Apr 17, 2008
Executives
Peter H. Pfeiffer – President and Chief Executive Officer Stephen J.
Hagge – Executive Vice President, Chief Operating Officer, Chief Financial Officer and Secretary
Analysts
Claudia Heuston – JPMorgan Ghansham Panjabi – Wachovia Capital Markets, LLC Ross Gilardi – Merrill Lynch Megan Friedman – William Blair & Company, L.L.C. Timothy Burns – Cranial Capital Greg Halter – Great Lakes Review Michael Hamilton – RBC Capital Markets Christopher Manuel – Keybanc Capital Markets George Staphos – Banc of America Securities
Operator
Welcome to AptarGroup’s First Quarter 2008 Results Conference Call. (Operator Instructions) Introducing today’s conference call is Mr.
Ralph Polterman, Vice President and Treasurer of AptarGroup.
Robert Polterman
Before we begin I would like to point out that the discussion to follow includes some forward-looking comments and that actual results or outcomes could differ materially from those projected or contained in the forward-looking statements. To review important factors that could cause actual results to differ materially from those projected or contained in the forward-looking statements, please refer to AptarGroup’s SEC filings.
The information in this conference call is relevant on the date of this live call. Although the company will post a replay of this conference call on its website as a service to those investors who are not able to listen today, the information contained in the replay will be dated as is to be used for background information only.
The company undertakes no obligation to update material changes and forward-looking information contained therein. Participating on this call today are Peter Pfeiffer, President and Chief Executive Officer of AptarGroup, and Steve Hagge, Executive Vice President, Chief Operating Officer, and Chief Operating Officer.
I would now like to turn the conference over to Mr. Pfeiffer.
Peter H. Pfeiffer
Good morning everyone. This is Peter Pfeiffer.
I will briefly summarize our press release and then comment on our Beauty & Home segments. Steve will then provide insight on our Closures and Pharma segments and will follow his segment review comments with his usual review of our financials.
I would like to take a moment to briefly discuss the successes in the acquisition area that were mentioned in our press release. Near the end of the quarter we completed the acquisition of a 70% interest in a small, specialized company in the U.S.
called NextBreath, which provides contract services for the identification, evaluation, and analytical testing of drop formulations with pulmonary and nasal drop devices. This is a good compliment to our existing pharmaceutical business as it provides us with expertise that can help us further improve the performance of our system for the pharmaceutical market.
This company’s results will be included in our Pharma segment. Shortly after quarter end we bought the Bag-on-Valve assets of CCL Industries, who was a competitor in Europe and North America.
The results of this activity will be included in our Beauty & Home segment and provide us with additional capacity in our growing reach, as well as new Bag-on-Valve customers. Turning to our overall results: 2007 was a record year for us and as a result we are up against tough comparisons throughout 2008.
In light of these comparisons, I am especially pleased to report that we had record sales and profits in the first quarter of 2008. Sales increased in every segment.
Segment income increased in the Pharma and Beauty & Home segments, whereas the segment income for Closures decreased. Now I would like to provide some color on our largest segment, the Beauty & Home segment.
For the first quarter of 2008, excluding changes in exchange rates, Beauty & Home segment sales increased 7% over the prior year. This is mainly comprised of a 6% increase in sales to the personal care markets, and 7% increase in sales to the fragrance/cosmetic markets, and a 6% increase in sales to the household market.
Sales of our fragrance/cosmetic pumps and [inaudible] aerosol valves and special accessories increased in the quarter. We are seeing a slowdown in some incoming orders from the fragrance/cosmetic market, but our existing order book remains strong.
Presently we see reasonably good growth in the second quarter of 2008 for the Beauty & Home segment. I would now like to turn the call over to Steve.
Stephen J. Hagge
Thank you. Good morning everyone.
I will provide my comments and then Peter and I will be glad to answer any of your questions. First, looking at the Closures segment: the first quarter for closures was challenging, especially in light of the strong results of the Closures segment in the first quarter of last year.
Compared to the prior year, first quarter reported sales increased 12%, mainly due to changes in exchange rate, [inaudible] pass-throughs and higher tooling sales. Excluding changes in exchange rate, the Closures segment sales increased 4%, which was mainly comprised of a 4% decrease in sales to the personal care and household market, and a 30% increase in sales to the food/beverage market, of which 19% related to higher custom tooling sales.
The Closures segment’s income increased mainly due to an unfavorable mix of products sold and weakness in demand from the personal care market and household markets, which resulted in under-utilization of capacity. We expect the Closures segment’s result to improve going into the second quarter over the first quarter and we continue to see increased interest in our unique dispensing system and have many interesting projects that are expected to hit the market in the second half of 2008.
Now looking at our Pharma segment: we had an outstanding first quarter with increases in both sales and profits in the segment. Reported sales grew 30%, while sales excluding changes in exchange rates increased 16% in the quarter, mainly due to increased sales of our nasal spray systems.
The improved profits of the Pharma sector in the quarter reflect higher product sales and better overhead utilization. From a new product standpoint we have previously mentioned that Glaxo Veramyst nasal spray for the treatment of allergies was approved in Europe during the first quarter and yesterday our customer Alcon announced that they had received FDA approval of their allergy drug, PATANASE that uses one of our nasal spray pumps.
And besides these projects, we continue to have a high number of projects in the pipeline. And finally, to meet local production needs of our Pharma customers in South America, we have just installed and qualified a new clean room in Argentina.
Now I would like to summarize our consolidated results for the quarter. As you’ve seen, our overall reported sales increased 18%.
Changes in exchange rates accounted for 10% of this increase resulting in an organic growth for the quarter of 8%, of which 1% related to $2 million, giving us a organic growth rate in our product sales of 7% in the quarter. From a geographic standpoint, sales to customer by European operations represented 64% of net sales this year versus 62% of sales last year, while sales to customers by our U.S.
operations accounted for 25% of sales this year versus 27% last year. We also benefited in the quarter from lower stock option expenses, which had the benefit of about $1.5 million on a pre-tax basis and due to our strong balance sheet, reduced net interest expense of $2.1 million, again, on a pre-tax basis.
Our overall tax rate in the first quarter was 30% compared to 31.5% a year ago and is due to lower tax rates in Germany and Italy as well as higher research and development tax credits that we are obtaining in France. Diluted earnings per share increased 27% to $0.52 per share from $0.41 per share in the prior year.
Free cash flow, defined as cash flow from operations less capital expenditures, for the quarter was a negative $3 million versus a positive $8 million in the prior year. Our cash flow from operations for the quarter was roughly $39 million in the current year compared to $34 million in the prior year, while capital expenditures were around $42 million in the current quarter compared to $26 million in the first quarter of last year.
We spent approximately $16.6 million to repurchase roughly 450,000 shares during the quarter at an average cost of $36.82 per share. At the end of the quarter the remaining number of shares authorized for repurchase was around 1.5 million.
The mix of debt at the end of the quarter continues to be roughly 40% fixed versus 60% variable and the average interest rate is around 4.5%. On a gross basis our debt-to-cap is approximately 24% while on a net basis it is approximately 4%.
Looking forward, presently we expect our depreciation and amortization in 2008 to be in the area of $130 million while cash outlays for capital expenditures in 2008 are expected to be in the area of $170 million. Again, both of these amounts could vary depending on changes in exchange rates.
The effective tax rate for 2008 is expected to be in the area of 29%-30.5% for the year. Looking forward, diluted earnings per share for the upcoming quarter are expected to be in the range of $0.60-$0.63 per share versus the $0.52 per share we reported in the second quarter of 2007, which represents an increase in the range of 15%-21%.
At this time Peter and I would be glad to answer your questions.
Operator
(Operator Instructions) Our first question or comment comes from the line of Ms. Claudia Heuston from JPM.
Your line is open.
Claudia Heuston - JPMorgan
Hi, thanks very much. Just a couple of questions.
Just one, I was curious—when you look across the business here, what evidence do you see, if any, that the economy or consumer is slowing. And then when you think about your product pipeline across your businesses, how does it compare versus past years?
Peter H. Pfeiffer
Hi, Claudia. 2007 for us was a very strong year and I mentioned already in my comments here, it is difficult to compare.
If I would have to describe the situation today, we are somehow back to normal. We have fields where there is some downturn, some slow up in business, but we also have some fields where there is growth, especially in the emerging markets and income specialties like pharmaceuticals and the Closures business for food and beverage.
So as for the future AptarGroup is very well situated with our diversity in markets and products in the region so we don’t really feel the economical bounds in one of these regions.
Stephen J. Hagge
I guess, Claudia, the other thing to add is if anything we’re seeing a bit of a slow down in our fragrance/cosmetic in terms of incoming orders, but we’re seeing increasing projects for us in terms of the food/beverage market and the pharmaceutical markets. And also, our personal care business continues to do well.
So it really is kind of a mixed bag as we go forward, with an overall continuing positive emphasis because of the diversity of all of our products.
Claudia Heuston - JPMorgan
That’s helpful. Can you notice any shifts, sort of, in terms of the U.S.
versus Europe, from a demand stand point?
Stephen J. Hagge
You know, I think when you look at it from our--from the U.S. and Europe, we’re seeing, again in the fragrance/cosmetic a bit of a slow down in incoming orders from both of those, but again, that’s being balanced, frankly, by pretty strong movement in the developing markets, which has been strong throughout 2007 and still is very strong.
Then when you look at our personal care and household markets, we pretty much see average growth going--for both U.S. and Europe--going into the second quarter.
Claudia Heuston - JPMorgan
Okay. Thanks.
And then I just had a question—last quarter you talked about our business improvement plan and rolling that out and I just wondered if you could give us an update on how that’s going so far.
Stephen J. Hagge
The one we talked about last quarter was the implementation of a new information systems program we’re building. That program has actually completed its first phase, which was kind of the blueprinting of the project.
Overall we are on time and on budget; we will be starting to roll that out as we go into 2009. So, overall process continues to do well and, as I said, we’re on time and on budget.
Claudia Heuston - JPMorgan
Okay. Thanks very much.
Operator
Our next question or comment comes from the line of Ghansham Panjabi from Wachovia. Your line is open.
Ghansham Panjabi - Wachovia Capital Markets, LLC
Hey, guys. Good morning.
How much additional capacity did you acquire with the CCL assets and Bag-on-Valve.
Stephen J. Hagge
The CCL and Bag-on-Valve in 2007 was approximately $10 million, was the business that CCL had done with those assets. Now, that’s what they did last year; we actually think, based on the capacity, we can actually increase that reasonably significantly as we go forward.
So, I think we’ve got a good base in North American markets for the assets we acquired.
Ghansham Panjabi - Wachovia Capital Markets, LLC
And in terms of the fragrance business—going back to that for a second—have you seen any sort of pattern—is it the high end that remains strong and the low-to-mid that’s somewhat weaker? Because we’re getting a lot of mixed data points out of your customers.
Just some thoughts on that would be helpful. Thanks.
Peter H. Pfeiffer
For the time being we don’t see any specifics on the high end or the low end. We are seeing some slowing incoming orders on both sides.
We think it is because of some inventory corrections. It may be because the Christmas season was not as good as expected.
But this is a pattern which is true for both areas, high and low end.
Ghansham Panjabi - Wachovia Capital Markets, LLC
So as we look at the rest of 2008 is it fair to say that maybe fragrance is going to be a little bit slower compared to last year? Pharma in line or better than last year?
Food and beverage somewhat better? And personal care, maybe recovering in the back half?
Is that the right way to think about it?
Peter H. Pfeiffer
It’s difficult to say how long this correction in inventory will last. We have some hope that in the second half of the year it will come back but basically you’re right in your analysis.
Ghansham Panjabi - Wachovia Capital Markets, LLC
Okay. Thanks.
Operator
Our next question or comment comes from the line of Ross Gilardi from Merrill Lynch. You line is open.
Ross Gilardi - Merrill Lynch
Good morning. Thanks, guys.
Just a couple of questions. You guys continue to talk about the strength of Russian in Eastern Europe and how that’s been a key driver.
Can you give us a little help—as a very rough percentage of sales, can you talk about what those two regions mean to the company in terms of what you sell directly there and what your customers might be supplying to those areas?
Stephen J. Hagge
It’s a good question but it’s very difficult because, again, we supply those either directly out of our European operations, which shows up as part of our European sales, but we sell them indirectly when we sell to one of our fragrance and cosmetic customers. So really, Ross, what we’re relying on is kind of the same thing you’re doing: we continue to see companies like L’Oreal and some of those other competitors continuing to say that they’re very strong.
And that’s what we hear when we talk to the customers, but we don’t have a bench point to be able to give you.
Ross Gilardi - Merrill Lynch
Steve, what about if you just take what you sell directly? How significant is that?
Stephen J. Hagge
Again, what we do is we only track what we’re selling from, not into. So I don’t even have those numbers, Ross.
Ross Gilardi - Merrill Lynch
Okay. And in the Pharma business, it’s just sort of interesting, you’re obviously seeing great trends there.
But I mean, it just seems like this is an industry or an end market that seems to be struggling and facing a lot of challenges yet you seem to be thriving. A good problem to have.
But could you just talk a little bit more about just sort of what you think is contributing to your success here and just in terms of patent expirations, are you on any significant drug platforms that might be coming up or where patents may be expiring any time soon in the next 12-24 months?
Stephen J. Hagge
I think if you look at—first of all, I think it’s important to note that when you talk the pharmaceutical industry, we’re a very small—we participate in a very small niche of that industry. So while certainly there are some macro trends on the Pharma, within our sector we’ve been seeing continued growth, particularly in the allergy and asthma markets.
So that’s been one side. When you look at, you know, in terms of patents coming up, none of our customers that I’m aware of over the next 12-18 months have any major patents expiring.
You may have some as you get into 2010 and 2011, but nothing over the short-term. So, you know, if you look at it for the first quarter, we did have a relatively bad flu and cold season both in Europe and the States, which I think is helping our product.
And also they’re anticipate the allergy season also being difficult in both of those markets, which is probably also helping the sales of our products.
Ross Gilardi - Merrill Lynch
Okay. Thanks for that.
And just one last one. I just noticed you didn’t raise the dividend this quarter as you did this time last year and you’re continuing to build cash.
Can you just talk a little bit more about the acquisition environment?
Stephen J. Hagge
Well, again, we’ve typically not always raised dividends in one particular quarter, so we have done it—we have raised dividends on a consistent basis over the time but it has not necessarily been related to the first or the second quarter. Secondly, if you look at the acquisition market, as we talked about in the first quarter, we still think based on the company’s strong balance sheet we have very good opportunities in the market, particularly as we go into the second half of the year, as kind of this credit market settles down a bit.
So, we tend to be bullish. As you see in the numbers we’ve done a couple of small transactions in the first quarter and we still have a lot of opportunities as we go forward.
Ross Gilardi - Merrill Lynch
Okay. Great.
Thanks, guys. Well done.
Operator
Our next question or comment comes from the line of Megan Friedman from William Blair. Your line is open.
Megan Friedman - William Blair & Company, L.L.C.
Hi, good morning. You said there are a number of products in the Pharma pipeline.
Can you characterize how strong it is historically?
Stephen J. Hagge
You know, I think it as strong or stronger than what we’ve seen on a historic basis. And even as I reported a little bit on, we have just seen, as recently as yesterday, one of our customers getting FDA approval for a new allergy drug.
So it’s always difficult to predict when those come to market but overall the number of projects we’re working on are at or the same—at the same level or even higher than what we’ve had historically.
Megan Friedman - William Blair & Company, L.L.C.
And the NextBreath acquisition, presumably that’s going to be consolidated into the Pharma segment?
Stephen J. Hagge
Correct.
Megan Friedman - William Blair & Company, L.L.C.
Okay. How do you see it contributing?
Stephen J. Hagge
I think the biggest issue for us is what they do, is they work with our customers and devices to test for our customer devices and how it impacts the drug. For us, it will give us better ways to improve our products, to be able to meet the demanding needs of the pharma industry.
It’s a relatively small company; it’s about only a couple of million dollars in 2007 revenue, but it raises, really, our expertise in a very demanding technical market. So we think it is a significant plus to our overall Pharma organization.
Megan Friedman - William Blair & Company, L.L.C.
My apologies if I missed this, but did you talk about custom tooling revenue?
Stephen J. Hagge
Yes, custom tooling revenue was up about $7 million this year from last year. To give you a brief look at that in terms of reported numbers, in the Beauty & Home area—again this will be on reported now, not on constant currency—but tooling was about $3 million in both 2008 and 2007.
In the Closures side we had about $9 million of custom tooling in the first quarter of 2008, $4 million in 2007, and in the Pharma area about $3 million in custom tooling compared to $1 million a year ago. So this year we’re around $15 million in tooling; last year we were around $7 million.
Megan Friedman - William Blair & Company, L.L.C.
All right.
Operator
Our next question or comment comes from the line of Mr. Timothy Burns from Cranial Capital.
Your line is open, sir.
Timothy Burns - Cranial Capital
Good morning, Peter; good morning, Steve. Following up on that NextBreath acquisition—we have seen companies who are actually integral to either device manufacturers or pharmaceutical product producers to getting FDA approval, and obviously it’s usually with their packaging product or in this case, your device or dispensing system.
Is that kind of the angle you’re playing?
Stephen J. Hagge
Well, I think it’s both. Tim, we’re looking at this to kind of continue to gain expertise.
NextBreath is an independent lab so they will not only work with us, they will also work with competitors, testing—because they work with our customers—they’ll be working with our customers testing other dispensing devices. What we can gather is better ways to be able to improve our devices, long-term, from them, and also better serve our customers, long-term.
Today we still do quite a bit of testing, even before the NextBreath acquisition, within our own facilities. Those are primarily European so this also gives us a balance to that in the United States.
Timothy Burns - Cranial Capital
Does NextBreath have customers that you’re not doing business with currently?
Stephen J. Hagge
The majority we’re doing business with. They do have some customers that we don’t have much business with at the present time.
We also have the other way; we’ll probably be also being able to direct customers to them, to help their business.
Timothy Burns - Cranial Capital
Got you. And the Food and beverage side, an area where ten years ago you guys wouldn’t have dreamed of entering, seems to be doing very, very well.
What’s going on?
Stephen J. Hagge
I think if you look at it, it’s really what’s driven our business over the last 10-15 years. The Food and beverage is continuing to demand more market differentiation and more convenience.
As we look at it, anywhere from spray salad dressings to inverted condiments, and now, today we’re seeing increased use of our beverage closure in places like China—we’re starting to see an improvement in our business in the United States. So it’s really a way for our customers to differentiate in the market and also to add more convenience.
And I think that has been the drive and I think what we’re finding is our customers, by doing it, are seeing increases in their market shares. So it is a win for us and it’s also a win for them.
Timothy Burns - Cranial Capital
Got you. And I would retract that; I guess beverage was not the area you were focused on ten years ago.
And is it true that Ralph Polterman did the taste testing for the spray salad dressing?
Stephen J. Hagge
He did and he’s done it several years ago with—we don’t even want to bring that up any more, Tim. It’s not one of his finer moments.
Timothy Burns - Cranial Capital
I saw his Weight Watcher reservation so I was just checking out. [light laughter] Thank you.
Operator
Our next question or comment comes from the line of Mr. Greg Halter from Great Lakes Review.
Your line is open, sir.
Greg Halter - Great Lakes Review
Good morning, guys. I wonder if you could comment on your resin cost situation, both domestically as well as Europe, maybe on a year-over-year basis and what you see the outlook.
Stephen J. Hagge
As you know, resin has been a challenge. To give you some rough numbers—these are U.S.
numbers—resin on a year-to-year basis is up a little over 30% from 2007, in the United States, and going from fourth to first is up a little over 7%. So we’ve seen significant increases.
If you look at that from a European side, on a year-over-year basis, in Europe, it’s up about 11% and not much of an increase in the first quarter due to the weakness of the dollar. As we go forward, we had initially anticipated that we would see resin flattening to dropping in the second half.
But I will also tell you that when we did that we didn’t see oil at $115 a barrel, either. So, there is expected to be additional capacity coming on in the polypropane area in the second half of 2008 into 2009, which should help the supply.
So right now our hope is we will see it flatten to come down but it’s really difficult for us to predict.
Greg Halter - Great Lakes Review
And you still have the lag effect on your business?
Stephen J. Hagge
Correct. We’ve got a couple of things, and you can see that impacting our Closures business.
The resin pass through is a dollar-for-dollar pass through, which has the impact of squeezing the margin percentage. And secondly, we’re anywhere from two weeks to three months on passing through the resin, which in an increasing resin market, has a deteriorating effect on the overall profitability, at least for that period of time until we get it passed through.
However, we are continuing to pass through the resin to our customers.
Greg Halter - Great Lakes Review
And I think on the last call you had talked about the use of LIFO accounting and how it impacted your results in the fourth quarter. Is that a similar event for the first quarter as well and, if so, what was the amount?
Stephen J. Hagge
Yes, it is still a fact, again, with rising prices. LIFO, which we only—which we have primarily in the United States.
The negative impact comparative to last year, it’s about a $500,000 negative impact in the first quarter.
Greg Halter - Great Lakes Review
Okay. And on the Closures side, I know you’ve had some productivity issues at the French plant.
I just wondered if you could bring us up to speed there.
Stephen J. Hagge
Well, I’m glad to say that from a productivity standpoint our French operations—and Peter was just there a week ago—if you look at the productivity today, it’s basically back up to almost the standard with the rest of our business units around the world. So, it is improved significantly over a year ago.
The negative we have right now on the French side, particularly in the quarter, was more of a lack of sales than it was productivity. So, we’ve moved that up and we hope to be increasing the overall [inaudible] as we go through the remainder of 2008.
Greg Halter - Great Lakes Review
Okay. And also I think there was a commentary regarding a potential inventory contraction in the personal care area—maybe several months ago.
I just wondered if you could, in hindsight, make any comments whether or not that was indeed the impact or if there is something else behind that.
Stephen J. Hagge
I think that’s what we talked about for the Closures side because if you look at it, it wasn’t in the Beauty & Home area.
Greg Halter - Great Lakes Review
Correct.
Stephen J. Hagge
I think where we’re seeing it again—I think it’s, Greg, if you looked at our Closures results last year, we really saw an extremely strong first half and dropping off in the second half. What we’ve seen, kind of, this year is we have seen improvement over the fourth quarter in our Closures business and expect that to improve.
So we think there was some inventory taken out of the channel and we’re starting to see that pick back up. That, together with the new projects, we are hopeful we will be able to improve the Closures results as we get to the end of the year.
Greg Halter - Great Lakes Review
Okay. That sounds good.
Thank you very much.
Operator
Our next question or comment comes from the line of Mr. Mike Hamilton from RBC.
Your line is open, sir.
Michael Hamilton - RBC Capital Markets
Thank you. Good morning.
Wondering if we could just start on overall organic growth; is there any acquisition growth in there, year-over-year?
Stephen J. Hagge
No, there is not.
Michael Hamilton - RBC Capital Markets
Okay, thanks. You’ve talked in the past on Pharma about potentials for payments on benchmark achievements and we haven’t seen anything material enough to be called out in recent quarters.
Is there anything in the pipeline where we’ve got that kind of potential?
Stephen J. Hagge
We’ve actually had a couple of projects that we have started—you’re right, Mike, they haven’t been material in the nature, but we’re seeing these in areas, for example, related to some of our dry powder inhaler business and also with our counting system for our meter-dose inhaler. Both of those we have some ongoing projects.
So we are continuing to be optimistic about both of those areas. Not either one of those by themselves are overly material but I think it’s a good trend as we go forward.
Michael Hamilton - RBC Capital Markets
Could you comment a little bit on areas where you’ve been somewhat capacity-constrained in recent quarters and how things are looking on de-bottling?
Peter H. Pfeiffer
Yes, we have had some capacity constraints, especially in the family area and in the low profile pump. And in both areas we are feeling the capacity fill will come on stream in the course of this year and we are working with it to reach the supply and to satisfy our customers.
For the time being there are no additional capacity constraints.
Michael Hamilton - RBC Capital Markets
Thanks. And then finally, any new product releases in the quarter that are worth mentioning?
Peter H. Pfeiffer
Yes, we have had two new good product releases in the United States. One of them is from Proctor & Gamble—a mousse, cleansing mousse, which uses our one inch [inaudible] specialty deactivator; it’s called Laquench.
And the other one is a body spray from CV Brand using our twist-to-open [inaudible]. Very interesting because this is a private-label product and it shows that even in this area people are going to more sophisticated packaging to compete with a brand.
So for us it’s a new and a very good trend.
Michael Hamilton - RBC Capital Markets
Thanks, and congratulations.
Operator
Our next question or comment comes from the line of Mr. Chris Manuel from Keybanc.
Your line is open, sir.
Christopher Manuel - Keybanc Capital Markets
Good morning or good afternoon, gentlemen. Let me be the first to congratulate you on an outstanding quarter, as well.
Couple of housekeeping items I want to touch on first. Do you think in the quarter, stock option expense was about—you said about $1.5 million lower—do you have a projection at this point as to what you anticipate the difference will be on a full year basis, 2007 versus 2008?
Stephen J. Hagge
Yes, you’re correct, Chris, the stock option expense was less in the first quarter by about $1.5 million. We expect it to be down in the second quarter from last year’s level by about $700,000, and not materially different in the third and fourth quarter.
Christopher Manuel - Keybanc Capital Markets
Okay. That’s helpful.
And then with respect to your landmark product—and there’s a new facility; I think that’s why your capex is up a bit—new facility coming on line later this year. Can you give us an update as the projected timing that that may be onboard, as well as when that extra meter-dose capacity comes on line?
Stephen J. Hagge
The new facility is on time, which is expected to be basically completed by the end of May. It looks like we will be in production starting in June and July, so we’ll be in production in the second half of the year.
So, again, we’re on time and on budget on the facility. In terms of the landmark, we did end up signing a development agreement with a major customer in the second and first quarter.
That customer has got product today in Phase III trials and we’re going to be productionizing the landmark for introduction when they come into the market. So that should be in 2009—late 2009 into 2010.
Christopher Manuel - Keybanc Capital Markets
And the new landmark device, is that FDA approved, that you could go back into existing products like Albuterol or things of that nature today?
Stephen J. Hagge
Again, it’s going to be going through the process with the customer so we don’t have—we need to go through these with our customers.
Christopher Manuel - Keybanc Capital Markets
Okay, so it’s a different enough delivery that it would have to come out on a new product then?
Stephen J. Hagge
At least initially and then we’ll see kind of where we go after we get it out of--with the first customer.
Christopher Manuel - Keybanc Capital Markets
Okay, that’s helpful. Steve, I noticed that you brought the tax rate down a little bit.
Or the guidance for the tax rate. Is that indicative of seeing a little bit more slowing here in North America and a little bit more strength in some of your international areas where the tax rate is lower?
Is that a fair way to think about that?
Stephen J. Hagge
Partly that’s true and I think when you take a look at where currency is at and kind of where our sales are at, that blend is really the reason we brought it down. And as we pointed out, Germany is down in tax rate, Italy is down, so when you put all those together we’re probably going to be a little bit lower for the full year than what we had originally anticipated.
Christopher Manuel - Keybanc Capital Markets
And my last question is, the NextBreath acquisition you guys completed—I realize it’s sort of on the smaller side, but two parts to the question. The first is, did it actually had some revenue or is it developmental stuff today?
Stephen J. Hagge
It had some revenue. I mean, in 2007, again, it’s still pretty much of a smaller company, just starting up—a little over $2 million worth of revenue, so we’ll have a small increase on the revenue side.
We would expect it to be accretive in the year but I can’t give it a size; it’s not going to be material.
Christopher Manuel - Keybanc Capital Markets
And then the second part of the question, with respect to acquisitions, was do the smallest deals done already this year—I wouldn’t anticipate any of these would preclude you from continuing to look for other opportunities, number one--I think you commented on that--and then two, in your view, have the multiples that folks are expecting begun to break and actually—has the market gotten a little more friendly for deals to get done? In your view.
Stephen J. Hagge
First of all, I think to answer your first question, the two transactions certainly don’t come back and stop us from doing additional transactions going on. Both are small, nice, tuck-in transactions for us.
In terms of the second part, what we’re seeing is the multiples, if you will—the seller expectation compared to the market continues to get closer so I would anticipate as we even go through the second half that there will be even more opportunities. But, yes, in general what we’re finding is a closer alignment.
And frankly, companies with a strong balance sheet are now in a much more favorable position that they were a year ago.
Christopher Manuel - Keybanc Capital Markets
And who knows, if in a back-door sort of way, if a Democrat gets elected that raises capital gains taxes that will encourage more folks to want to sell something sooner than later. [light laughter]
Stephen J. Hagge
I’m not even going to comment on the political side. [light laughter]
Christopher Manuel - Keybanc Capital Markets
Well, congratulations again on a terrific quarter and we’ll talk to again soon. Thanks.
Operator
Our next question or comment comes from the line of Mr. George Staphos from Banc of America Securities.
You line is open, sir.
George Staphos - Banc of America Securities
Thanks. Hi, everyone.
Good afternoon, good morning. Good quarter.
I just wanted to dig into Closures for a minute. Obviously comparisons are difficult.
You’re starting to see some [inaudible] improvement. Would we expect—would you expect—profits to be up in the second quarter versus a year ago?
Steve, you had said you expected improvement later in the year, I just want to get a little more color on that.
Stephen J. Hagge
At this point we would expect profits to be up on a year-on-year basis, going into the second quarter.
George Staphos - Banc of America Securities
Okay, fair enough. Now, fragrance and cosmetics, can you give us a lot of color?
Obviously we’ve heard a lot about your customers taking down SKUs who are working the supply chain. Again, realizing the growth rate is slowing, should we expect that any time during this year that fragrance might be flatter down year-on-year, an EBIT standpoint?
Obviously, again, you’ve done a great job here the last few years.
Peter H. Pfeiffer
For the time being our order book is still pretty strong so we don’t see another short-term downturn in this area. What happens for the rest of the year is very difficult to predict.
I already mentioned that there is some correction in the pipeline eventually. How this will turn out toward the end of the year depends.
We know that there are not as many new product introductions this year than usually is done, but this has not necessarily something to do with [inaudible]. We are still cautiously optimistic that we will fulfill our batches for this year in the fragrance area.
Stephen J. Hagge
And I think the other side, too, that helps that this year, compared to maybe even the past, is some of the strength we still see outside of North America and Europe.
George Staphos - Banc of America Securities
Okay. Fair enough, Steve.
I guess one question I have for you is a follow on--what do you do differently in this environment if your customers are maybe taking down SKUs, how do you grow more quickly or grow your share in the environment? How do you help them, perhaps, restage products?
Anything you do differently in terms of new product launches from your end, or marketing of your products, in this kind of environment?
Stephen J. Hagge
I don’t think it’s significantly different than what we would do in any other period. We try to go back to them with ways to make their product more profitable for them in the market.
It’s kind of like when we went out with the aerosolized sun care. If we can help them repackage to make it more profitable—because they have the same challenges with the Walmarts of the world in getting price increases through.
So we tend to work on repackaging with them—reformulation. And also working with them on their growth in the developing markets as they start to grow those.
So I don’t know that it’s anything dramatically different. I also think it’s important that when we talk new product wraps, it’s not always that they’re more expensive; we’re also looking at new products that can be either costing the same or less but adding more features and benefits.
So those are other areas we’ll be looking at.
George Staphos - Banc of America Securities
And one last—is it a little bit like on the fragrance side or the Food and beverage area where, in a tougher environment where there’s inflation, your customers beat the price point flap but maybe reduce the amount of content in the product and you’ll maybe see a smaller package size, which actually could be better for you from margin standpoint in terms of the dispensing system.
Stephen J. Hagge
Well, certainly historically--it is always difficult right now to say that—but historically that’s what we’ve seen. Where people have come back to try to—on the personal appearance side, as you said, George, instead of 8 oz.
it’s 6 oz. I think in the fragrance/cosmetics you may see a little of that.
The other area, though, that is still key for us, on the cosmetics—that is still our fastest growing segment and there, what we are doing is still seeing quite a bit of conversion going from screw-off caps to dispensing systems. And that’s all the—the aging population really helps us there, where you can use the lotions, etc.
to end up looking younger.
George Staphos - Banc of America Securities
Now, within Closures—and I realize a lot of this is comparisons—you don’t believe you’re losing any market share do you? You know, the trends have been fairly recent but quite strong for sales through at-home consumption and markets, so statistically you’re seeing supermarket sales picking up again where before they had been languishing and we’re hearing that from a number of our other analysts here at B of A.
That would seem to suggest that Closures sales would be doing better. Again, do you think you’re losing any share or is it just purely de-stocking at your customers.
Stephen J. Hagge
I think you’ve got a couple of things. When you say losing share, I don’t think we would be losing share on a comparable Closures-to-Closures.
Now, we have seen, over the last couple of years, some changes where, for example, these whites that may be used may have been whites that have taken away some of what may have been in a bottle with a dispensing closure. You’ve seen sun care—the Coppertone spray taken away.
So you’ve got some indirect loss of market, but not competitive loss. The other thing we’ve seen, in the U.S., is certainly a movement toward larger sizes.
Kind of the Sam’s/Cosco type. So that kind of goes back to the opposite about your smaller package.
You find 18 oz. worth of a product.
But on a direct basis we don’t see any substantive loss of share.
George Staphos - Banc of America Securities
Two last quick ones and then I’ll turn it over. One, should we expect tooling to pick up in the second quarter?
I would expect that we would. And secondly, realizing there’s always a net of transaction versus translation, how much was currency in the quarter?
If you didn’t mention it we would like the details. Thanks, guys.
Good luck in the quarter.
Stephen J. Hagge
Let me deal with the second one first. In terms of currency, at the top line, we had about an 18% top line.
Sales growth, currency was about 10% of that. So if you kind of take that down and assume that that 10% goes to, let’s say, our pre-tax line, we would be transactions were pretty significant for us, so you’re going to be under that 10% impact on a pre-tax basis, currency net of transaction.
So that would be the biggest one on the currency basis.
George Staphos - Banc of America Securities
Okay. And tooling will pick up?
Stephen J. Hagge
Tooling—sorry about that; I forgot about the question. Tooling was around $16 million rough numbers in the quarter.
We’ve been averaging in the area of $60 million for the year so I don’t see potentially a marked upturn in the tooling in the second quarter. Some think it may be currency issues.
George Staphos - Banc of America Securities
Okay. Thanks very much, guys.
Operator
Mr. Pfeiffer, I’m showing no additional questions or comments in the queue at this time.
Sir, I’ll turn the conference back over to you.
Peter H. Pfeiffer
Thank you very much. I would like to thank everyone for their participation on today’s call.
Thank you and goodbye.