly, our long-standing local-for-local supply chain structure allows us to deal with the tariff and supply chain uncertainties with agility. Equally important at the same time, it allows us to take advantage of opportunities as customers rethink their regional sourcing strategies. We did not talk about it as much in the call today, but our teams are proudly focused on delivering productivity gains in all areas of the company through execution of ongoing projects, increasing automation, and developing additional ideas for future measures.

Last but not least, as we just discussed, if you're forecasting for the U.S. or even a global recession, it's important to remember that Aptar is well positioned across a number of resilient end markets, including medications for chronic diseases such as allergy, diabetes, asthma, COPD, emergency treatments that patients want to have at the ready, and consumer staples that people consume and use every day. In times of economic uncertainty, our resilience becomes our greatest asset. Lastly, given the strength of our business, we accelerated returns to shareholders in Q1 while, of course, retaining the strategic optionality of our balance sheet. With that, thanks for attending the call, and we look forward to follow-up discussions.

Operator (participant)

Thank you for joining. I can confirm that does conclude today's conference call with Aptar. You may now disconnect, and please enjoy the rest of your day.