Feb 10, 2012
Executives
Matt DellaMaria - VP of IR Steve Hagge - President and CEO Bob Kuhn - EVP and CFO
Analysts
Chip Dillon - Vertical Research George Staphos - Bank of America Chris Manuel - Wells Fargo Matt Wooten - Robert W. Baird Al Kabili - Credit Suisse Todd Wenning - Morningstar David Woodyatt - Keeley Asset Management Ryan Sundy - William Blair Gregory Macosko - Lord, Abbett Brian Rafn - Morgan Dempsey Greg Halter - Great Lakes Review
Operator
Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2011 Fourth Quarter and Annual Results Conference Call.
(Operator Instructions) And now, introducing today's call is the one, the only Mr. Matt DellaMaria, Vice President of Investor Relations.
Please go ahead, sir.
Matt DellaMaria
Thank you, Jonathan, and welcome, everyone. Participating on the call today are Steve Hagge, President and Chief Executive Officer and Bob Kuhn, Executive Vice President, Chief Financial Officer and Secretary.
Steve will begin our call with an overview of our annual and quarterly performance. Bob will then discuss our financial results in greater detail, after which we'll open it up for questions.
Information discussed on today's call include some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements.
Please refer to AptarGroup's SEC filings to review factors that could cause our actual results to differ materially from those projected or contained in the forward-looking statements. We will post a replay of this conference call on our website as we've done in the past.
AptarGroup undertakes no obligation to update the forward-looking information. And at this time, I'd like to turn the conference over to Steve Hagge.
Steve Hagge
Thanks, Matt, and good morning, everyone. I'm pleased to report that 2011 was another record year for AptarGroup.
I'd like to recognize the hard work of our talented employees have put into our business this past year. Their dedication is the reason for our success and why we're the leader in our industry.
As we look back on 2011 it was an exciting year. We began reporting the results of our newly aligned business segments.
Each of our three segments reported sales growth over the prior year. We entered new market categories.
We expanded our global presence. And we enhanced shareholder value.
I'll briefly recap the full year performance of our segments and then comment on the fourth quarter. I'll begin with our Beauty and Home segment, which completed the year with organic sales growth of 6%.
Demand for our products from the fragrance, cosmetic and household markets remained strong throughout much of the year, while demand from our personal care market also increased over the prior year. However, profit margins were pressured due to a competitive market, under utilized capacity towards the end of the year, increased professional fees and our overall product mix.
Our Pharma segment had an outstanding year with strong organic sales growth of 10%. We entered a new category in the consumer healthcare segment with our preservative free Ophthalmic dispenser and we saw continued growth in our prescription segment, particularly from the strong demand from the generic market in the US.
Our Pharma segment's profitability remained strong throughout the year reflecting our ability to help our customers grow in this highly specialized and regulated industry. Our newest segment, Food and Beverage, also had a good year posting organic sales growth up 18% primarily driven by strong demand for our unique dispensing systems for beverage products.
An example of a new category that we entered in 2011 is the water flavoring category. Kraft Foods launched their MiO Water Enhancer using our custom simply squeeze closure and they've expanded their line recently and we're now selling an energy version.
In spite of our strong sales growth profitability was restrained by costs to establish this new segment and start up costs associated with a new facility in the US. With our ability to generate strong free cash flow we're able to invest in several growth opportunities during the year.
In May, we announced that we had purchased a facility in Lincolnton, North Carolina that will become our first facility dedicated to serving to our food and beverage customers. I'm happy to say that the retrofitting of the facility has gone according to plan.
We've hired a terrific team and we're on schedule to begin production in the first quarter of this year. In October, we announced that we had purchased an injection molder in India to expand our presence there to serve our multi national and also local customers.
The company we purchased had been a licensee of our products since 2006. Also at that the time we announced that we're opening a clean room manufacturing facility in India to server our Indian pharmaceutical customers as they grow in India and abroad.
I'm also happy to report that this facility was dedicated in January and production will begin in the first quarter. We've also upgraded and expanded our capacity in other important regions, such as Brazil, Mexico, Russia and China.
And in November, we announced that we'd entered into the auto injector field through an acquisition of a minority stake in UK-based medical device company called Oval Medical Technologies. So with these steps we're in excellent position to continue our long-term growth.
Our strong financial condition in 2011 also allowed us to take action to enhance shareholder returns. In July, we increased our quarterly dividend 22%.
This equates to an $0.88 per share dividend for the full year. In 2011 we returned approximately $53 million to shareholders in the form of dividend payments.
We've also been active in our share repurchase program. We repurchased approximately 2.1 million shares in 2011 for approximately $103 million.
Our Board also authorized an additional 4 million shares for repurchase in July. Now turning to our fourth quarter performance, as expected the fourth quarter was softer relative to the earlier quarters of the year.
Our Beauty and Home segment organic sales were in line with the prior year level. The top line was negatively affected by soft demand as certain fragrance, cosmetic and personal care customers became cautious and conservatively managed inventories given the uncertain economic conditions in both the US and Europe.
Profitability was negatively affected by underutilized capacity due to the softness I just mentioned but also in part due to some business that we purposely exited, work related to organizing and consolidating some of our Latin American facilities and our continued rollout of our global SAP system. Our Pharma segment turned in another excellent quarter with strong organic sales growth of 7%, which includes the negative impact of lower tooling sales of about 5% compared to the prior year.
So on a pure product sales basis we were up 12%. We continue to see growth in both our consumer healthcare and prescription businesses and our profitability remained strong in the quarter.
Our Food and Beverage segment completed a good quarter with organic sales of 11%, primarily on strong demand for our dispensing closures with the beverage market. Profits were negatively impacted by the higher structure cost for this new segment and startup costs associated with our Lincolnton, North Carolina facility.
Now as we look ahead to 2012, there continues to be a lot of uncertainty surrounding consumer spending and the tenuous economic conditions in both the US and Europe. Our business is well diversified in terms of the breadth of products we offer, our high quality broad customer base and the different end markets we serve and of course our geographic presence.
We're optimistic that 2012 will be another exciting year for AptarGroup. Customer project activity remains active across all three of our segments and through our market-focused strategy we'll continue to discover and penetrate new categories.
Now I'll turn it over to Bob, who will review our financial results in more detail.
Bob Kuhn
Thank you, Steve, and good morning, everyone. I'd like to comment first on our consolidated results for the quarter and then later I'll provide some additional details by business segment and give you a recap of the year.
As announced in our press release, we reported record fourth quarter sales with core sales growth of 3%. Currency rates were similar to where they were a year ago and therefore did not impact the sales growth.
Tooling sales declined slightly compared to a year ago and had a negative affect of 1% on the top line growth. From a geographic standpoint, our European operations represented approximately 56% of sales this year versus 59% of sales in the prior year while our US operations accounted for 27% of sales versus 26% last year.
Reported diluted earnings per share decreased 3% to $0.57 per share compared to a fourth quarter record $0.59 per share in the prior year. But I'd like to point out that our effective tax rate in the fourth quarter of 2011 jumped to 36.2% primarily due to a surtax enacted by the French government late in December.
Compared to effective rate of 30.4% in the fourth quarter last year, the increased effective tax rate resulted in about $0.05 per share of additional tax expense. Free cash flow, which we define as cash flow from operations less capital expenditures, was approximately $29 million for the quarter versus roughly $60 million in the prior year.
Our cash flow from operations for the quarter was approximately $82 million compared to approximately $92 million in the prior year. Capital expenditures were approximately $53 million in the quarter compared to $32 million in the same quarter of last year.
The mix of debt at the end of the quarter is roughly 58% fixed versus 42% variable and the average interest rate is around 3.3%. On a gross basis, debt-to-capital is about 25%, while on a net basis it is roughly 5%.
Turning to our business segments, as Steve mentioned our Beauty and Home segment experienced some softness in the quarter and sales were in line with the prior year. On a constant currency basis, sales for the fragrance, cosmetic and personal care markets were in line with the prior year, while sales to the household market increased 7%.
Our Pharma segment reported sales growth of 7% over the prior year. Changes in currency rates did not have an impact on the sales growth in the quarter but tooling sales decreased in the prior year and had a negative impact of 5% on the growth.
On a constant currency basis, sales to the prescription market increased 8%. Tooling sales declined and had a negative impact of 7%.
So core product growth was 15% in the prescription market. And sales to the consumer healthcare market increased 3%.
Our Food and Beverage segment reported sales growth of 10% over the prior year. On a constant currency basis, sales to the food market decreased 15% and tooling was approximately 9% of the decrease and therefore core product sales declined about 6%.
While sales to the beverage market were very strong and doubled in the quarter compared to the prior year. Regarding our share repurchase activity during the quarter, we spent $22.9 million to buy back approximately 470,000 shares of our common stock.
Recapping the full year, we set another annual sales record topping $2.3 billion. This is a reported increase of approximately 13%.
Changes in exchange rates accounted for 4% of the increase resulting in a core sales increase of 9%. From a geographic standpoint, sales by our European operations represented approximately 57% of net sales, which was in line with the prior year percentage.
Sales by our US operations accounted for 27% of sales compared to 29% in the prior year. Reported diluted earnings per share for the year increased 7% to $2.65 per share compared to $2.48 per share last year.
The increase also includes approximately a $0.02 per share drag coming from the French surtax that I spoke about earlier. Free cash flow for the year was approximately $87 million versus roughly $160 million in 2010.
Our cash flow from operations for the year was about $267 million in the current year compared to about $279 million in 2010. Capital expenditures for the year were around $180 million compared to about $119 million in 2010.
Our capital expenditures for 2011 reflect our increased investment in our Food and Beverage segment including approximately $25 million that was invested in a new facility in Lincolnton, North Carolina. Looking forward, presently we expect depreciation and amortization for 2012 to be in the area of $150 million with capital expenditures expected to be in the area of $160 million.
I'd like to point out that these amounts could vary depending upon changes in exchange rates. The French surtax that was enacted in 2011 was enacted for two years and is reflected in our 2012 estimated tax rate of 33%.
When looking at the first quarter of 2012 guidance, please keep in mind that due to the accounting rules our stock option expense is heavily weighted to the first quarter of each year when we make our annual grants. For example stock option expense pretax in the first quarter of 2012 is projected to be about $6 million higher than the expense in the fourth quarter of 2011.
In addition, the average exchange rate for the euro to the US dollar in the first quarter of 2011 was almost 1.37 whereas at the end of the year 2011, the spot rate was closer to 1.29, which we used for our forecasted range. Lastly, we currently estimate that diluted earnings per share for the first quarter of 2012 will be in the range of $0.60 to $0.65 per share compared to the $0.64 per share reported in the first quarter of 2011.
At this time, Steve and I would be glad to answer any of your questions.
Operator
Certainly. (Operator Instructions) Our first question comes from the line of Chip Dillon from Vertical Research.
Your question, please?
Chip Dillon
Yes. And good morning Bob and Steve.
First question is to do with – if you could give us some feel – I know you may not want to be too detailed in terms of the sales improvement we saw both in Pharma and Food and Beverage. How much of that might have been – was it pretty much all volume?
Or was there any kind of pass through effect in the quarter of costs?
Bob Kuhn
Chip, this is Bob. On the Pharma side it was primarily volume-related.
It was all volume-related. On the Food and Beverage side, there was less than a 1% impact on the pass through of the resin.
But mostly for us it's all volume.
Chip Dillon
Got you. And then as a quick follow-up and I just might have missed the numbers.
I know in overall the Beauty and Home business was flat and I think you mentioned that household products were up 7% but the other two categories were flat. Either that means household is very tiny or maybe there was something I missed in there.
Bob Kuhn
No. There is a weighting side to the household.
Household is less than 5% of our total Beauty and Home business. We also had about a 1% negative impact on exchange and a 1% positive coming from the acquisition.
So overall it was up slightly but basically flat.
Chip Dillon
Okay. And then my follow-up – this real quickly would be could you just clarify a little bit about the tax rate.
I think you mentioned 33% would include, for this year, would include the French surtax. Is that something that is ongoing that we should keep in our numbers in future years?
Or is it something that is temporary?
Bob Kuhn
Well, the way the law was written, it is only expected to be for two years. So 2011 and then 2012.
But as you know once those taxes get enacted, it may be tough. There's going to be a change in the political environment potentially next year so we'll have to wait and see where that goes.
But for sure it's in our 33% rate for 2012 and we'll have to wait and see what that means going forward.
Chip Dillon
Got you. Thank you.
Operator
Thank you. Our next question comes from the line of George Staphos from Bank of America.
Your question, please?
George Staphos
Thanks. Hi, guys.
Good morning.
Steve Hagge
Good morning, George.
Bob Kuhn
Hi, George.
George Staphos
You have a very energetic moderator. I think he does your Bowl games.
Is that right?
Steve Hagge
We're seeing if we can bring him on for that.
George Staphos
Okay. I had a couple of questions regarding the volume trends and what drove it.
If I remember correctly within Pharma the consumer side didn't seem to do nearly as well as past quarters and the fourth quarter if I heard you right. And the same thing in Food.
I think you said the core rate was down 6% or 9%. I'd have to go back to my notes here.
What was driving those two things? I would imagine it's probably more timing on projects than competition, but could you provide some color?
Steve Hagge
Yes, George. You're right.
It really is, it's timing. If you looked at our consumer healthcare business, that had been growing in the 20%-plus, which was extraordinary for our first three quarters.
So it's really of that is a timing issue and we continue to expect good growth in that part of the business going forward. On the food part of the business, it's a bit of timing.
Some of our products are pushed to the summer season, the ketchup, condiment types of areas so the fourth quarter tends to be a bit softer for us. But again I'd say that's more of a timing and certainly no loss of any competitive position.
George Staphos
Okay. Same theme for my second question.
There's been some discussion in the market about increased competition from new airless systems from some of your peers. Can you comment to the degree to which your airless systems are as state-of-the-art as peers?
Or do you think perhaps you've lost some ground versus some of the other companies that are in the market? Thanks.
Steve Hagge
Okay. On the airless side, certainly from our business that has continued to grow and we're up probably double-digits in that side in 2011.
So in terms of what we see in the market, there is – first of all I think it's important to note there's a general market increase in airless products being sold worldwide. So we're getting, if you will, a rising tide lifts all ships.
But in terms of our products we've been focused for the most part historically at the upper end of the market and I can tell you we haven't lost any share to that. In 2010 and 2011 we've introduced several new products targeted at the mid level and we've been seeing some awards in those things in terms of sustainability, et cetera, and are picking up additional market even in kind of the personal care market.
So I think overall what you're hearing is more of a strong tendency for overall growth in the market, but we don't feel we've lost any share in that, George.
George Staphos
Okay. Thanks.
I'll turn it over. I'll come back.
Thanks.
Operator
Thank you. Our next question comes from the line of Chris Manuel from Wells Fargo.
Your question, please?
Chris Manuel
Good morning, gentlemen. I think this was Ralph's legacy to you to get you a super moderator.
So we've got to make sure we thank him for that.
Steve Hagge
I'll be sure to thank him.
Chris Manuel
Okay. A couple of questions for you.
As we come into 1Q, I recognize that some of the components are – traditionally there's always higher stock option expense and it's the beginning of the year so you typically get lots of odd things that kind of start the year timing of stuff anyway. But it would appear as though from an organic growth rate, some slowing from where you've been, at least the last several quarters and 4Q.
Could you maybe give us some color as to what you're anticipating or sort of have baked into that for 1Q thinking about those divisions?
Steve Hagge
Well, I think if you looked at – first of all I think if you take a look at Aptar overall, the first quarter for us in 2011 was a record first quarter. We were up 10% on an organic basis last year.
What we're hearing from the customers and I pointed out in some of the comments and we put it in the press release, we're still seeing lots of activity in new projects. They were somewhat based on when the customers are going to come out.
So I'd say in the first quarter our customers are still somewhat cautious as you read the paper about what inflation rates are doing, the economic issues in the US and Europe. So overall we're still, I'd say optimistic as we look to 2012.
But I think as you said it's a bit of a slow start and we're going to be somewhat dependent on when customers will be introducing products in each of the different markets that we serve.
Chris Manuel
Okay. But nothing with respect to scaling back projects or anything of that nature in big ways?
Or have you seen any of that.
Steve Hagge
No. In fact I would tell you as I've been with over the last two months as I've talked to customers, I think they're cautious.
But frankly if I even take the fragrance, cosmetic market as an example, we're seeing a lot of discussion on new launches coming back scheduling throughout 2012. The food, beverage market for us in terms of projects, we've got several nice projects that we expect to be introduced by customers in the year, opening up different markets for us.
And in the pharma market, our continued move in the consumer healthcare and even in the prescription, shows a lot of new projects. So I would tell you on balance we continue to be positive for the year.
Chris Manuel
Okay. My follow-up question has to do with capacity.
You talked a little bit about underutilization in some areas and things of that nature and it looks like given some of the capital spend last year and a lot of the capacity adds you mentioned from Russia, Brazil, Mexico, India, North Carolina, et cetera, how would you – and I know this is tough because each unit is a little bit different and each product is a little different. But how would you characterize spare capacity if you will?
And where you are? And is there a way to kind of put a number on what you felt underutilization may have impacted you?
Steve Hagge
That's going to be a tough question to answer. When we look at – I guess it depends on where we're at in the fourth and where we're going to be in the first.
The fourth quarter historically for us is a bit of a slower quarter generally as people take a look at inventories. But if you would balance that out where we saw some softness was some of our – in the product line basis, is some of our fragrance product lines in the fourth quarter.
Those have kind of ramped back up as we've gone into the first. Some of our dispensing closure lines, in Europe in particular, were a bit soft in the fourth quarter because that's some business that we've actually walked away from given the margin characteristics.
Overall, I think with the capital adds that we've had and the expansion we should be in good shape into 2012. But as you point out it's almost on a product-by-product basis we have to look at this.
Chris Manuel
Okay. That's helpful.
Thank you, gentlemen.
Operator
Thank you. Our next question comes from the line of Matt Wooten from Robert W.
Baird. Your question, please?
Matt Wooten
Good morning. It's Matt Wooten, sitting in for Ghansham today.
Steve Hagge
Hi, Matt.
Bob Kuhn
Hi, Matt.
Matt Wooten
We were hoping that you guys could provide some detail on the volume trajectory in your quarter. Was it consistent month to month?
Bob Kuhn
Yes. Overall, you're talking Q4 to Q4.
Yes, it was pretty consistent compared to the prior year. There wasn't any swings within the quarter that were significant.
Matt Wooten
And then for your first quarter 2012 guidance, what is the assumption for resin prices? I think there's some pretty high nominations for polypropylene in February.
Steve Hagge
Yes. I think what we're – I think you've got a couple of things going.
We had some resin drops in the fourth quarter. Now first of all I'm going to give you where we – I think this is for us it's important to break these between US and Europe.
What I'll be giving you is on the US market. Europe for us was relatively flat in the fourth quarter and not significant increases in the first quarter.
In the US we were down somewhat in the fourth for polypropylene and we expect in the first quarter increases in the area of 15% to 20% is what the number is being tossed around. Again, we've seen February discussion of increases.
Those are picked up in our projections. It's unsure what margin's going to be.
Matt Wooten
Okay. Thank you.
And good luck on the year.
Steve Hagge
Thank you.
Bob Kuhn
Thank you.
Operator
Thank you. Our next question comes from the line of Al Kabili from Credit Suisse.
Your question, please?
Al Kabili
Hi, thanks. Good morning.
Steve Hagge
Good morning, Al.
Bob Kuhn
Good morning, Al.
Al Kabili
Just I guess on the Beauty and Home side maybe, Bob, could you help us like rank order in terms of the decline year-over-year you saw in operating profit. What was volume?
FX? Mix?
Underutilization? Maybe just help us rank order the different pieces there that dragged on it.
Bob Kuhn
Okay. That'll be a little bit difficult but let me take a shot at it anyways.
I don't think a lot of it is going to be volume-related because if you look for the year, we were up 6% on a core sales growth. Now, again as Steve mentioned, there are certain pockets in certain areas.
So some of the underutilized capacity was in certain product lines. We talked about purposely walking away from certain business.
Earlier in the year we talked a little bit about some pricing pressure across a few of our product lines. So again, I would say that the underutilization and some of the pricing were much more key than anything else.
FX, overall really not a huge impact on that. Really if you look at it we had – we talked about in earlier quarters we've had some higher professional fees during the year in defending some patent litigation and things of that nature.
So I would say it was really more that than volume.
Steve Hagge
A little bit also, Al, in the fourth quarter a little bit on the mix, we talked about in the third quarter that in the US the sun care products were getting relabeled for some SPF regulations. So those shipments got delayed until the first quarter of 2012 and that is one of our higher margin products.
So a little bit on – that's an example of some mix issues we've had.
Al Kabili
Okay. And do we expect a similar – what do volumes have to do in the segment before the underutilization stops being a drag with particularly I guess – what do volumes need to do before this becomes a drag, stops being a drag?
Thanks.
Steve Hagge
I think if you look at the volumes we would anticipate volumes for an ongoing basis long-term in that Beauty and Home segment to be between 4% and 7% volume growth. I think you'll see that continuing to improve.
The other thing we're doing and we don't talk as much about, but we're taking certain cost initiatives. I talked about we're consolidating a couple of facilities in Latin America.
That's going to help that underutilization and become more efficient. We're doing the same things both in Europe and the US.
So I think overall, we need to get to that 3% to 4%, 5% growth in terms of in Beauty and Home and then also continue to work on the cost benefits.
Al Kabili
Okay. And then final question along these lines is with the emerging markets I know they'd be growing faster I would imagine than the developed markets.
Is there a mix impact from that? Is that hurting margins at all?
And can you just talk a little bit about the geographic differences you saw in the quarter as well? Thanks.
Bob Kuhn
Sure, Al. Let me give you first some of the geographic growth or growth by geographies in the quarter and year-to-date.
So in the US we were up about 7% in the fourth quarter and that's pretty consistent for the year-to-date as well. Europe actually was down about 2% in the fourth quarter but was up 6% for the full year.
Latin America as alluded to, slowing growth, 9% but for the year it was still a 16%. Asia we had very strong growth, closer to 40% excluding the acquisition we did in India.
And for the year it came in at about 33%. You're right in the fact that the margin profile on some of those businesses in those emerging markets is not the same.
So that has some impact on that.
Al Kabili
Okay. And is there a way to quantify it or help us think about the impact there?
Bob Kuhn
I don't know. It'd be tough to hang an exact number on that, to be honest with you.
Al Kabili
Okay. All right.
Thank you very much.
Steve Hagge
Thanks, Al.
Operator
Thank you. Our next question comes from the line of Todd Wenning from Morningstar.
Your question, please?
Todd Wenning
Hey, good morning, guys.
Steve Hagge
Hi, Todd.
Bob Kuhn
Hi, Todd.
Todd Wenning
Just a question on pricing. Have you had any input cost pass throughs to customers recently?
And are you finding that there's any resistance in any specific business areas or geographic areas for those price increases?
Steve Hagge
Well, I think you have to take a look at pricing – let's take it on a macro basis. A lot of the contracts we have or a lot of the business we have in our dispensing closure line is a pass through business.
So the resin gets passed through a bit with a delay, either up or down. So that has continued and we expect that to continue into 2012.
In terms of some of the other areas we've seen input costs raised for transportation, some aluminum, some metal, we've been very successful we think in 2011 moving those price increases through. The challenge continues to be every time there's an increase I wouldn't be here telling you it's easy to come back and get raw materials passed through to our customers.
But we have continued to be successful. The other challenge that I see going particularly into late 2011 into 2012 is some of the inflation areas, the inflation base not in the developed markets but in the developing.
Like Latin America, like Asia. Now we're starting to see inflation rates in those areas sometimes exceeding 10% to 15%.
Those we're continuing to pass through but those markets haven't been used for a while to that kind of inflation. So that is a challenge.
One of the things we're trying to do to offset all of that is to continue to look at long-term contracts, which I think we've been pretty successful with that have provisions to pass through these raw materials.
Todd Wenning
Great. Thanks.
And are you seeing in Europe is there a disjoined weakness between say Northern Europe and Southern Europe? Or is it mostly in the south where you're finding any weakness?
Steve Hagge
We've got a couple of things. First of all I would tell you that we were kind of in three main countries in Europe - Italy, France and Germany.
And certainly the German and French overall markets if you read the newspapers, are doing reasonably well. Now, the other thing I think that's important when we talk about Europe is looking at our products.
Because our products are going into two markets that are really world markets. The French perfume market is not really based on the French economy, it's based on the world economy and those tend to be doing reasonably well.
And the same thing about our pharmaceutical business, which we produce a fair amount in both Germany and France. A lot of that gets exported around the world.
So it's not as dependent on the French economy as what we might look at.
Todd Wenning
Great. Thanks, guys.
Operator
Thank you. Our next question comes from the line of David Woodyatt from Keeley Asset Management.
Your question, please?
David Woodyatt
Yes. The tax increase, I think you may have mentioned this point but I wanted to go over it again.
Tax increase equals $0.05 a share but the French increase of $1.7 million is only $0.03. What was the other $0.02?
Bob Kuhn
David, the $0.05 that I was alluding to is if you're looking fourth quarter this year to fourth quarter last year. Our tax rate in the fourth quarter last year was, I would say, unusually low.
We had some positives that came in into the fourth quarter last year. So if you just take the fourth quarter to fourth quarter that's how you get to the $0.05.
David Woodyatt
Yes. Okay.
I see that. I guess maybe the relevant question then is you mentioned surtax would continue.
Would it be proper to assume that you're best guess at this point for your overall 2012 tax rate will be roughly the same as 2011?
Bob Kuhn
Yes. 2011 came in about 33.2% if I remember right and we're forecasting 33% approximately.
So we're right in that area.
David Woodyatt
Okay. Good.
Thank you.
Bob Kuhn
You're welcome.
Steve Hagge
Thanks, David.
Operator
Thank you. Our next question comes from the line of Ryan Sundy from William Blair.
Your question, please?
Ryan Sundy
Hi, it's actually Ryan Sundy in for John.
Steve Hagge
Hey, Ryan.
Ryan Sundy
Good morning, guys. I just wanted to follow-up on George's question on Pharma.
Steve, I know you mentioned timing. But with a relatively soft cough, cold, flu season and kind of mild weather across the United States, does this put any pressure on your business at all?
Steve Hagge
You know, I think in total it exists more of a worldwide business. We haven't seen as much of our customers saying it's been a big negative.
I'm certainly – on the margin it's probably got an impact, Ryan, but we haven't seen anything that is going – marked out that it's specific. And again you look at where we're seeing good growth is a lot of our customers continued to take products into the Eastern European markets and those continue to do very well.
Ryan Sundy
Okay. Got it.
And then I was just wondering if you could maybe talk about how you feel in terms of inventory levels at retail and with your customers. I know there can be a draw down around the year end and if that did occur, have you begun to see reorders as we enter into Q1 here?
Steve Hagge
Yes. I think what we saw and again I think you can see this in some of the – it's a bit different by sector but in general side, we saw a cautiousness coming in from our general customers going into the fourth quarter.
There was some concern we had that that could be like what it was in 2008 to 2009 and that certainly wasn't the case. We felt there was a bit of a draw down in inventories.
We think that that's basically abated somewhat and that inventories today are roughly at reasonable levels and there shouldn't be a huge take down in inventories across all of the segments. So that we should be getting closer to where the consumer usage will be equaling our sales going forward.
We're getting customers cautious. They're certainly not out building inventories but we don't see anybody out saying, I'm going to drive down inventories by 10% or 20%.
Ryan Sundy
Okay. Great.
Thanks a lot, guys.
Operator
Thank you. Our next question comes from the line of Gregory Macosko from Lord, Abbett.
Your question, please?
Gregory Macosko
Yes. Thank you.
Just looking at SG&A. That was up about 5.7% yet corporate and other was down almost 10%.
Just give me some color there on that.
Bob Kuhn
Yes. The corporate and other is really just kind of timing in the quarter of where some of our professional fees and things drop in.
Overall, as Steve alluded to we've continued our ERP rollout and we had a couple that moved on to the ERP system in the fourth quarter. So when you get that you tend to get a lot of expense type items relating to training and customization and things like that.
So it's really more related to professional fees, overall IT expenses.
Gregory Macosko
Okay. And then just finally regarding the top line growth.
Just hearing the discussions, et cetera, clearly the majority – the large majority of volume in your sales comes from Europe and the US But – and some of the numbers you mentioned with regard to the newer markets were quite strong, and I – your discussions on India, et cetera. Is it fair to say that the company is much more focused on those areas and that’s where we might see more of the CapEx spending and some of the SG&A investment will be placed over the next year or two?
Steve Hagge
Well, I think it’s a couple of things when you look at that, Gregory. One, we are seeing higher growth.
As Bob said, we’re seeing double-digit growth in both in Latin America and in Asia. But again, I’ve got to caution that’s off a bit of a smaller base.
So we’ve got to compare an apple to an apple. We have continued to invest in those markets, but I also want to come back and reinforce we see good growth both in Europe and in North America, particularly as we get into new market areas.
So as we’ve talked about as we get into, on the food side, these flavored water market, that’s got significant growth potential and that is really, right now, a North American market and we see that moving potentially to Europe. So I don’t want to underplay – so the percentages may be higher in the other Latin America and Asia, but I think, overall, growth numbers are still pretty strong, also we see in Europe and US.
Gregory Macosko
Okay. Thank you.
Operator
Thank you. Our next question is a follow-up question from George Staphos from Bank of America.
George Staphos
Thanks. Hi, everyone.
I want to come back to the European revenue trend, which you said dropped 2% or 3%. That was also in line with the figures you cited earlier.
I’m going to assume that Pharma kept growing and there’s not a lot of Food and Beverage in Europe; correct me on that if I’m incorrect. And so I’m assuming most the decline was in Beauty and Home.
Could you provide some additional color in terms of what was driving Europe’s revenue decline?
Steve Hagge
Well, I think first of all you’re kind of – I have to correct a little bit. We actually have a pretty good sized Food and Beverage business, particularly in the Beverage side of the business in Europe and that actually did grow.
But you’re right, the majority of the drop we saw was in the Beauty and Home marketplace and we saw fragrance going down as well as personal care. Again, I think that’s where we saw the biggest inventory corrections coming back.
What we’ve seen, though, again, George, to buffer that a little bit is our customers in the fragrance/cosmetic market, what we’re hearing from them and what we’re seeing in some of their publications is that the Christmas season came out a bit better than they expected. So I think that should help us as we go into 2012.
George Staphos
Steve, I know it’s hard to project way going forward and certainly you don’t, as is customary, give a lot of forward guidance. Given what you know right now, would you expect that Europe on a constant currency basis is up year-on-year versus first quarter of 2011?
Would that be difficult to accomplish? And just as a sidebar, I would imagine Europe tends to have more operating leverage both up and down than your other geographies.
Would that be fair or would that be incorrect? Thanks, guys.
Steve Hagge
To answer – first of all, on the operating leverage, the answer is correct. We have more operating leverage going up and we see that when business goes up.
I think what we’ve tried to do is to be cautious particularly in the outlook for the first quarter. So I think for us given the strength we had in 2011 in the first quarter, we’re saying that Europe may be at or may be slightly above those levels.
But I wouldn’t call it – we’re not being overly bullish in the first quarter for the European sales level on comparison to 2011’s level.
George Staphos
Okay. Thanks very much, Steve.
Good luck in the quarter, guys.
Operator
Thank you. Our next question is a follow-up from Chip Dillon from Vertical Research.
Your question, please?
Chip Dillon
Yes. Could you just give us some high-level guidance in terms of the corporate and other expense line?
I notice it looks like that’s gone up quite a bit. When you look at it from a year-over-year basis and even more so when you go back to 2009 and maybe it’s pension, maybe there's some other things going on there.
But do you see that staying in a normalized mid-30s level or even going higher or back down to where we saw it in the past?
Bob Kuhn
No, Chip. If I were to look at it going forward, holding currencies equal, I would expect that the run rate would be closer to where we finished this year, which is in that mid-30s, as you said.
Chip Dillon
Got you. Okay.
Thank you.
Bob Kuhn
You're welcome.
Operator
Thank you. (Operator Instructions) Our next question comes from the line of Brian Rafn from Morgan Dempsey.
Your question, please?
Brian Rafn
Good morning, guys.
Steve Hagge
Good morning, Brian.
Bob Kuhn
Morning, Brian.
Brian Rafn
Yes, I missed your opening comments. Can you give me a kind of a flavor as to how the Christmas holiday season was for 2011, probably specifically with the perfume/cosmetic side?
Steve Hagge
Again, from what we’re hearing, Brian, when we went in our customers that we saw in that market were pretty cautious. When you start to see some of what we’ve looked at with some of the public disclosures from Dior, from L'Oreal, overall the Christmas season was, I’m guessing, at or slightly above their expectations, so more positive than negative to that.
But again, when we’ve come back, we’ll see that more as we’ve got out. The other thing that I think anecdotal to that is when I’ve been talking to customers, they are still looking at quite a few new product introductions going into 2012 so that I see as a, at least, a positive.
Brian Rafn
Yes, Steve, on those introductions. Are those more regional, national or international and are they back to the multimillion unit-type launches?
Steve Hagge
I still think there’s some that are going to be the, let’s call it, the worldwide launches. But I think it’s following the trends we’ve seen in the last couple of years.
It’s more on a regional basis and then expanding to the international depending on the success of the brand.
Brian Rafn
Okay. And then just on capacity utilization.
Maybe if you would talk about kind of global capacity maybe based upon, say, laborships, amount of contract or third-party labor, you might be using flex labor, and/or how much overtime you might be spending around the world.
Steve Hagge
Boy, that’s such a broad level. We do use some temporary labor, particularly in Europe as we come back, which give us some flexibility in that marketplace.
I think we’re in reasonable position in terms of overall labor. Our overtime, with the capacity we've put in, we’ve kept that down to demand-specific.
So I don’t think that’s a – that’s not a high run rate.
Brian Rafn
Okay. And then anything on dairy, on the packaging area?
It’s certainly an area that if you got a decent cap or dispenser on that would certainly be a nice growth market.
Steve Hagge
Well the other – dairy-specific, on the dairy creamer side, on the coffee creamer, that market continues to expand. We’ve actually got some interesting projects we’re working on that are kind of tied to that on the auxiliary side, other different devices for that.
So overall good. Nothing straight in terms of the milk market.
Brian Rafn
Okay. And then anything – one final one on kind of packaging redesign.
You guys have talked about will they bring out and rebrand? You get the shampoo, which used to be 16 ounces is now 12 ounces.
Anything into 2012, as we get into more markets of higher inflation where you’re going to see companies maintain price at the shelf, but actually lower the unit volume size where obviously would amount to a redesign in package for you guys?
Steve Hagge
Yes and, in fact, I think you’re seeing that. And it’s interesting.
I think they’re looking at different markets saying that the consumer may have limited amount of money to buy. And so you’ve got to get a price point to be able to come back that they can buy it at.
So you’ve got kind of this bifurcated market, the Sam’s Club that has got the larger ounces per package. But then you’ve got a lot of packages that are in there that are that $1 and $2 sell.
So for us, we’re actually seeing a little bit on both sides of that.
Brian Rafn
Thanks, guys.
Steve Hagge
Thanks.
Operator
Thank you. And our next question comes from the line of Greg Halter from Great Lakes Review.
Your question, please?
Greg Halter
Yes. Thank you.
Steve Hagge
Good morning, Greg.
Greg Halter
Good morning. You made reference to the sun care market with some delays on the SPF rulings and so forth or guidelines.
Can you expand on that a little bit and what you expect into 2012?
Steve Hagge
Yes. I think what happened is, is that as we mentioned in the call in the end of the third quarter, we saw the US came back with some new regulations about how effective the SPF ratings are, which came back and had some labeling requirements.
So that generally we see some filling for the sun season, let’s say, in 2012 in the fourth quarter of 2011. That actually got pushed off until those regulations got finalized.
So overall, we’re still seeing positive reaction to the sun care. It’s moved somewhat from 2011 to the first and second quarter of 2012.
Greg Halter
Okay. But that business is certainly not going away by any stretch?
Steve Hagge
Oh, no. In fact, we’re seeing even a couple of new product introductions that we saw on some other – I think that the brand proliferation continues to expand to that.
So there’s no drop-off in the demand.
Greg Halter
Okay. Great.
Thanks.
Operator
Thank you. I’m not showing any further questions in the queue at this time.
I’d like to turn the program back to Steve Hagge for any further remarks.
Steve Hagge
Thanks, Jonathan. This concludes our call today.
I’d like to thank everyone for joining us. Look forward to talking to you next quarter.
Operator
Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program.
You may now disconnect. Good day.