Ladies and gentlemen, thank you for standing by. Welcome to Aptar's 2021 Third Quarter 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 Mr. Matt DellaMaria, Senior Vice President, Investor Relations and Communications.

Please go ahead, sir..

Thank you. Hello, everyone, and thanks for being with us today. Joining me on today's call are Stephan Tanda, President and CEO; and Bob Kuhn, Executive Vice President and CFO. Our press release and accompanying slide deck have been posted on our website.

If you are following along on our website, you can advance the slides by hovering over the presentation screen and clicking on the arrows on the right and left. As always, we will post a replay of this call on our website. Today's call includes some forward-looking statements.

Please refer to our SEC filings to review factors that could cause actual results to differ materially from what we are discussing today. I would now like to turn the conference call over to Stephan..

Thanks, Matt, and good morning, everyone. I hope that you are all doing well, and thank you for joining us today. Starting on Slide 3. As you saw in our press release, we reported strong top line growth of 9% and earnings that were in line with our previous guidance.

These results were made possible by our diverse product lineup and our ability to serve multiple markets with our deep portfolio of shared technologies across our segments.

When taking a closer look, our elastomer components for injected medicines posted another strong quarter, and our consumer healthcare solutions resumed a positive growth trajectory. Our active material solutions continue to be in high demand, especially for diagnostics and probiotics.

However, as we indicated previously, year-over-year sales declined in the quarter as we had a significant custom tooling sales last year that did not repeat. As a reflection of the importance of and high demand for our unique Activ-Film technology, we are honored to have been awarded a U.S.

government contract that we will fund a $19 million expansion for our Activ-Film domestic production. This proprietary film is used with at-home COVID-19 antigen tests. This is a validation of our proprietary technology capabilities and the important role that we are playing in the fight against the pandemic.

Also in the quarter, sales of our nasal and pulmonary devices for the prescription drug market declined. The increase in COVID-19 cases during the year caused people to again stay at home, wear masks and keep socially distance.

And this meant fewer common illnesses, fewer doctor visits, and consequently, lower consumption of allergic rhinitis, cough and colds and certain pulmonary treatments. In effect, this has prolonged the drawdown of inventories at our customers.

Thankfully, as vaccination rates continue to rise, we are seeing some positive signs that people are beginning to visit the doctors to a greater degree than before. The Delta variant, in particular, has caused some regions to again restrict social activities, and this has delayed the recovery of this part of our business.

However, anecdotally, we are reading about the recent rise in the number of incidents of cold and even what is referred to in the U.K. as a super cold. So as people move up and about to a greater degree, it seems, unfortunately, common pre-pandemic illnesses are returning.

Our Pharma margin in the quarter was below the prior year, mainly due to the mix of business, reflecting the lower sales to the prescription market previously mentioned. We achieved double-digit core growth in Beauty and Home, and Food and Beverage on both increased volumes and higher pricing.

The beauty market continued its recovery, and we also saw increased demand for hair care and body care dispensers in the personal care market. The food market continued to benefit from at-home cooking trends, and we also saw a rebound in our beverage closure business when compared to a particularly weak period a year ago.

Our Beauty and Home, and Food and Beverage margins reflected the rapidly accelerating inflationary environment and related pass-through effects as well as supply chain challenges. We continue to pass on rising cost but did not fully offset those costs within the quarter. We fully expect to make up more ground in the fourth quarter.

As a reminder, the passing through of increased input cost on a dollar-for-dollar basis has the effect of compressing margin percentages. The foundational strength of our business is derived from our shared core technologies and solutions that are leveraged across all of our end markets to enable our customers' growth.

I would like to highlight a few recent launches by customers using our technologies in the next few slides, starting with our Pharma segment on Slide 4.

Our partner, Becton Dickinson, announced the launch of a prefillable syringe for use with biologics that incorporates our premium coast plunger with proven ETFE film coating technology intended to ensure drug integrity. Two new FDA-approved nasally administered drugs came to market with our devices.

Oyster Point Pharma's TYRVAYA is the first and only nasal spray that treats the symptoms of dry eye disease, further validating that nasal is an effective channel for a wide variety of medicines. And Hikma has launched naloxone treatment, Kloxxado, with our Unidose Nasal Device to treat suspected opioid overdoses.

Our active material technology, which protects sensitive drug products, probiotics, medical devices, food and more for moisture and other environmental conditions was recently approved with Gilead's Biktarvy, which is an oral medication for patients with HIV.

In addition, there is a new probiotic from NutraOne called probioticX, which comes in our Activ-Vial. On Slide 5, in Beauty and Home, L'Oreal's Bright Reveal skincare solutions in China features our patented airless packaging with booster cartridge for the formulation of personalized skin care solutions.

In North America, our e-commerce capable solution with a twist to lock technology that prevents leakage during transportation is featured on Unilever's Baby Dove oil. And our FusionPKG business provides several patient skin care packaging solutions for Shiseido's Drunk Elephant brand.

In Food and Beverage, our closure technology for flexible pouches continues to penetrate new categories and is now also dispensing Kroger's squeezable cream cheese. And the brand Defy is featuring our sports closure on its electrolytes and mineral-infused water. Now turning to Slide 6.

On the M&A front, we have added key capabilities in our Pharma segment. During the quarter, we closed on our agreement to acquire 80% of Weihai Hengyu Medical Products, adding elastomeric and plastic component manufacturing capabilities in China for injectable drug delivery.

We also completed the acquisition of a majority stake in Voluntis, which expands our digital health care portfolio by adding digital therapeutic solutions and broadening our digital health care services across multiple chronic conditions and diseases.

Subsequent to the quarter, we completed a public tender offer for the remaining shares of Voluntis and reached the required threshold to fully acquire the company.

Also, in addition to our previously announced investments to expand our elastomer component capacity, we will be further increasing our capacity for our Activ-Film technology as a result of the contract awarded by the U.S. government, which I referenced earlier.

This technology, in addition to protecting antigen test strips, is also leveraged across other platforms, including the protection of oral solid dose medicines, and in the food market, where we are creating antimicrobial solutions to prevent food contamination and spoilage.

We expect this investment at our Auburn, Alabama site to be completed in early 2023. On the sustainability front, 10 of our European manufacturing sites are certified with the International Sustainability and Carbon Certification, or ISCC plus -- certifications to come.

This leading certification system ensures traceability, feedstock identity and can help to validate sustainability claims around recycled content and enables all of our segments to provide customers with solutions produced from certified sustainable food grade resin at a quality that is similar to that of conventional resin.

With that, I will now turn it over to Bob who will provide additional comments on our third quarter results.

Bob?.

Thank you, Stephan, and good morning, everyone. Turning to Slide 7. As Stephan briefly mentioned, for the third quarter 2021, reported sales, including positive effects of currency translation rates, increased 9% and core sales increased approximately 8%, including price adjustments.

Recent acquisitions completed in the quarter had an immaterial effect on the sales in the quarter. Turning to Slide 8. Third quarter adjusted earnings per share were $0.94 per share and adjusted EBITDA totaled $154 million.

Adjusted earnings included the positive effects of currency translation rates and the net negative inflation impact of approximately $13 million. Our consolidated adjusted EBITDA margin would have been approximately 250 basis points higher without the net price cost effect and the margin compression impact from passing on to higher costs.

Slides 9 and 10 highlight our year-to-date performance, and we achieved 6% core sales growth. And our adjusted earnings per share were $2.94, up 4% compared to $2.84 a year ago, including comparable exchange rates. Briefly summarizing our third quarter segment results.

Our Pharma segment's core sales declined 2%, partly due to lower custom tooling sales compared to the prior year. Adjusted EBITDA margin was approximately 32% and below the prior year's third quarter margin due to a mix of growth across the end markets. Looking at each pharma market. Core sales for the prescription market decreased 9%.

As we have been discussing during the year, fewer noncritical doctor visits this season have resulted in certain pharma customers drawing down inventory levels as sectors such as allergic rhinitis, cough and cold and certain pulmonary treatments are being impacted by the low levels of patient consumption.

Core sales to the consumer health care market increased 5%, primarily due to increased revenues in the eye care category. It was another strong quarter for components used for injectable medicines with core sales increasing 16% and primarily due to continued strong demand for our components used with vaccines.

Core sales of our active material science solutions decreased 15%, entirely due to significant custom tooling revenue in the prior year that did not repeat.

If we isolate that tooling revenue from the prior year, the underlying business is quite strong and would have continued with the trend of strong double-digit growth on increased demand for our diagnostic and probiotic protective applications. Turning to our Beauty and Home segment. Core sales increased 10% over the prior year third quarter.

Approximately half of the growth came from increased volumes and the other half from price increases. This segment's adjusted EBITDA margin was 12% in the quarter and included the net negative inflation effect of approximately $9 million.

Had we not had this price cost negative impact and we did not have the margin compression effect of passing through higher costs, EBITDA margins would have been over 300 basis points higher. Looking at each Beauty and Home market.

Core sales to the beauty market increased 18%, with increased demand for our fragrance and facial skincare solutions contributing to the sales growth.

Core sales to the personal care market increased 4% as higher sales to the hair care, body care and sun care markets were partially offset by declines in personal cleansing as hand sanitizer demand continues to normalize. Core sales to the home care market decreased 5% on lower demand for household cleaners.

Turning to our Food and Beverage segment, which had another solid performance, core sales for the third quarter increased 28%. In addition to strong double-digit volume growth, pricing adjustments also contributed and accounted for approximately 60% of the segment's sales growth in the quarter.

The segment's adjusted EBITDA margin was 16% in the quarter and included a net negative inflation effect of approximately $2 million. Had we not had this net price cost negative impact and we did not have the margin compression effect of passing through higher costs, EBITDA margins would have been over 400 basis points higher.

Looking at each market, core sales to the food market increased 20% due to price adjustments and increased demand for condiment and sauce dispensing closures with consumers continuing to cook at home.

Core sales to the beverage market increased 52% due to price adjustments and a partial recovery in the on-the-go beverage closure demand compared to a very weak third quarter of the prior year and a high level of custom tooling sales this year. Approximately 37% of the beverage market growth was from tooling sales.

Moving to Slide 11, which summarizes our outlook for the fourth quarter, where we expect core sales growth in each business segment. Earnings growth will be tempered by business mix, foreign currency translation headwinds, inflation and supply chain disruptions.

We expect our fourth quarter adjusted earnings per share, excluding any restructuring expenses, acquisition costs and changes in the unrealized fair value of equity investments, to be in the range of $0.88 to $0.96 per share. The estimated tax rate range for the fourth quarter is 28% to 30%.

In closing, we continue to have a strong balance sheet with a leverage ratio of slightly less than 1.8 times, which allows us to continue to invest in the business, pursue strategic opportunities and continue to return value to shareholders in the form of dividends and repurchases.

In addition to our cash dividend payments to shareholders, which totaled $73 million in the quarter, we repurchased approximately 220,000 shares of common stock for $28.4 million. We had announced earlier this year that we had lifted the suspension on repurchases that was in place to preserve liquidity during the height of the pandemic uncertainty.

We currently have approximately $250 million authorized for common share repurchases. We continue to invest in innovative growth projects across our segments, including the 3 accelerated projects we discussed earlier this year.

Our new state-of-the-art facility being built in Suzhou, China, that will be a shared facility housing production for each of our segments, the capacity expansion in our elastomer components division of our Pharma segment to support the future supply chain for injected medicines, and the new state-of-the-art prestige beauty device site in France.

We are very excited to have begun each of these projects, and we are on track with our previously forecasted range of capital expenditures for the year at a range of $300 million to $330 million. At this time, Stephan will provide a few closing comments before we move to Q&A..

Thank you, Bob. In closing, on Slide 12, we have been pleased with our ability to deliver solid results while navigating the surge of the Delta variant over the summer months, various supply chain challenges and significant inflationary pressures.

At the same time, we are excited about the progress we are making in positioning the company for growth beyond the current pandemic and economic environment.

The completion of our recent M&A transactions and the investments we are making to support our future growth, including increasing our capacity to produce elastomer components for injected medicines and active material science solutions, represents meaningful progress on our growth strategy and ability to succeed across numerous geographic end markets and product applications.

As Bob mentioned, we expect solid core growth across each segment in the fourth quarter with considerable headwinds on earnings, including the temporary shift in Pharma's business mix. The prescription drug market demand for devices used for central nervous system treatment is expected to be below the very high level of a year ago.

At the same time, we are encouraged by a partial recovery in demand for devices for allergy and asthma treatments, which are expected to be near the levels of the prior year's fourth quarter.

The beauty market will continue its recovery, albeit at a more gradual pace than previously expected, mainly due to the Delta variant over the summer, delaying some projects. Our Food + Beverage segment will be up against a tough comparison to a year ago, which saw high levels of consumer stocking trends.

We will continue to contain costs, improve efficiencies and raise prices to recover the effects of rising inflation. Our go procurement team is working diligently to navigate the challenging energy markets and tenuous supply chains to secure all the materials, supplies and equipment we need as we move forward.

Aptar is a resilient and adaptable company. I am very proud of our global workforce and their commitment to provide the drug delivery, consumer dispensing and active material science solutions that millions of people around the world rely on every single day. With that, I would now like to open the call for your questions..

[Operator Instructions] Your first question comes from the line of George Staphos with Bank of America Securities..

So first question that I had for you, and I know it's very difficult to project and you gave us some helpful qualitative commentary in terms of the fourth quarter.

When do you think we will be through -- when will you be through the destocking phase in pharma? Do you think, given what you know right now, given your end market channel checks, that this will be more or less resolved by the fourth quarter or first quarter? Any help there would be terrific.

The second question I had is just on guidance for the fourth quarter. Last quarter, when you were commenting, I think you said fourth quarter should be relatively close to what was the consensus at the time, which was I think a little over $1.

Obviously, there are lots of headwinds that you're suffering through in everybody else's in terms of supply chain inflation and so on, and the range is where it is.

Is there any way to quantify if guidance now is somewhat below where you would have expected a quarter ago? How much is it inflation? How much is in supply chain? Anything like that would be helpful..

George, let me -- try to break it down. For the pharma picture, it's hard to give you an exact time. But clearly, we see quite some encouragement in consumer and health care. Unfortunately, for people, but the business scope is clearly returning.

We see more and more our customers pointing to that and the order intake that we see for consumer health care related to cold and cough is clearly on the up. The allergic rhinitis destocking, we feel, is coming close to an end in the -- with the fourth quarter. We think the fourth quarter will be about in line with the fourth quarter from last year.

What is, however, a drag on the fourth quarter in this prescription business is that last year, we had a huge lump of CMS orders coming through. That's kind of a lumpy business. And I cannot tell you that will that be done in the fourth quarter, will there be some spillover in the first quarter of this year-over-year effect.

Now the rest of the pharma business is continuing to go from strength to strength. Our injectable business continues to grow very nicely, and we see us investing in capacity and we don't see any reduction in that. Of course, the mask on year-on-year comparisons with larger numbers will kick in. But overall, good growth in that business.

And then the active material business is really -- continue to grow nicely. And we saw that nice award from the U.S. government, in fact, from the Air Force, confirming the technology we have and wanting more of that. So overall, I think that we're kind of middle of next year, for sure, will be a normal state.

Whether it's already in the first quarter, I really can't tell you. But we see the right signs. Allergic rhinitis seems to have run its course by the end of the quarter. And overall, clearly, a rebound in pharma on the horizon. Now on your second question, I'll just give some humble pie before Bob get into detail.

Clearly, we've leaned out the window a little bit more than we should have in July, and -- but we are in a very different world now. One, the delta variant has done a huge impact on everybody, but also our businesses. Two, the inflationary pressures have really accelerated tremendously.

And then the supply chain disruptions that you hear everywhere are very real. And then on top of that, we have the U.S. labor situation, which just creates enormous deficiencies and friction losses. So I think those are the big ones that have changed our outlook and Bob can break it down..

Sure. So sitting back in July, when we were looking out, the two biggest drivers are going to be coming from inflation being stronger now than what we had anticipated back in July. So we were anticipating back then, and those are very, very rough numbers, about a $0.02 headwind in the inflation for Q4. We're now projecting it to be closer to $0.07.

So that's about $0.05 of the dots right there. And then our exchange rate assumptions back in July, we were at EUR 1.19, and we're now projecting Q4 to be about EUR 1.16. So you got about EUR 0.02 to EUR 0.03 there, depending on roundings coming from FX.

And just to give you a rough idea, coming back to Q3, we were actually expecting -- I think on the call, I had mentioned and I've said that we net headwinds on inflation in Q3 was going to be about $7.5 million. And as you've heard from my earlier remarks, the end of about 13%. So it is truly a fluid situation, as Stephan mentioned.

We didn't know about rolling electricity shutdowns in Asia back in July. We weren't talking at all even thinking about energy prices spiking in Europe at the time. So these are things that are influencing our guidance for Q4 as well..

Next question is from the line of Ghansham Panjabi with Baird..

I guess sticking with Pharma for a second. So the last three years, '18, '19 and '20, double-digit growth from a volume standpoint. 2021 looks to be about flat, just sort of using your implied guidance for 4Q.

And I guess my question is, is that -- I understand the reasons in terms of inventory de-stock, et cetera, but will 2022 also be sort of a transition year before we get back to your historical growth rates? And then in terms of beauty, obviously, you're seeing some level of mini version in terms of volumes, et cetera, as the world has reopened in comparisons versus last year.

How much of that is inventory sort of realignment, if you will, at the customer level? And should we expect a headwind at some point as we cycle through 2022?.

Yes. On Pharma, I would, first of all, say we are very much staying behind our published targets. Everything that we have in the pipeline and the we’re seeing work in the market is not discouraging one bit from that. And in fact, it's encouraging us.

I think very big picture pharma COVID impact just came a year later, and all the effects that we talked through and the lumpiness in CMS, I think, those kind of is what the other experience is other business experienced in 2020, pharma is really taking an off year in 2021 with -- I don't disagree with your flattish assumption.

See the quarter 4 lanes. But fundamentally, there's nothing broken in pharma. Quite the opposite. We're starting to build -- we're adding capabilities with the actions that we mentioned in the R&D investments, so fully, I do not see '22 as another off year. We can debate in the first quarter.

But clearly, we see this business going back to its guided growth rates. On beauty, I think there is some inventory effect, but the industry is clearly a lot more cautious. There was a lot of optimism going into the summer. And as Delta hit, people immediately pulled back. And now there is again a lot of optimism.

So as you know, the beauty business is always about launches, in how successful is the sell-through on the launches. So I think that's the biggest question with the 11/11 go, how will Christmas go and the term set us up for next year.

But clearly, after one down on the Delta, there is a lot of optimism that it was recently in Europe, at Luxe Pack in Monaco, and we had Luxe Pack in New York last week. There's a lot of optimism in that industry also. Clearly, everybody is dealing with the same supply chain disruptions.

And if I quote one of our largest customers, their operations are organized chaos. So having also to deal with their own manufacturing issues, labor availability, short shipments and all that. So the industry is gearing up for a growth year with all the additional holes that we discussed, but we're able to manage those..

And just second question, maybe for Bob, on free cash flow. I mean, how should we sort of think about free cash flow for full year '21. Obviously, materially below last year. I understand there's some reasons with inventory and working capital adjustments, et cetera.

But how should we think about the fourth quarter and just the full year relative to last year?.

Yes. I mean I think you nailed it qualitatively, Ghansham. I mean we're going to be down off of last year and some of the reasons are obvious, right? I mean our cash spend on capital is going to be higher than it was last year. That's one thing that's influencing our free cash flow.

But what we're seeing on the working capital side is as business picks up, we are seeing our receivable balances increasing. No real change compared to base sales outstanding, no collectibility issues or anything like that.

On the inventory side, obviously, the increased costs on all the laws that are coming in, and that's having an increase in the inventory valuation.

And because of the supply chain disruptions that we've been talking about in certain resins and certain raw materials like colorants and things like that, we've come dangerously low in previous quarters to almost being out of stock on some of our components. So when we have the opportunity to replenish the supplies, we are doing so.

So we're probably a little bit conservative on the raw material side. And then we're carrying slightly higher finished goods than we have in the past, and that's just partially due to kind of train and issues in terms of transportation and things like that..

Your next question is from the line of Mark Wilde with BMO Capital Markets..

So, Bob, I wondered if you could just help us with any way of quantifying drag in the third quarter from the labor issues that you mentioned, but also any issues with global logistics. I'm conscious that historically, you've shipped component pieces from one part of the world to another..

So I can't really give you hard numbers on the breakout between supply chain and labor. I will tell you that of the total net negative inflation, about 80% of it is coming from materials, and then 20% is really making up the rest. Our labor issues are primarily North America, that's more of a North American issue.

The transportation and the supply chain is more of a global issue. We're doing okay on our intercompany component shipments and things like that. It's more, many cases, lack of truck drivers to be able to ship finished goods to customers, et cetera.

So we're doing what we can to make sure that in some cases, we're producing in advance of shipment dates to make sure that the customers are getting the products on time. But I can't really break out specifically how much is labor. That's more of a U.S. issue..

Maybe let me add some qualitative comments here because it is really pervasive. So in the end, what happens is we are understaffed at several of our large facilities to the tune of often having 10% to 15% of the headcount not staffed. That results in you can't run certain shifts. You can't ship some products.

Obviously, we have various wages across all of the factories. And then often, we have to pay sign-up bonuses, retention bonuses. And also we will not just wait for the first day after we got the retention bonus and they'd out. So it is a very unprecedented environment. It's not only us facing that. It's our customers facing that. Europe is by far better.

But also in Germany, it's pretty tough to hire qualified people. So -- but by far in the U.S., it's the biggest impact. And as Bob said, truck drivers are very high demand. And our customers just can't pick up the shipment. So the U.S. environment is pretty hard now. Over time, we will certainly look more to automation than before.

It's just the logical consequence because the labor market is not going to ease up anytime soon..

And Stephan, did you also lose or defer any sales in the third quarter? Because of just an inability to produce enough or to deliver or not?.

Yes. I mean look, it's a whole portfolio. Clearly, we have some lines that are flat out where we -- if you could sell more -- if you could make more, we could sell more. There are other lines that is not applicable, everybody is tight.

And then sometimes, we work very hard to get things done and then the customer didn't pick it up because their schedule changed because they don't have the labor. So in general, it's more fraction. Mathematically, could be absorbed more, yes, I think so. But will that automatically be a percentage or two for the fourth quarter, I'm not so sure..

Yes. I would add, Mark, that when we started to see these transportation disruption, that was earlier in the year. So earlier in the year, we did have some shipments that were ready to go that didn't go. But I think now, what you got is what was supposed to go in Q2 ended up now going into Q3.

And maybe we've got some sitting that should have gone on Q3 as kind of rolled in Q4. We're going to have things to Q4 that's going to roll in Q1. So I don't think quarter-on-quarter it's a significant effect. And certainly, I wouldn't sit here and say that we're sitting on massive shipments that will fall into Q1..

That's right. The main thing -- highly kinetic dynamic environment, and you changed on the time and in the end, you end up with more cost there..

Next question is from the line of Kyle White with Deutsche Bank..

I wanted to focus on pharma. I think we all recognize the inflationary environment, supply chain issues in regards to packaging and you gave the inflation impact in your other segments. But pharma is a bit more unique.

Can you just talk about how your price cost has been in that segment? What level of inflation are you seeing outside of materials? And are you able to price to cover? Or is there a headwind and still contractual resets there?.

So on the pharma side, the net negative for the entire segment was around $2 million. So roughly about 100 basis points on the margin. I would say the majority of that is probably from our active material science division than it is from the others. Again, I can't really break down what the -- I can't parse out what's coming from labor or anything..

Yes. I mean we are also repricing in pharma, but that is more on an annual basis. And where you can break into contracts, we do that. But this is much more a long-term industry and it's not something that you do month-to-month..

And then on beauty, it seems like consumers are looking to do holiday shopping sooner.

Are you seeing this or gaining from customers? And what kind of impact did this have on you? How do you manage that in terms of lead times with your customers given the tight supply chain?.

Yes. I mean, lead times are obviously a lot longer. So I'm not sure I can give you more color than that. We saw people taking the foot off the gas as Delta hits. And now they're stepping on the gas again. Obviously, a lot of regional differences. China, with the 11/11 is pulling that up and then pooling up for the Chinese New Year. U.S.

Christmas season will tell us a lot. Europe is actually going very well as vaccination rates have moved ahead of this country. I must say, moving around is much easier and the shops are open, so the recovery in Europe is actually going well. So overall, we are very positive on the pickup..

Next question is from the line of Gabe Hajde with Wells Fargo..

Stephan, Bob, I wanted to, I guess, clarify what I heard for beauty and home that the lag in recovery was about 300 basis points in the EBITDA margin. So it puts us close to kind of that 15% range. So if you could confirm that. And then more importantly, it looked like restructuring had kind of jumped up again this quarter.

And I don't know if that's a timing issue or if there are some other things that you guys are trying to accomplish to kind of restore the margin profile there and get to that $80 million of transformation savings that you talked about before..

Sure. So yes, I can confirm the 300 basis point impact in the beauty and home in net negative, which was in terms of about $9 million. As far as the larger-than-expected restructuring costs, we had talked about even last year shutting down some of our East Coast operations and merging them into existing North American facilities.

We had to delay that, as you remember, last year because of the demand for sanitizers and pumps, which were being produced at the time in our East Coast facility. So that large -- majority of their large restructuring costs is coming from the finalization of that plan, and now we moved everything into the other North American facilities..

Could you maybe quantify for us what the fixed cost savings might be with just that action right there or.

I don't know. I'd have to check and get back to on a [indiscernible].

All right. The other one I was curious just thinking about kind of capital redeployment. You guys bought back about $20 million in shares this quarter.

How active kind of the M&A environment is? And kind of how you guys kind of go through the decision tree, share repo versus making an acquisition? And sort of in the context of ROIC targets that you guys put out there with Capital Markets Day and then appreciating that it's also part of your kind of incentive comp..

Yes. I mean, in general, the M&A environment continues to be very active, and we continue to be very disciplined. So there's a lot of deals that we look at, and in the end, side to step away or simply do not pay the prices the seller expects.

But if we step back on our overall capital allocation, clearly, first priority is to invest in the business with capital expenditure projects and a return on those are the most predictable and throughout the return on our capital expenditure projects have been very steady and north of 20%. So that is the first priority.

Then, of course, we have, I think, 28 years of annually rising dividend and won't about to break that streak. And then comes M&A and share buybacks. Clearly, we've paused the share buybacks at the height of the pandemic to be more cautious and preserve liquidity.

But now we are back in the market as we've seen it before, and certainly, I have no reason not to continue that..

Your next question is from the line of Adam Josephson with KeyBanc..

Bob or Stephan, just on that -- the restructuring issue that Gabe was just asking about, is it fair to assume then that we should not expect to see much of the way of restructuring charges in future quarters? And just relatedly, how would you frame the returns that you think you've realized on all of your restructuring actions over the past, say, three or four years?.

So I'll take the first part of the question. Yes, the -- I think it's safe to say that we're at the tail end of the official kind of restructuring charges and whatnot. So I think that's a true statement. As far as the actual returns, I mean, it's a multiyear project.

But I think what you're seeing is that we continue to rightsize the business, improve the capability, the front end of the business during some very difficult times. And so we've taken about 8 plants off-line and in our business, we've gotten more efficient investments in capital.

So I think really if you take a step back, we've done what we said we were going to do and the transformation. And I think we're very well situated for the rebound to come. So visible right now with COVID and everything there to say, "Hey, we got a great return out of this.

Talk to me in a couple of years when the business normalizes and I think we'll have a different discussion..

Yes. I would just add, I know it's been malt if I compare our position in the market, our feedback from customers, both qualitative and quantitative, I would compare a business that's on the back foot losing share to our business that's on the front foot that's gaining share. And it's also pivoted geographically to the high-growth areas.

So for me, that's a pretty important consequence of all the work. Now we're never done. So but certainly agree with Bob on the restructuring charges, I think that for the most part, that's it..

I appreciate it Stephan and Bob. And just, Bob, you made a comment that when business conditions normalize in a couple of years, we'll see the fruits of this labor. And to that point, there have been so many unanticipated problems from the pharma destocking, from the Delta variant inflation, supply chain issues, et cetera.

How do you foresee this preliminary stage, I mean, how do you foresee next year shaping up? Do you expect many of these same problems to persist? The other pharma destocking aside, for the most part, do you expect any of these problems to persist? Or do you think it will be a clean year next year? Just any thoughts about how next year might evolve compared to this year, just given how unexpected so much of what's happened this year has been for you?.

Yes. Maybe let me can assume that for a moment, and then, Bob, please add. Look, how do you forecast back to on events? Nobody is predicted to it or all the variants that came. I'm actually very proud of the team, how the team has managed through the COVID. And Delta probably, hopefully, was the last of that story.

And I wouldn't character it as problems. I would characterize it as issues that the team stood up and dealt with, including the current and -- that is one of the strengths of Aptar. When you look at the resiliency, last year, we were flat. This year, we're growing again.

And the dealings, of course, with the after effect of pharma, but that's also related to COVID. So I think the company is handling those issues very well. Now if you can tell me that none of these issues will be there next year, we'll have again rest of the year. So -- but if there is another delta variant, we will have to deal with it.

We will be dealing with it. We have a capable team. I think I gave good color on our expectations on pharma and beauty. So now if you tell us there will be no echo and whatever variant, and I think we'll have a good -- great year..

Yes. I mean I would just add, Adam, I mean, how do we look at it? It's a challenge, right? But as Stephan said, I mean I go back to 2008, 2009, in that crisis. And the only way you can deal with it is through on-the-shelf contingency planning, and that's something that we did in '08 and '09. We continue to do today.

So do we have the budget and the forecast for next year. Of course, we do it based on a number of assumptions.

But we also have various contingency plans in place that we're ready and willing to execute should, as Stephan said, another Black Swan event happen, right? And on the flip side, we also have the balance sheet and the wherewithal to invest where we need to invest if things go better than we expected as well.

So I mean I think that's the only way you can manage through this. It's difficult to predict, but I think having the flexibility in the muscle and the contingency plans in place and the experience that we've had really is what makes us kind of weather through these storms..

Your next question is from the line of Angel Castillo with Morgan Stanley..

Just pay to deliver to the point on pharma, which is maybe a different way of looking at it.

As you think about kind of destocking here that, that continues into the fourth quarter, would you say -- would you characterize, I guess, customer levels of inventory as getting closer to normal? Or are they looking to run leaner than they had historically?.

Yes. So again, I would break this an -- remember, we have 4 units in Pharma, 3 of which are growing nicely. And the active materials and injected was at double digit. The -- and within the prescription division, we had significant destocking in allergic rhinitis and cold and cough. Cold and cough is behind us. We clearly see that business on the uptake.

Allergic rhinitis seems to be normalizing as we said that we think quarter 4 '21 levels will be in line with quarter 4 '20 levels, which were unaffected from the destocking. So the one additional item that we're calling out in our prepared remarks is that we had a very big lump of CNS sales last year that will not most likely repeat.

And that's why we see prescriptions still being not in a growing mode compared to the rest of the pharma business..

Yes. And then I guess that's my one.

I guess just to clarify, the way I'm kind of thinking about it is, if we kind of get more to a normal environment, are you -- do your customers have enough inventory? Or do they have to kind of -- particularly within prescription, I mean, as we think about kind of easier comps in the next couple of quarters and the destocking that has happened, is there the opportunity for maybe a little bit of restocking or kind of a little bit of improvement there?.

Yes. I would not want to speculate. The one thing I also would call out, we've done really a deep dive into kind of what's sold in pharmacies in the retail environment. But please also remember that the CNS distribution channels are very completely unconventional. I go through emergency response crews and schools and there is no data..

And then just a separate one on -- you mentioned automation investments as a potential, I guess, to answer to some of the labor issues that we continue to have in the U.S.

So is that contemplated in the restructuring that you've done? Or one, I guess, maybe what would that mean as we look forward to 2022, and we continue to have these -- the persistent kind of tight labor issues? What would be kind of the thought process around that? How much would you need to kind of invest in the business to kind of automate further? Or as we think about kind of restructuring on that?.

No, I wouldn't call it restructuring. I think this is just normal productivity investments. When you look at the economic return of every investment, what is the headcount savings you're going to be able to create with the investment we do when we do the business case..

Yes. I mean I think in our restructuring and transformation, we talked about a little over $50 million that we invested specifically in the automation and automating the factories. That ranges from anything for material handling to final packaging and shipping and things like that.

And as technology improves and increases, we'll continue to look for ways to automate and be more efficient. I mean that's part of our kind of annual G&A..

Your next question is from the line of Daniel Rizzo with Jeffries..

You mentioned the tooling comparison being pretty tough in Q3.

I was wondering if it's going to be, again, tough in Q4 or over the next couple of quarters?.

So Daniel, I mean, the tooling for us is, if you actually were to look at it overall, we were actually up slightly in total company-wide tooling. It always impacts one or more markets. So pharma happened to be a negative drag on pharma this time. But remember, we've mentioned that beverage was accounting for about 37% of their growth.

So it was a positive there. Right now -- and again, tooling is one of those things that's difficult to forecast. You're not exactly sure when production tooling is going to come online. But right now, we're not expecting on a consolidated level any significant differences with the prior year..

And maybe, the specific one in active material solutions, Bob, you can -- we already preannounced so to speak, that, that was coming..

Yes. So last year, we were up 50-some percent in Active Material Solutions in the third quarter, and that was due to really an exceptional tooling sale on the success of pharma customers flash glucose monitoring systems. So this was kind of the next evolution of their product range that obviously is a positive for us going forward.

But those types of fueling events don't happen every quarter, and certainly, don't always happen every year either..

And then labor and supply chain cost aside, if you look just at your raw materials, particularly like polyethylene, polypropylene and things like that.

I was wondering what your expectations are going forward? I mean, with respect to your guidance, are you expecting it to continue to rise and plan catch-up or just kind of a plateau here or what?.

So it's expected as of now to decrease slightly in North America and in Europe, but it will still be at much higher rates than what we saw last year. So yes, it's not increasing at the rate we've seen over the last several quarters.

We're expecting to kind of abate and potentially subside a little bit, but it will still -- year-on-year comparison is going to be significantly higher than the prior year..

Our next question is from the line of Salvator Tiano with Seaport Research..

So firstly, albeit going back to pharma and tooling. It seems to me like the mix of your business didn't become much worse in the third quarter from what we saw in the first half of the year.

If the earnings decline accelerated a lot, I wonder if you can provide a little bit more details on why this happened? And if you can put a finer print on the decline in the active solutions tooling sales and what was kind of the year-on-year impact on profitability?.

Okay. So the mix is what we've been talking about really, Salvator, on the previous quarters. I mean that relates to the destocking factor around the allergic rhinitis products and as most COPD-type products. And that's primarily in our RX division. And we did a destocking in Consumer Health care earlier in the year around decongesting cough and cold.

We now are starting to see that improve. As Stephan has mentioned, cold and flu season is back. Device sales are increasing on short term horizon. We talked about the recovery in allergic rhinitis and asthma, COPD and a little bit of a tough comparison compared to CNS. As for active materials, I can't comment specifically.

We don't make a lot of money on tooling sales, in general, but it was about $12.5 million in total tooling revenue or Active Material Solutions last year in the third quarter.

So again, as I mentioned, that's a positive from us from the standpoint that that's going to lead to future product sales, which is really what we're focused on with our customers..

So Salvator, let me just assume out to be hopefully outlook. So again, as a reminder, our pharma reporting segment consists of 4 business units. And they have different profitability. Although we don't disclose it, but we give directional guidance.

The most profitable one is prescription drug, and the big units there are allergic rhinitis and the COPD pulmonary treatment, with a nice growth engine being the central nervous system drug business. That's in prescription. Then comes consumer health care.

Slightly less profitable, everything around cough and cold, nasal rinse, thermal treatment, ophthalmology. Then comes active material solutions in terms of profitability. And then it comes to the injectable business, which is still nice profitable in the context the overall company.

And of course, when injectable and active material grows a lot faster and prescription declines, you have a mix effect, and that's really what has played out this year..

And the other question, if you can provide a bit more detail on the financial impact of the 2 recent acquisitions. Especially I think the Voluntis segment, they do have an operating loss, if I remember correctly.

So how should we think about the impact on your earnings from this?.

Yes. Bob can give some numbers. But in general, Voluntis is basically a R&D investment into the digital therapies and digital companions to all of our devices in the long run. So this is really an investment in the next-generation platform. We have Voluntis, as you know, it has been a public company, still is.

Thankfully, we've crossed the threshold and we'll be able to squeeze minorities out, but this is adding to our digital therapy capability. You can find in their public filings, the revenues used to add. But for us, we think of this as is a significant R&D effort but still be paid by a rising business.

Then if I pivot over to Weihai Hengyu, that is very important getting boots on the ground in China for the injectable medicine segment. Significant growth from that part of the world. So far, we serve that mainly with -- exclusively with imports from Europe on injectable medicine, and this is a long term not sustainable.

And this is a nicely profitable business that will allow us to expand in that part of the world, building on the basis of Weihai Hengyu. In general, our overall M&A track record, I think, is very good. We talked about that at Capital Markets Day.

Of course, CSP, which became the active material science business as well as FusionPKG, the 2 larger ones doing very well, but also our venture investments are returning very nicely. So maybe, Bob, you can give some numeric impact..

Sure. Sure. So in Q4, the Hengyu and the Voluntis acquisition will probably be $0.02 to $0.03 dilutive and that's pretty typical as you kind of got to work through some of the inventory write-ups and the like on the purchase accounting side.

And then looking at it in 2022, it's going to be roughly $0.08 dilutive, primarily coming from the digital health investment. And I can't really give you a break out what that is, but improving as we move beyond 2022..

Your next question is from the line of Justin Ullman with William Blair..

Just two quick ones for me. I guess, what's your expectation for the upcoming cold and flu season, that's baked into your guidance? You mentioned there's potential super cold in Europe.

So I guess, does that mean you're expecting something similar to pre-pandemic norms or maybe still something lower?.

Yes. I think the last couple of days, several of our pharma customers have had their earnings announcement. So I think reading their statement is probably as good an answer as I can give you.

Clearly, whether it's the CDC, our customers or anecdotal evidence from our colleagues in Europe, it looks like it's going to be a normal flu season, maybe is above normal. I don't want to speculate. And we clearly are going with optimism into the fourth quarter in our Consumer Healthcare business..

And just another one for me. You talked about raising your prices and continuing to pass the cost down to your customers.

But I guess I'm curious, what other measures do you have in place to navigate of this environment inflation and particularly supply chain and labor shortage just continue for another year?.

Three words, pricing, pricing, pricing. I mean we are very vigilant in raising prices, ensuring that we pass on this higher cost. Yes, it is with a delay often and we're getting better at that. I want to recognize our food and beverage business is really structurally change how they do that.

So this time but general inflationary increases, we passed them on. And to be honest, in while every price increase is tough, the environment is a lot more receptive because our customers just have it everywhere. So nobody is surprised when we walk in there and say, guess what, we got to do another one..

Yes. And I would just add, right now, I mean, you see a lot of reports out that consumers are accepting our customers pass through of higher cost. But I mean, if you look at us historically, we don't just serve the multinationals. We also serve a lot of the private label brands. And so that's something that we'll be keeping an eye out on.

You could see a shift in business from branded products, if prices get to the point that consumers want to save with a few pennies. But typically, for us, that doesn't mean any less sophistication around dispensing, ease of use. And we're selling to the private labels roughly what we're selling to the multinational..

And I mean, of course, I'm not in fine that we're not doing all the other work that you would expect us to do around productivity savings, automation and so on. But the marketplace is at work. And we use all the tools that are well in the marketplace to attract and retain the right labor. It's just got a lot harder than it's been for a while..

We have a follow-up question from the line of George Staphos with Bank of America..

This is Krishna Tula on behalf of George Staphos here. I was just wondering quickly if you could go through the charge related to PureCycle and just remind us on the background of the partnership there..

Yes. So PureCycle was an investment that we made a year ago or so that went public via SPAC vehicle in the second quarter. So we saw initially in the quarter as they went public. We had a huge gain of about, I think, $16 million, $17 million and the unrealized write-up of that investment. And now it was about a $9 million write-down.

But net-net for the year, on an unrealized basis, we're still up about $6 million..

Yes. And just as a reminder, a large part of our polymer use is polypropylene. And as our customers need to have more and more recycled content, what we need to have in the world is recycled polypropylene that is food grade, so they can be in contact with food, with medicines, with beauty treatments.

And PureCycle is one of the few that developed the technology. So this is one of the measuring investments that was really strategic for us to help them get off the ground, make sure that this technology sees the light of day. And thankfully, other people have seen the same potential, including some of our customers and investors in that now.

They still have to build large-scale plans, but clearly, the marketplace -- the capital market is seeing the same potential. So it's just 1 example of the kind of interim investments we do early stage to make sure that we are at the leading natural renovation without putting all our money into those things.

But it's a good example of the technology that we need to be available in the marketplace. All right. With that, we're going to wrap it up. I appreciate all the questions. Again, we look with confidence into quarter four as these trends work themselves out, and we look forward to talking to you on the road..

And this concludes today's conference call. You may now disconnect..