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Berry Plastics Group (NYSE:BERY)
Q3 2018 Earnings Conference Call
Aug. 3, 2018 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Shane, and I will be your conference operator. At this time, I would like to welcome everyone to the Berry Global earnings call. [Operator instructions] I would now like to turn the call over to Mr. Dustin Stilwell. You may begin the conference.

Dustin Stilwell -- Head of Investor Relations

Thank you. Good morning, everyone. Welcome to Berry's third fiscal-quarter 2018 earnings call. Throughout this call, we will refer to the third fiscal quarter as the June 2018 quarter.

Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion this morning. After today's call, a replay will also be available on our website at berryglobal.com under our Investor Relations section. Joining me from the company, I have Berry's chief executive officer, Tom Salmon, and chief financial officer, Mark Miles. Following Tom and Mark's comments today, we will have a question-and-answer session.

[Operator instructions] As referenced on Slide 2, during this call, we will be discussing some non-GAAP financial measures, the most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and investor presentation on our website. Finally, a reminder that certain statements made today may be forward-looking statements. These statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release, our annual report on Form 10-K and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements.

Now I would like to turn the call over to Berry's CEO, Tom Salmon.

Tom Salmon -- Chief Executive Officer

Thank you, Dustin, and good morning, everyone. This morning, we'll be discussing several topics, including an update on the Clopay acquisition completed last quarter, fiscal third-quarter results, highlights from our three operating segments, including investments in both organic growth and cost reduction, our expectations for the remainder of fiscal 2018 and an announcement related to a return of capital back to our shareholders via the company's first share repurchase authorization program. Afterwards, Mark and I will be happy to answer any questions you may have. First, I'm excited to announce another new chapter in Berry's rich history, as today we announced the company's first-ever $500 million share-repurchase authorization program, which will provide us the ability to return capital to our shareholders.

This new share repurchase authorization demonstrates the board and management's confidence in the company's future and its ability to generate consistent and dependable free cash flow. Our financial performance and balance sheet have strengthened considerably over the past several years. We're now in solid position to return cash to our shareholders, while still maintaining financial flexibility to execute our strategic plan, further strengthen our balance sheet and invest in future growth. As we've stated on previous calls, we are committed to a balanced capital allocation strategy to maximize shareholder value, which will thoughtfully include continued investment to grow our business organically, grow through strategic acquisitions, debt reduction and returning cash to shareholders.

We have high confidence in our ability to generate significant shareholder value based on our historic track record and future growth prospects. Now turning to the Berry's overall financial results for the June 2018 quarter on Slide 3. I'm proud to report that we had another quarter of solid financial results delivering growth in revenue, earnings, organic volumes as well as operating cash flows. These achievements were led by synergistic acquisitions, along with a 1% overall organic volume growth.

Revenue was a quarterly record for any period at $2.1 billion, increasing by 9% over the prior-year quarter, highlighted by strong organic volume growth of 4% in our consumer packaging segment as well as strong growth in our tape, flexible packaging and non-woven specialties products. Operating EBITDA, which was also a record for any period, was $374 million, or a 3% improvement compared to the fiscal Q3 2017. Our quarterly adjusted earnings per share represent a 7% improvement over last year and an impressive five-year compounded annual growth rate of 20%. In a period of unprecedented inflation, we were able to largely offset significant cost inflation with a combination of price increases and cost reductions, including our continued commitment to reduce the timing lag of packing through raw material cost changes.

Looking at our highlights specifically by segment. Our consumer packaging business reported strong revenue and organic volume growth in the quarter of 7% and 4%, respectfully, led by our foodservice products, driven by stronger demand in quick-service restaurants and convenience stores. As communicated on prior calls, we are partnering with large multinational customers within our core foodservice product portfolio to address unmet needs in growing markets, and have made significant investments introducing a new proprietary technologically advanced solution in the market at a lower cost with improved functionality and sustainability. These next-generation products provide a new consumer experience through premium design and sustainability, offering a clear or white cup that is fully recyclable and has a lighter material weight.

I'm happy to say that this project began its roll-out during the quarter, as anticipated, and we expect growth to continue to ramp in future quarters. In addition, we continue to innovate and provide premier healthcare packaging for a wide range of solutions for blood diagnostic vials to unique senior-friendly closures. We're also launching an innovative range of personal care products with a minimum of 25% post-consumer recycled content, delivering on both aesthetics and sustainability. We continue to look for opportunity where we can provide advantaged products in targeted markets.

And I'm pleased to report that we are continuing to see a stronger pipeline and improved hit rate across the business, and most pronounced in our healthcare and specialty rigid packaging products. Our health, hygiene, and specialties division reported strong revenue growth of 20% as well and an 11% improvement in operating EBITDA, including the impact of the recently completed acquisition of Clopay. We believe that with the ensuing rise of the middle class and higher GDP growth rate in developing countries, demand will grow in the high-value-added healthcare and hygiene markets. Specifically, our Asian nonwoven business, over the past two years, has grown over 6% with high-utilization rates supporting our investment decision in a state-of-the-art nonwoven line in China.

Our new $70 million asset will be the first of its kind in the region that will provide significant incremental capacity for Berry serving the Asian market. This investment is on target to meet forecasted market and customer growth and will be focused on premium applications in the hygiene and healthcare markets. We're pleased to report that this project is progressing as expected. Additionally, our previously announced $50 million investment in North America for our proprietary Spinlace technology has begun construction in our Mooresville, North Carolina, location.

This capacity expansion, I'll remind you, support our customers in our growing whites business for the consumer, health and industrial markets. The unique capabilities of Spinlace combined flexibility and material input with our Apex imaging using three-dimensional technology to provide both superior product performance and custom branding at competitive costs. This investment and this technology support our leading market position and is progressing as expected. We remain focused on high-growth markets and application, where we are partnering with our customers in the commercialization of products, and we feel confident these investments will promote longer-term growth expectations within our nonwoven business.

The acquisition and integration of Clopay that closed in early February continue to progress on schedule. The combination of Clopay with Berry's health, hygiene, and specialties division has strengthened our position within the attractive health and hygiene markets and broadened our presence as a global supplier to many of the leading consumer and industrial product manufacturers. As we stated on our last quarterly call, we were accomplishing our objectives of reducing material and operating cost, and remain confident in our ability to achieve $40 million of annual cost synergies and continue to work on identifying new cost reductions and growth opportunity. Inside our engineered materials division, we recorded modest organic volume growth in our legacy business for the quarter, led by our tape and flexible packaging products.

Our legacy tapes business had another strong quarter, with growth in organic volume and earnings, which was supplemented by our acquisition of Adchem last year, which has provided new sales channel and product offerings in the growing specialty tapes market. Utilizing our new film technology in flexible packaging, our recent investment in value-added multilayer film to support growth in e-commerce provides an opportunity for our customers to have a more cost-competitive packaging solution. In April, we secured a multi-year supply agreement with our packaging converter partner that specializes in the manufacturing of protective packaging solutions for the e-commerce, courier fulfillment, and distribution markets. In order to support their expected growth, we'll be investing over $20 million to add capacity for value-added films in multiple Berry facility throughout the next nine months.

Additionally, we're investing in our innovative protection solution product offerings, which provide enhanced load containment, ultimately reducing the breakage, damage, and loss incurred in the transportation of goods. Specifically, we continue to see opportunities with our food and beverage customers to take share from other substrates with improved film performance, eliminating the need for additional packaging. The fundamentals of our engineered materials segment remain positive as reflected by another solid quarter. Now I'll turn the call over to Mark, who will review Berry's financial results in more detail, and then I'll come back and summarize our strategy and open the call for questions.

Mark?

Mark Miles -- Chief Financial Officer

Thank you, Tom, and good morning, everyone. I would like to refer everyone to Slide 4 now. As Tom referenced, Berry posted a quarterly record net sales of $2,072,000,000, which was up $166 million, or 9%, over the prior-year quarter, primarily attributed to incremental sales from the Clopay acquisition, along with selling price increases that pass through higher cost as well as 1% organic volume growth. From an earnings perspective, we achieved a quarterly operating EBITDA record of $374 million, an increase of $10 million over the prior year.

The addition of the Clopay business, along with cost-reduction efforts and price increases were partially offset by higher raw materials, manufacturing and transportation cost. During the period of significant inflation, we made progress during the quarter and we'll continue to work diligently within all three segments to pass through these increased costs related to raw materials and transportation, and we remain committed to offsetting in a productive manner. Pricing remains a core focus where we are also working with our customers to shorten the timing lag of raw material pass-through, and I'm pleased to report that these efforts showed continued progress as well. Looking at the results of each operating segment starting on Slide 5.

Net sales for our engineered materials division for the quarter was $687 million, flat compared to the prior-year quarter. An increase in selling prices as well as a modest increase in organic volumes in the legacy Berry operations was partially offset by lower revenue in the legacy AEP facilities. Continuing to impact our business in the quarter was the steps we took to rationalize the business associated with the acquisition of AEP. And as communicated previously, we expect this June quarter to be the last quarter where the year-over-year volume comparison will be materially impacted by these decisions.

Operating EBITDA in our engineered materials division was $129 million and down slightly compared to the prior-year quarter as a result of the AEP business rationalization. Increased selling prices in the legacy Berry business along with cost reductions and synergy realization offset cost increases in the quarter. Next, on Slide 6, our health, hygiene, and specialties division generated net sales of $726 million in the quarter, compared to $606 million in the prior-year quarter. The increase of $120 million, or 20%, was primarily attributable to the Clopay acquisition, a favorable currency impact and an increase in selling prices due to the pass-through of higher raw material costs.

Base organic volumes declined 3%, primarily due to weakness in global hygiene sales. Operating EBITDA increased 11% in the quarter to $123 million. This $12 million increase in operating EBITDA was primarily a result of the Clopay acquisition, cost-reduction initiatives, and the favorable impact of currency, partially offset by the under-recovery of higher cost. Turning to Slide 7.

Net sales in our consumer packaging division was $659 million in the quarter, which was $45 million higher than the June 2017 quarter. The 7% increase was a result of higher selling prices and an organic base volume growth of 4%, driven by the strong growth from our foodservice products that Tom referenced earlier. Operating EBITDA for consumer packaging in the quarter was $122 million, compared to $121 million in the prior-year quarter. Cost-reduction activities, along with the 4% organic base volume growth was partially offset by higher material, transportation, and manufacturing cost in the quarter.

Our results also included increased costs related to facility consolidation as well as scrap inefficiencies from the start-up of new capital expenditures. We are pleased with the hard work and accomplishments of our team and working through this equipment start-ups in addition to handling raw material supply chain disruption while providing high quality and service to our customers increased demand. Slide 8 provides a summary of our income statement for our third -- fiscal third quarter. Overall, operating income increased by $4 million, or 2%, over the prior-year quarter.

This increase was due to the items previously discussed that drove the $12 million operating EBITDA improvement, partially offset by higher depreciation and amortization expense in the quarter related to the Clopay acquisition. Interest expense was $67 million, compared to the prior-year expense of $68 million. This decrease is primarily a result of interest rate reductions we have achieved from proactive actions to lowering our interest cost from completed refinancings, partially offset by higher market interest rates and the new debt financing associated with the Clopay acquisition. We have continued our efforts to refinance our debt and reduce interest expense when opportunities are available for lowering our interest cost and strengthening our balance sheet.

We are pleased with our progress and have increased our interest coverage ratio, calculated by operating EBITDA divided by annual interest expense, to 5.3 times from 2.4 times at IPO. Additionally, we have continued to strengthen our balance sheet over the same time period by reducing our leverage ratio, net debt divided by adjusted EBITDA, from 5.2 times to now 3.9 times. We have made early principle payments of $200 million on our debt through the first three quarters of fiscal 2018 and made an additional $100 million early term-loan principal payment after quarter-end, and anticipates further reducing our debt leverage ratio by fiscal year-end. In wrapping up the income statement, our net income for the quarter increased 3% to $110 million compared to the prior-year quarter.

Basic earnings per diluted share increased to $0.81 and adjusted earnings per diluted share increased to $0.96 in the current quarter, a 7% improvement from the June 2017 comparable quarter of $0.90. Next, on Slide 9, the company generated a June quarterly record of $271 million of cash flow from operations in the quarter. Net capital expenditures in the quarter were $86 million, as we incurred spending on cost-reduction initiatives as well as the growth projects Tom referenced. Through the first three fiscal quarters of 2018, we have invested a record level of capital to support the organic and new product growth initiatives that we have discussed the past few quarters, and are starting to see and look forward to the continued sales and earnings growth from these projects in future quarters.

Our adjusted free cash flow, defined as cash from operations less capital expenditures and payments made under the tax-receivable agreement, was $185 million and $530 million for the quarter and four quarters ended June 2018, respectively. Our consistently increasing and dependable free cash flow provides us the opportunity to return capital to our shareholders with the new $500 million share-repurchase program Tom referenced earlier. The new authorization allows for the repurchase of shares from time to time through open market purchases, privately negotiated transactions, and Rule 10b5-1 plan in accordance with applicable securities laws. The timing of these purchases will depend on market conditions.

The new share repurchase program also has no expiration date. And finally, on Slide 10, we have a proven track record of generating growth in annual free cash flow through various economic cycles and market conditions, and have achieved or exceeded our annual cash flow every year since our IPO. With respect to fiscal 2018, we remain committed to achieving our fiscal 2000 adjusted free cash flow target of $630 million. Our guidance includes $987 million of cash flow from operations, partially offset by net capital expenditures of $320 million and the $37 million tax-receivable payment that was made in the first fiscal quarter.

This guidance includes a reduction to our capital spending of $20 million, along with $30 million of lower cash taxes and other cash costs. The earnings reduction is being driven by the ongoing cost inflation versus the timing lag of passing along this cost increases. Specifically, excluding recent acquisitions through the first three fiscal quarters during of 2018, our costs to manufacture products have increased approximately $160 million. And thus far, we have been able to offset $100 million through selling price increases.

Our primary cost is plastic resin, which has been extremely volatile from a pricing perspective in addition to numerous supply disruption throughout the supply chain in fiscal 2018. Polypropylene, which constitutes almost 25% of our cost of goods sold has increased 20% in the month of May and June combined, and is up more than 40% for the year. These increases we expect will create headwinds in our consumer packaging and health, hygiene, and specialties results in the September quarter because of the timing lag in passing through this cost increases. We are actively working with our customers to not only shorten our pass-through mechanisms to match the timing of these costs in our supply chain, but also recover other inflationary costs that are not covered by our pricing catch-up mechanism.

This concludes my financial review, and now I'll turn it back to Tom.

Tom Salmon -- Chief Executive Officer

Thank you, Mark. As mentioned, in the face of continued cost increases, we reaffirmed our 2018 adjusted free cash flow target of $630 million, which represent an adjusted free cash flow yield of over 10% when using our market capitalization as of the end of the June quarter. We will continue to work diligently to offset inflation with increased selling prices, driving earnings growth through a focus on our cost-reduction initiatives, as well as grow our debt business organically and through strategic acquisitions. We're extremely proud of our history and predictability as we've grown our free cash flow and exceeded our target every single year as a publicly traded company.

We are taking proactive measures within each of our businesses to improve efficiency and profitability that will better position the company for continued success. These actions include reducing material usage, increasing our use of automation throughout our facilities, lowering our power consumption as well as improving how we logistically transport our products to our customers. Through a comprehensive review of our cost-saving efforts, we'll focus our future cost reduction and capital spending to explore ways to offset these inflationary headwinds, while reshaping our go-to-market strategy to align with the evolving packaging and distribution preferences. These initiatives will assist us in remaining a low-cost manufacturer of choice, while maintaining our high-quality products and top-tier service to our customers.

We believe our scale provides us the opportunity to source low-cost materials and reduce the transportation and supply chain costs for our customers. We're excited about these projects and we'll continue to keep you posted in our progress in future calls. Through our strategic decisions on capital deployment, we've been able to demonstrate organic volume growth by providing advantaged products in targeted markets. We're also generating stronger revenue pipeline and increased win rates in each of our three businesses.

With this robust pipeline of organic growth initiatives, we're at various stages of the commercialization process to continue to deliver these advantaged products in targeted markets for unmet need. Let me, again, highlight several that are further along in the process. Within consumer packaging, we are seeing firsthand the benefit of investing in targeted markets with advantaged products with our recent drink cup investment. The consumer packaging division through these strategic investments grew 4% in the quarter and anticipate continued positive volumes in future quarters.

We continue to invest in premier healthcare packaging for a wide range of solutions as well as an innovative range of personal care products with a minimum of 25% post-consumer recycled content. Within our engineered materials segment, we have successfully completed the integration of the AEP acquisition and continue to utilize our new film technology through material science to produce value-added multilayer films used to support the fast-growing e-commerce space. Specifically, investing approximately $20 million with our packaging converter partner that specializes in the manufacturing of protective packaging for e-commerce and distribution markets. In our HH&S segment, we committed to align our assets within the faster-growing regions of the world and have invested $70 million in a state-of-the-art nonwoven line in China to support our customers expected growth in the region.

Additionally, we plan to add another $50 million investment using our Spinlace technology here in North America in support of the growing whites market. Lastly, we've initiated evaluations of future global investment supporting the expansion of the innovative film technology brought by the Clopay acquisition to support growth in healthcare, next-generation adult incontinence, and feminine care applications. These exciting efforts by our teams will lead our organic investment plan over the next several years, augmenting our disciplined and proven acquisition growth strategy. So far in fiscal 2018, we completed the strategic acquisition of Clopay and look forward to continuing our successful track record.

Our pipeline continues to be very robust with global opportunities in each of our three segments. The overall global packaging space remains fragmented for Berry over $8 billion in pro forma annual revenue is one of the largest in the world. With our leading portfolio of products touching consumer and industrial markets, we feel there is and will be many opportunities to continue to find accretive acquisition while applying our proven, conservative, and disciplined approach. A key component of this strategy is being very diligent and methodical in evaluating opportunities and determining which acquisitions are the best fit for our company.

We work to identify the best people and best practices of each acquired business and apply those resources and practices to the entire enterprise. Accordingly, Berry represents the integrated processes, people and the physical assets of the 44 acquisitions completed today. This historical disciplined track record is the foundation of what has led Berry to where we are today, providing consistent 10-year compound annual growth rate of over 20% on revenue, EBITDA and shareholder return, and why we believe we have very bright future ahead. Additionally, our share repurchase plan gives us the opportunity to return cash to shareholders through opportunistic repurchases and drive long-term shareholder.

Finally, Berry will continue to take the steps necessary to remain a leader in the markets where we participate through a relentless focus on building and strengthening our competitive advantages, ultimately maximizing shareholder value. I'm confident that the people of Berry will continue to drive positive results and achieve our goals and missions of always advancing to protect what's important. I thank you for continued interest in Berry. And at this time, Mark and I will be glad to answer any questions you have.

Questions and Answers:

Operator?

Operator

[Operator instructions] The first question comes from the line of Mr. Anthony Pettinari. Your line is now open.

Anthony Pettinari -- Citi -- Analyst

Good morning.

Mark Miles -- Chief Financial Officer

Hey, Anthony.

Anthony Pettinari -- Citi -- Analyst

Hi. Just a question on free cash flow. You reiterated your '18 guidance. When we think about 2019, you have Clopay, you have implementation of some of these price increases, maybe some working capital benefit.

I guess to Tom's comments on your historical track record, do you think you could return the kind of double-digit free cash flow growth that you've historically generated in '19 or do you any kind of broad view on the puts and takes for free cash flow as you look to next fiscal year?

Mark Miles -- Chief Financial Officer

Stay tuned. Our next call is when we would typically give our guidance for 2019. Obviously, we've been successful in being able to demonstrate a track record of growing our cash flow every year. Stay tuned.

We'll have more to come there with respect to details for our fiscal 2019 guidance.

Anthony Pettinari -- Citi -- Analyst

OK. And then you talk about efforts to shorten lags on pass-throughs. For your non-resin raw material and freight costs, what's typically the lag in terms of recovery and where could that go given some of your current efforts?

Tom Salmon -- Chief Executive Officer

Yes. It really depends by customer and by market space. The teams -- as we've stated, we are fully committed to offsetting all inflation. And this year has been interesting in that we've seen a good combination of not only resin inflation, where 75% of our inflation is covered by escalator/de-escalator, but also in other raw materials and freight.

We're making good progress in both those regards. If they're not covered by the confines of the agreements, that typically takes a little longer, but it really varies in duration. I think we'll continue to see improvements in the months and quarters ahead as we continue to tackle that challenge. And I would also say, as we look forward, I would expect some improved stability on the other raw material side and there continues to be efforts on the freight side, frankly, to utilize Berry's scale with 135 sites to find ways to locate more of our business and where we convert closer to our customers.

It's a unique advantage that we have. And to do that, it often would require some qualification time. But strategically, customers are certainly interested to do that where we've got core capability that is a closer geographical proximity to them. So lots going on in that area.

We're making really good strong progress. The lag efforts are something that we are fully committed to and driving that change. And if you consider, as a company, relative to price/cost spread, we have a very good track record at the company delivering those offsets.

Anthony Pettinari -- Citi -- Analyst

OK. That's helpful. I'll turn it over.

Operator

The next question comes from the line of Ghansham Panjabi. Your line is now open.

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

Hey, guys, good morning.

Mark Miles -- Chief Financial Officer

Good morning.

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

So by our math, you're lowering EBITDA by roughly $50 million relative to your previous guidance parameters for fiscal '18. Can you sort of help us bridge that decline? How much is from higher resin and operating costs such as freight versus maybe lower-than-expected volumes? What are the major buckets behind that production?

Mark Miles -- Chief Financial Officer

Ghansham, certainly, it's a function of, again, timing of the passing through cost inflation. We talked about polypropylene going up 20% just in May and June subsequent to our call. There's a lag in passing that through to our customers. And I think Tom just referenced the fact that we're working on reducing that -- the timing of that.

But at this point, that will create some short-term pressure in health, hygiene, and specialties as well as consumer packaging. We're heavy users of polypropylene. We're continuing to work with customers as agreements mature. While most agreements have pass-through mechanisms relative to resin, which is about half of our costs, the other costs are not typically covered by mechanical pass-through arrangements.

And so we've got to work with customers as those agreements come due to pass-through those additional cost increases. And so it's an ongoing effort. I think Tom referenced, most year, we're positive in that relationship. But there are years, every three or four years, when you have significant inflation or you wind up in this catch-up mode.

Tom Salmon -- Chief Executive Officer

And Ghansham, as I stated, I'm personally involved in a number of those discussions and negotiations around our commitment to fully offset. And as Mark said, if you look at the basket of agreements that we have, they vary in length and duration. And not only are we working with our customers, but we're also working with our vendors to thoughtfully find ways and under the confines of those agreements to fully pass on the higher inflation that we're experiencing and do it in a productive way. And I said, we're making very good progress.

It's never fast enough. But we, as a team in an organization, remain committed.

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

OK. And I guess my second question relates to, Tom, your comments and your sort of optimism on new products. You seemed very excited about these, yet capex is a little lower. I'm trying to reconcile the difference between the two.

And then second, as it relates to PCR and some of the new next-generation products with recycled content, etc., why should we not expect simple cannibalization relative to your current product portfolio?

Tom Salmon -- Chief Executive Officer

Let me start with the last first, if you will, and relative to the environment. Listen, we continue to believe that plastics as a raw material continues to make people's lives better every day. I'm encouraged, frankly, by the efforts that have been put forth by the Plastics Industry Association, the ACC, in terms of combating much of the negative sentiment that we've seen with really a fact-based, data-driven dialogue. And I think you'll hear and see a lot more in that regard.

In terms of our company, we're frankly taking share from other substrates as we speak and people continue to see the advantages of our materials. For example, inside our engineered materials space, when see higher freight costs, as an example, people want to migrate to other substrates that are lighter weight and ultimately provide better protection for damage, breakage and loss. So we're seeing improvements there in terms of share on our substrate, on our conversion. We're also seeing it inside our consumer packaging space with the foodservice portfolio.

So the prospects for our raw material based on our prowess and know-how around understanding design, finding ways to be more efficient in the use of our materials and ultimately, working with groups like Plastics Industry Association, our end users, better means to recycle and reclaim, all have real positive outcomes. In terms of growth, we, unfortunately, in some instances, the time to deploy the investments around capex to ultimately realize growth, sometimes it's never -- we likely been talking about our investment in consumer packaging for many quarters now. We were very pleased to see it happen as we predicted and as we committed. However, what we actually saw was demand far outpaced our expectation in the initial launch.

And I have to thank our teams inside Berry because we did not disrupt the customers. And during that time, frankly, we not only balance incremental demand that was unanticipated with new product launch, but also a couple of different force majeurs that occurred during the period. So prospects seems to be, for me, it's very good. We've talked about how we've deployed more assets to the higher growth regions of the world inside HH&S and yes, we're bullish about the growth prospects moving forward.

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

Thanks so much.

Operator

The next question comes from the line of George Staphos. You may ask your question.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Thanks, operator. Good morning, everybody. Thanks for the details. Hey, Tom, I mean, I had some questions on the new product launch as well and I want to weave it in with, candidly, I didn't quite hear an answer to Ghansham's question in terms of why you think this will not cannibalize your existing products.

So if you could sort of touch on that why you don't see cannibalization? And in turn, what is so good about these new products for your customers that you're seeing this growth? And was this just trade load in, in growing 4%, or you're seeing sell-through, so to speak, at the same rate? And then I have a follow-on.

Tom Salmon -- Chief Executive Officer

Yes. We're -- in this application, we're actually taking shares from other substrates, so it's not cannibalizing our existing position. These new products inside foodservice allow us to provide a clear or a white cup that's fully recyclable and significantly lighter weight and more cost-efficient for our end customers. So it's a pie expansion for you -- for us, if you will, and that we're actually taking share from another substrate.

So we feel very good about that. And again, the foodservice space for us inside our consumer packaging business continues to deliver and uncover pipeline of opportunities. It's quite impressive. If you look at the growth rate inside that business, it's been in the low double-digit now for the last several quarters.

And frankly, with this launch right now, we would expect continued improvement as this product build the ramps in the coming quarters.

George Staphos -- Bank of America Merrill Lynch -- Analyst

OK. Thanks for the review on that, Tom. I appreciate it. And then my other question for now is -- and you mentioned the share-repurchase authorization of $500 million.

Have you been able to be active in that regard since the board approved it? You mentioned conditions dictating when you will use the repurchase authorization. I'm just trying to see what's in your thinking and management -- market conditions would seem to be better than they've been, say, six months or one year ago given the way the stock is at. And so what kind of timing should we expect on the repurchase and what have you done so far?

Tom Salmon -- Chief Executive Officer

What we've done -- we've done nothing so far. We just got the approval. And frankly, the first time we even do anything is Monday afternoon, if I'm not mistaken. And listen, in the maturation of our company, we're first and foremost thrilled that our balance sheet, our financial performance have strengthened considerably over the past several years, and it gives us the opportunity to consider multiple vehicles to create shareholder value.

If we see near-term dislocation in our share price and we want to advantage ourselves with that, with a share repurchase, we can do that. And then in the meantime, if M&A, in the dynamic industry and world that it is, becomes near-term available, we can also execute on that. We could provide historical, very positive returns for our shareholders. So it gives us tremendous flexibility, and that's what we want.

We wanted a vehicle that would ultimately give us maximum flexibility to create more shareholder value, and we think this does it for us. And I think it's important to note, we're not going to lose the discipline around how we acquire, identify and integrate businesses. That's not going to change. And this is a vehicle, as we see dislocation, to take advantage of it.

And as I said, we can do it as early as Monday afternoon should we desire.

George Staphos -- Bank of America Merrill Lynch -- Analyst

OK. We'll be watching. Thanks. I'll turn it over.

Operator

Next question comes from the line of Tyler Langton. Your line is now open.

Tyler Langton -- J.P.Morgan -- Analyst

Hey, good morning. Thank you. Just had a question on, I guess, in volumes in HH&S because they were down 3%. Can you just talk a bit about what's driving that by either sort of products, nonwovens in the regions?

Mark Miles -- Chief Financial Officer

Yes. The primary driver of the light volumes in HH&S was really around baby care, that was the primary category that was negatively impacted. You've seen major end-users post their announcements. We continue to work with them on ways to cost-effectively create different feature benefits to support their needs.

We serve a very wide range of that [Inaudible], but the primary driver was in baby care.

Tyler Langton -- J.P.Morgan -- Analyst

OK. That's helpful, and then just still within HH&S. I mean, on the cost, the under-recovery, is that still resins or freight? I know there has been the issues now in Brazil but those, I think, we're supposed to have been lapped. So if you just can kind of sort of walk through the big categories there?

Tom Salmon -- Chief Executive Officer

Yes. It's, clearly, we're working with the agreement that we have in place with our end users. As we've said, they vary in length and duration. And we're working presently within the confines of the agreement to pass on all inflation, not just, obviously, resin, which are covered by escalators/de-escalators, but finding ways to shorten the lag as well as offset other raw materials and freight where it's impacting.

So that's an ongoing work in process inside that business that I'm personally also involved in.

Tyler Langton -- J.P.Morgan -- Analyst

But I guess is it being caused by any -- some inflationary or currency pressures in other regions or is it really just more sort of the resins and freight, excluding currency?

Tom Salmon -- Chief Executive Officer

Yes. It's resin. It's raw materials. Other raw materials, freight, with currency being a very minor component of it.

Tyler Langton -- J.P.Morgan -- Analyst

That's -- OK. Thank you.

Operator

The next question comes from the line of Sam McGovern. You may ask your question.

Sam McGovern -- Credit Suisse -- Analyst

Good morning, guys.

Mark Miles -- Chief Financial Officer

Hi, Sam.

Sam McGovern -- Credit Suisse -- Analyst

When you guys think about free cash flow, EBITDA growth, and the buyback program, do you guys still expect to be at 3 1/2 times leverage at year-end or you guys are pushing out the timing of that to take advantage of where your stock is trading currently?

Tom Salmon -- Chief Executive Officer

Given the current market conditions, we still believe our leverage should stay below 4 times. We're still of that belief given what we know today in the market.

Sam McGovern -- Credit Suisse -- Analyst

Great. And then you touched upon this when answering George's questions. But when you look at the landscape for M&A, how do you think about opportunities for acquisitions versus buying back your own stock given current multiples? Is M&A still on the table and how you guys are looking at the pipeline?

Tom Salmon -- Chief Executive Officer

M&A is absolutely still on the table. We have a very long proven track record of identifying and integrating businesses into our company and create a lot of shareholder value. So we have opportunities in every region of the world right now. But we're going to do M&A with a very disciplined approach and there's still that opportunity where we continue to be bullish on it.

The good portion that we have is these markets continue to be very fragmented and our ability to ultimately be a known buyer of businesses and to be able to do it with speed is an attractive component to people considering marketing businesses to us. So we're committed to it. It's still part of our strategy near term and long term, and it's simply supplemented now with an attractive buyback that we announced today.

Sam McGovern -- Credit Suisse -- Analyst

Great. Thanks a lot. That's helpful.

Operator

The next question comes from the line of Scott Gaffner.

Scott Gaffner -- Barclays -- Analyst

Mark, I just had a question on -- so you had $60 million year to date of negative price/cost. It looks like maybe it's another $20 million-plus in 4Q. So it's $80 million of, let's call it, unrecovered price/cost in 2018. Can you talk a little bit about how much of that is raw material inflation that you didn't catch up versus transportation cost or other cost?

Mark Miles -- Chief Financial Officer

Yes. Sure, Scott. Some of that, obviously, commingled in the pricing discussion, right, because you're recovering cost, and how much of that you cover and what the categories are somewhat gets commingled. So a little difficult to separate it.

I would characterize it as we're certainly feeling the impact of the mechanical pass-through timing lag and we're also suffering from, again, increased cost across the other categories, but we're making progress. I think your assessment was right. We've been about $20 million negative in fiscal 2018 for the quarter and we expect a little improvement as we look to Q4 and look to continue to drive to a better category going into fiscal '19, 2019 next year.

Scott Gaffner -- Barclays -- Analyst

Right. So that's the reason I...

Mark Miles -- Chief Financial Officer

Once it's separated -- separating it becomes difficult just because price gets commingled.

Scott Gaffner -- Barclays -- Analyst

No, I completely understand. I guess, I was trying to get at, I mean, if you're negative $80 million in this year with some of the lags, I mean, even if you got half of that back in 2019 and then you layer on some of these capital projects that you've been talking about and some of the new product wins, you don't have the AEP volumes that you're walking away from. You're starting to get through that. I mean, it sets up fairly nicely for growth and EBITDA not just growth in free cash flow in 2019.

Is that -- is there anything you would add as far as puts and takes to 2019?

Mark Miles -- Chief Financial Officer

No. I think that's a fair way to think about it. Most -- again, here is where we have the situation where you have significant inflation that's created a timing headwind, that following year is historically been very positive.

Tom Salmon -- Chief Executive Officer

And I think it's important to remind everyone that this is not unusual. The cost inflation that we've seen inside the business, if you look over the history, this is nothing we haven't dealt with before. We have pass-through mechanisms that's transitory in nature and it's part of the normal course of business. Sometimes, it creates near-term headwind, but we feel comfortable that we'll manage through that and ultimately be able to successfully pass on this inflation.

Scott Gaffner -- Barclays -- Analyst

I apologize, one last quick one on capex, I mean, you pulled it down in this year. Is there -- does that capex have to go flow through into 2019? Or is there still a view to maybe slightly reduce capex in 2019 without some of these larger projects?

Mark Miles -- Chief Financial Officer

Yes. We have a robust pipeline of internal growth project as well as cost reductions, and we'll continue to evaluate the strongest recurrence of those and prioritize them accordingly. We have a modest reduction this year in our capital plan. I wouldn't say the $340 million, which was our original plan for this year, it's an unusual year.

We think we can accomplish our strategic growth objectives with $340 million-ish in capital per year.

Tom Salmon -- Chief Executive Officer

Scott, we're very focused and want to make certain that as we articulate, where we're investing strategically in the business, there were also able to showcase the delivery in terms of growth that it creates. I think the -- with the share repurchase, with the ongoing focus on M&A, with the efforts we're putting for -- with capex toward increasing automation throughout all of our plants, we've got a host of levers to continue, as Mark said, find ways to create more shareholder value.

Scott Gaffner -- Barclays -- Analyst

Thank you. I appreciate it.

Operator

The next question comes from the line of Brian Maguire. Your line is now open.

Brian Maguire -- Goldman Sachs -- Analyst

Hey, good morning. Just a question back to financial outlook. Tom, I guess in response to -- I apologize if I misheard it, but in response to George's question, I just wasn't sure if you were indicating that that 4% volume growth in consumer could continue into 4Q and beyond or if there were some one-time benefits from just closing in the channel there? And one for you, Mark, on the working capital assumption. I think before you talked about that being around $40 million.

I'm just wondering if you could give an update and tied in with that what sort of resin assumptions do you have for the remainder of the fiscal year?

Mark Miles -- Chief Financial Officer

I guess I'll start out. Yes, we believe we'll be -- growth will be in the low single digits in consumer packaging. It's what our forecast is and consistent with what you're seeing here, low single digits.

Tom Salmon -- Chief Executive Officer

Yes. With respect to working capital, obviously, the inflation we've experienced kind of -- since the last call, specifically from a material perspective and polypropylene, that certainly puts pressure on working capital just from a dollar perspective. But I'm really proud of the teams, our -- the Berry Group is doing a great job in managing working capital and kind of a number of initiatives in place such that we think we can still hit the target of -- that we relayed last quarter, thanks to a lot of hard work.

Brian Maguire -- Goldman Sachs -- Analyst

OK. Great. And then a follow-up, really, just on the -- well, I guess, the resin assumptions into year-end tied to that, but then I just wanted to also ask about the efforts to reduce contractual lags. Obviously, that would be a win if you got it.

I would imagine customers are going to ask for something in response. Just wondering if you would -- in relation to that, consider giving up some pricing or what kind of a mechanism do you think you might have to give up to accomplish that goal?

Mark Miles -- Chief Financial Officer

I'll answer the first part and I'll defer to Tom. So the first part, May and June, obviously, we had increases. Actually, July on the resin side settled basically flat, very, very modest movements in a few materials, but essentially flat. Beyond -- August and September would have -- to the extent it does move, which I don't have a great crystal ball in terms of what's going to happen with resin for the foreseeable future here, but I would say would have modest impact on fiscal '18 to the extent it does move beyond July.

Tom Salmon -- Chief Executive Officer

Yes. I concur with Mark. Clearly, from a resin perspective, 2018 has been probably a little more volatile than people had forecasted and predicted, more so on the polypropylene side, the polyethylene side. And as Mark said, we've got most of our agreements tied to escalators/de-escalators to offset that inflation.

But clearly, I think the view going forward, is a little more stable environment. Again, that can change overnight, we understand that. But in terms of agreements and how we negotiate with customers, listen, we're looking to come up and collaborate to find productive solutions to these challenges that, frankly, both sides are impacted by. So our commitment is to continue to maintain, grow our margins as a business.

I think we saw 30-basis-points sequential improvement in this quarter versus prior quarters. So -- and if you look at Berry's historic track record, we've stayed between 18%, 19% typically in most years. So we've been able to do a good job in terms of that raw material offset with these transitory expenses that we're incurring right now, and we've demonstrated the ability to ultimately affect that change and then offset recover. So the conversation is going well, we're making good progress in that regard and more to come in the future.

Brian Maguire -- Goldman Sachs -- Analyst

OK. Thanks very much.

Operator

The next question comes from the line of Gabe Hajde. Your line is now open.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Good morning. Thanks for taking the question. One, let's just start with the HH&S segment. We've read out in a, I guess, public format that some of your customers in the baby care market are raising their prices.

Can you talk about if this -- and I guess, in quarters before, you talked about lower promotional activity on their end and not impacting your volumes. Does this change in any way sort of your outlook for that business or are there ways that you can work with them to lower cost and keep that kind of low single-digit growth trajectory in that business?

OK. And then, Mark, I think previous assumptions for cash taxes and then kind of restructuring spend bucket have been $130 million and $50 million, respectively. Have those -- I mean, you guys lowered it by $30 million collectively, but can you talk about which bucket in particular? And then was this a one-time item in tax that won't repeat next year or do you guys you got a way to how to lower your annual tax obligation?

Mark Miles -- Chief Financial Officer

Yes. No, the taxes we still think the right number for Berry is around 25%. Obviously, we're working diligently to try to reduce that. But yes, there's nothing unusual with respect to taxes and the outlook just reflects the new earnings projection of the company.

Nothing [Inaudible] for that, Gabe.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Thanks.

Mark Miles -- Chief Financial Officer

But no nothing one-time in nature there. Yeah.

Operator

The next question comes from the line of Edlain Rodriguez. Your line is now open.

Edlain Rodriguez -- UBS -- Analyst

Thank you. Good morning. Just one quick question on HH&S in terms of the volume decline. I mean, last quarter it was down 1% and I think the culprit was South America, like Brazil.

But are we seeing the same issues in Brazil or is that improving at all there?

Tom Salmon -- Chief Executive Officer

Look, we lacked the prior headwind in the March quarter and we expect improvement as we migrate into 2019 inside that -- in that region for us.

Edlain Rodriguez -- UBS -- Analyst

OK. And in terms of like engineered materials, now that the portfolio pull in is over with, like what does that mean for volume going forward? I mean, should we expect to see a positive volume 1%, 2% in that going forward?

Tom Salmon -- Chief Executive Officer

We believe on a go-forward basis our engineered materials is a low single-digit business. We're proud of that portfolio and now it continues to change, to address some of the growing demands of the marketplace.

Edlain Rodriguez -- UBS -- Analyst

OK. Thank you.

Operator

The next question comes from the line of Arun Viswanathan. Your line is open.

Arun Viswanathan -- RBC Capital Markets -- Analyst

I had a kind of similar line of questioning. So in HH&S, as you turn on the new line, how much does that kind of add to your volume over the next couple of years?

Mark Miles -- Chief Financial Officer

Yes. The new investment will be coming on the back half of '19. We haven't given specifics around the total size in terms of impact on volumes. So obviously, as Tom said, we're pivoting toward the higher growth regions, but it certainly won't materially move our volumes for that segment just a single addition to that line.

Tom Salmon -- Chief Executive Officer

We're currently -- I apologize, Arun, I didn't hear your question first. We're working also, collaborating with our end-use customers. We want to make certain and the basis of that investment was customer need, and so it's a customer link commercialization. We're focused with them on development initiatives that we built off this capacity.

The -- It's on track. We continue to push the teams to drive as much performance as possible in terms of speed. But as Mark said, little impact on 2019, but certainly high expectations for 2020 and beyond.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And then just as a follow-up. Could you describe the environment in both Latin America and Asia? Have you seen kind of a trade down in diapers and is that expected to continue or is there increased adoption in either those regions? And if so, should we expect volume growth, I guess, to resume in HH&S next year?

Tom Salmon -- Chief Executive Officer

Yes. We said in South America, we lack some of the prior headwinds in the March quarter. So our expectations are improved performance in 2019. Inside China specifically, still a tremendous opportunity for premium product to support the diaper space, the fem care space and also the growing adult incontinence space as well.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And then just lastly on capital allocation, you've now -- you have the $500 million authorization. If you look at the M&A landscape, are there any potential opportunities like AEP last year where you could potentially do an equity finance deal that would also improve your leverage position, or is that nothing that you'd consider? And how do you view that in light of -- or as far as priority versus stock buyback?

Tom Salmon -- Chief Executive Officer

It's a timing thing. It's a dynamic space. The pipeline inside each of our three businesses continue to be very robust and we'll make disciplined decisions based on the timing of that opportunity. I would love to be able to perfectly sequence that.

I think that's the beauty of the share-buyback authorization that it gives us flexibility in the near term should we so desire to buy back shares, create value that ultimately would sequence with a potential M&A. So it gives us back some flexibility, and both of those options can create exceptional shareholder value. And we'll do it just based on that, what's going to drive most value for our shareholders.

Mark Miles -- Chief Financial Officer

I would just add, I mean, our equity is our most expensive form of capital and so it takes, obviously, a unique opportunity for that to make sense. So that's certainly not our base case from an M&A strategy. We're deleveraging half a turn or so a year, which creates a lot of capacity for us to do thoughtful disciplined acquisitions to the extent they're available.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks a lot.

Operator

The next question comes from the line of Adam Josephson. Your line is open.

Adam Josephson -- KeyBank Capital Markets -- Analyst

Thanks. Good morning, everyone. A couple questions. One on -- Mark, back to the guidance question for a second.

The $50 million reduction to EBITDA -- is that all just the jumping polypropylene cost of about $0.15 a pound or was there anything else that happened in the quarter that led to that change?

Mark Miles -- Chief Financial Officer

No. I'd say that's certainly a large component of it. There's, obviously, other costs that have also increased things like freight and other raw materials that are used in the production of our product that have also increased, creating that headwind for us in the back half.

Adam Josephson -- KeyBank Capital Markets -- Analyst

OK. And could you...

Mark Miles -- Chief Financial Officer

A component enough given the component.

Adam Josephson -- KeyBank Capital Markets -- Analyst

Got it. OK. And just on the cash tax issue for a second. You reduced your cash tax expectation by 30.

I think in the previous quarter, you'd reduced it by 20. Is that all attributable to just lower earnings? And if so, is it reasonable to think that would reverse next year?

Mark Miles -- Chief Financial Officer

Sorry. So yes, I was referring earlier when I said there wasn't any kind of quote-unquote one-time items in our tax relative to the -- this quarter's guidance. Last quarter, we did have a benefit as a result of our Clopay acquisition that we completed this year. That was nonrecurring that benefited our taxes in the $30 million range that would not be recurring to the -- to the extent we don't have acquisitions, but it gives us that opportunity.

So last quarter, we did have a $30 million kind of quote-unquote one-time benefit in taxes.

Adam Josephson -- KeyBank Capital Markets -- Analyst

kay. But -- so this quarter it already is recurring, whereas last quarter it was not?

Mark Miles -- Chief Financial Officer

Correct.

Adam Josephson -- KeyBank Capital Markets -- Analyst

OK. Got it. And just to be clear on the CAPEX, you said $340 million is a reasonable number going forward, right? Did I hear you correctly on that?

Mark Miles -- Chief Financial Officer

Yes. That's right, Adam. We think we can achieve the organic growth objectives and cost reduction with that capital amount.

Adam Josephson -- KeyBank Capital Markets -- Analyst

Thanks so much, Mark.

Mark Miles -- Chief Financial Officer

OK.

Operator

The next question comes from the line of Mark Wilde. Your line is open.

Mark Wilde -- Deutsche Bank -- Analyst

Thanks. Good morning. Hey, Tom, I wondered if we could come back briefly on just the growth in foodservice. You mentioned a few different things, different geographies, substrate substitution and the fact that you've come up with a newer, lighter-weight product.

I wondered if we could just give us a little more color on that? And then should I make too much of the fact that you're up 4% in consumer this quarter and then you said kind of going forward, kind of low single digits?

Tom Salmon -- Chief Executive Officer

I look at 4% as being low single digits. So look, I think we believe we have a very positive growth outlook inside our consumer packaging business. It's consistent with the investment that we made here, supporting our great cost investment. The fact -- and we talked about some of the drivers to the marketplace.

This is a material that ultimately is lighter weight, so it's reducing material consumption, it has the same rigidity as a heavier cup, so product performance is enhanced. It gives then the customers the opportunity in either a clear or a white cup. From a marketing perspective, it's advantaged when you consider that versus other substrates -- I'm not going to talk negatively about other substrates, and it answers the environmental question relative to recyclability. So it's a great development.

We are fortunate with these products to be working in conjunction with our end users so that we're understanding what their unmet needs are and ultimately, finding ways to fill them. So it's a good story in CP, and frankly, we talked a lot about the investments they're making in other areas, healthcare, packaging, personal care packaging. So target position is improving. Hit rate is improving.

So as we work through the transitory inflationary items, we're going to remain focused on demonstrating our ability to grow organically.

Mark Wilde -- Deutsche Bank -- Analyst

OK. And can you just -- as a follow-on, can you just talk a little bit about international expansion plans. I mean, you talked about the nonwovens in Asia, but you purposely changed the name of the company to Berry Global. I think it kind of tells us about your aspirations, but just maybe some thoughts on kind of pacing of that international growth, which markets, which regions and sort of is this going to be opportunistic or what's the strategy here in terms of international expansion?

Tom Salmon -- Chief Executive Officer

Yes. Well, first and foremost, it's methodical and very thoughtful. I'd give you an example around our healthcare business right now. We're very fortunate to have locations in India, in Bangalore, as well as Offranville, France.

Both of those facilities are benefiting from additional capital investment and more capacity to meet driving improving customer demand. And we're somewhat agnostic in terms of the region of the world. We want to make sure that you can capture and create value, and that we've got a value proposition that's sustainable. Clearly, with what we've seen inside the healthcare space, we believe this is the case, and our investments have been measured and [Inaudible] along with the opportunities.

So that continues to be an opportunity for us. But again, our history has been a very disciplined approach and that won't change, whether it's in the U.S. or somewhere else in other regions of the world. But I'm happy to say our pipeline is robust and it's global in nature.

Mark Wilde -- Deutsche Bank -- Analyst

OK. Very good. Good luck in the fourth quarter.

Tom Salmon -- Chief Executive Officer

Thanks a lot, Mark.

Operator

The last question comes from the line of Chip Dillon. You may ask your question.

Salvator Tiano -- Vertical Research Partners -- Analyst

This is Salvator Tiano, sitting in for Chip. So my first question, and I don't know if it's something you addressed and I missed it at the very beginning of the call, but you do call to like a new outlook $30 million of lower cash taxes and other cash cost. And I was just wondering, there has been some discussion about what is implied with that decline, but these -- are you offsetting some of the price/cost headwind and low volumes with cash, cost reductions and ease your EBITDA decline? The implied EBITDA decline perhaps it will be less than what's implied from the press release?

Mark Miles -- Chief Financial Officer

Yes. We're always looking to take actions to improve our cash flow. It's intense focus for the company. And so yes, really proud the team is doing a great job offsetting inflation, which is obviously putting pressure on not only earnings but working capital.

And so we're really proud, really proud of the efforts of the team, so certainly we're doing a great job in holding that. The implied kind of resin pressure on our working capital imply of much bigger headwinds. So certainly, yes, we're taking actions that we think are sustainable to reduce the working capital of the company.

Salvator Tiano -- Vertical Research Partners -- Analyst

Sure. Perfect. And my second question is actually on the resin pass-throughs, and you had a number of questions. My -- I just wanted to get a little bit of your opinion, we've seen already some of your peers reporting and it seems like the second calendar quarter of the year was an inflection point where some saw very small headwind and some other even turned the price/cost positive in the quarter.

So I'm wondering, I know you have bigger exposure in polypropylene, which is, obviously, prices are going higher versus other resin substrates, but you also have a higher percentage of contracts that have pass-through mechanisms than your peers. So what is driving kind of this underperformance on these metrics versus other company who produce resins?

Tom Salmon -- Chief Executive Officer

Well, like we said our agreements vary in duration as well as contractually how the pass-through is ultimately written, that's why we're working, as Mark and I both stated throughout the call, helping us reduce the lag at the time by which we ultimately can pass on those transitory costs. And it's very important. It's a priority for us right now. That's where we're spending our time and energy to make certain that we're actually, for both our end customer as well as ourselves, it's faster and more balanced.

Salvator Tiano -- Vertical Research Partners -- Analyst

OK. Great. Thanks.

Operator

There are no further questions at this time. Presenters, please continue.

Tom Salmon -- Chief Executive Officer

Well, thank you, operator. I want to thank everyone for your attention to the call. And I also want to thank Berry's 24,000 employees around the world who are a key component to our success and the future success that we'll have in the company. Thanks for your interest in our company.

Thanks so much.

Operator

[Operator signoff]

Duration: 73 minutes

Call Participants:

Dustin Stilwell -- Head of Investor Relations

Tom Salmon -- Chief Executive Officer

Mark Miles -- Chief Financial Officer

Anthony Pettinari -- Citi -- Analyst

Ghansham Panjabi -- Robert W. Baird & Company -- Analyst

George Staphos -- Bank of America Merrill Lynch -- Analyst

Tyler Langton -- J.P.Morgan -- Analyst

Sam McGovern -- Credit Suisse -- Analyst

Scott Gaffner -- Barclays -- Analyst

Brian Maguire -- Goldman Sachs -- Analyst

Gabe Hajde -- Wells Fargo Securities -- Analyst

Edlain Rodriguez -- UBS -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Adam Josephson -- KeyBank Capital Markets -- Analyst

Mark Wilde -- Deutsche Bank -- Analyst

Salvator Tiano -- Vertical Research Partners -- Analyst

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