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AptarGroup, Inc. (NYSE:ATR)
Q3 2018 Earnings Conference Call
Nov. 2, 2018, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to AptarGroup's 2018 Third Quarter Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Introducing today's conference call is Mr. Matt DellaMaria, Senior Vice President, Investor Relations. Please go ahead, sir.

Matt DellaMaria -- Senior Vice President, Investor Relations

Thank you, Howard, and welcome, everyone. Participating on our call today are Stephan Tanda, President and Chief Executive Officer, Bob Kuhn, Executive Vice President, Chief Financial Officer, and Secretary. Stephan will begin our call with a brief overview of the third-quarter performance and our strategic priorities. Bob will then discuss a few financial details and turn it back over to Stephan before we open it up for questions.

Information that will be discussed on today's call includes some forward-looking comments. Actual results or outcomes could differ from those projected or contained in the forward-looking statements. Please refer to Aptar's SEC filings to review factors that could cause 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. Aptar undertakes no obligation to update the forward-looking information contained therein. I'd now like to turn the conference call over to Stephan.

Stephan B. Tanda -- President and Chief Executive Officer

Thank you, Matt, and good morning, everyone, and thanks for joining us. We do have a slide deck to accompany our comments this morning, and that file is available on our website together with the conference call information. On Slide 3, you can see the agenda for the call today. I will start with an overview of the third quarter and also reiterate our long-term strategic priorities. Then, I will turn it over to Bob for more details on our recent performance.

As you saw yesterday, we reported another quarter of strong, top-line, core growth. Sales growth was robust across each segment and geographic region. Profitability was negatively impacted by certain headwinds, including the impact of rising raw material costs and a typical delay in passing on these increased costs. In addition to the challenging inflation we are facing, our Beauty and Home margin was also negatively impacted by adopting the now-required accounting approach for highly inflationary environments for operations in Argentina. We also experienced start-up costs at our anodizing facility, which was rebuilt after the fire two years ago, and costs related to the ramping up of operations at the recently acquired Reboul company.

We are very pleased with the progress of the integration of Aptar/CSP Technologies and the performance of the business. The transformation of our Beauty and Home segment and corporatewide support function continues to progress well. We are advancing the broad set of initiatives according to plan, and we are starting to see gradual improvement in Beauty and Home, and our team is working hard to improve agility and enhance our customer focus to better position this segment for long-term growth.

Our project pipelines have been quite full, so I will share only a few examples of some interesting innovations that we are bringing to the market. In each of the following slides, I will highlight just the first example, then I will turn it over to Bob. So, turning to Slide 4 and our Beauty and Home segment, we collaborated with a third party which provides image recognition technology that allows the consumer to digitally connect with our customers.

Together, we created a new sampling package for the Paco Rabanne fragrance Batouge. Consumers can use their phone to scan the fragrance sample, connect with the brand, start a conversation, obtain information, and then purchase it directly from their smartphone. We believe the CPG and pharma marketplaces will continue to evolve toward greater connectivity between brands and consumers and between medical practitioners and their patients. So, Aptar will continue to research and invest in new ways to bring value to this evolving space.

Now, moving to our Pharma segment on Slide 5, we recently announced the launch of PureHale, a portable and ready-to-use upper respiratory delivery system. This new technology distributes a continuous fine mist of saline solution that gently cleanses, moisturizes, and soothes the upper respiratory tract. In combination with our custom formulations, it could reduce irritations caused by coughs, colds, allergies, and respiratory problems.

Looking at our Food and Beverage segment on Slide 6, we are marketing a new technology called Flip Lids, a consumer-friendly dispensing closure designed to promote post-use recycling. In contrast to the traditional flat bottle caps, Flip Lid remains attached to the bottle throughout its lifecycle, making the closure more likely to be collected and recycled. This is just a sample of the new innovations that we are very excited to promote.

In addition to discussing our recent performance in new technologies and products, I would like to take a few minutes to speak about our long-term strategic priorities. Those of you who have followed and invested in Aptar over longer periods know that we manage this business for the long term. Slide 7 gives you a nice summary of our strategic priorities. On the left side of the slide, you can see where we're coming from, and on the right side, where we're going to. At the bottom, you will see the underlying megatrends that are most relevant to our business and that we are paying close attention to. In the middle of the slide, you will see our five strategic priorities -- a map, if you will -- showing the key elements that will take us from today to tomorrow. They are all equally important to our journey.

Our first strategic priority is a relentless focus on profitable organic growth. This focus on growth, driven by agile entrepreneurial business units, has contributed to our year-to-date core sales growth of 9%. While we increase our customer focus and grow in our traditional markets like Europe and the Americas, we are deploying additional resources to capture market share in areas that we believe offer excellent growth potential and where we are underrepresented today, such as Asia. Xiangwei Gong has recently joined us as President of Aptar Asia, and is a member of the Executive Committee. She's a highly experienced leader of both B2B and B2C businesses. Based in Shanghai, Xiangwei will focus on accelerated business and organizational development across Asia along with strengthening our external networks while building further on our strong presence and talent in India and China.

Next is talent and leadership. We're improving our capabilities at all levels, and where necessary, we are bringing a new talent from the outside to complement the experienced teams we have today. Shiela Vinczeller just joined Aptar as our Chief Human Resource Officer. She has a very strong track record of global talent management with a deep experience in diversity and inclusion and a sharp focus on building effective teams. Shiela will focus on the development of talent, including supporting, mentoring, recruiting, and career planning, along with implementing programs to further enhance inclusion and diversity at Aptar.

Another priority is to achieve excellence in our core functions of innovations, operations, and commercial activities. We aim to be best in class in creating new products and services in manufacturing and in sales and marketing. We have dedicated leaders championing each of these excellence pillars and driving progress across the enterprise to bring us closer to best in class in each discipline.

To achieve our goals, we are fully committed to a successful business transformation. We have laid out the three-year road map in February, and we are well into our first year and on track to achieve incremental EBITDA of $80 million by the end of 2020. Lastly, acquisitions and partnerships are part of our balanced capital allocation strategy. Aptar's disciplined acquisition approach is to acquire leading players with innovative technologies and knowhow where we can leverage the breadth of our commercial and manufacturing networks to accelerate growth in that business. Over the past few years, we have welcomed several innovative companies to Aptar, including Stelmi, Mega Airless, Reboul, and most recently, CSP Technologies. We have also expanded our partnership with Propeller Health and made a strategic equity investment in the company, as announced earlier this year.

Each of these businesses have strengthened our company with their talented people, innovative cultures, and intellectual property that drives our product development. Our 13,000-plus people are fully aligned with these strategic priorities, which clearly outline our focus as a company, and they are the principal drivers of our decisions and investments over the coming years. With that summary, I will now turn it over to Bob.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Thank you, Stephan, and good morning, everyone. I'll start by sharing some of the details around our third-quarter results. If you are following the slides that accompany our remarks, you can refer to Slide 8. As you saw in yesterday's press release, we reported sales growth of 7% that was comprised of solid core sales growth of 7%, positive acquisition effects of 3%, and negative currency effects of 3%.

Beauty and Home core scales, keeping currencies constant, increased 5%, and acquisitions added another 1%. When we look at profitability, our Beauty and Home segment's adjusted EBITDA margin was 12% and was negatively impacted by the headwinds that Stephan highlighted earlier. Looking at our sales growth by market on a constant currency basis, core sales for the Beauty market increased 6%, primarily driven by increased demand for our facial skincare dispensing solutions. Core sales for the Personal Care market increased also 6%, primarily due to increased sales of our hair care and body care products and increased tooling sales. Core sales for the Homecare market decreased 2% due to lower custom tooling sales.

Our Pharma segment achieved a core sales growth of 12%, and acquisitions added another 5%. All three markets reported increased core sales over the prior year. Favorable product mix and production efficiencies coming from the high volumes in the quarter enabled our Pharma segment to achieve an adjusted EBITDA margin of 37%.

Core sales for the Prescription market increased 15%, which was driven by increased demand for our innovative nasal drug delivery systems for allergy and central nervous system treatments, which offset lower custom tooling sales. Core sales for the Consumer Healthcare market increased 9% due to strong demand for our nasal saline and ophthalmic-related products. Lastly, core sales for the Injectables market increased 7%, primarily due to increased demand for vial stoppers and syringe plungers for pharmaceutical customers in North America and Asia.

Our Food and Beverage segment's core sales increased 4%, and acquisitions added another 4%. This segment reported an adjusted EBITDA margin of 16%. The segment was also impacted by the timing of passing through rising raw material costs and the temporary closing of our Lincolnton, North Carolina facility due to the recent hurricane. Looking at each market, core sales for the Food market increased 14% due to strong sales of our instant nutrition products and higher custom tooling sales. Core sales for the Beverage market decreased 8% due to lower custom tooling sales.

Comparable adjusted earnings per share, which excludes acquisition and restructuring costs in the current period, totaled $0.99 per share, and this compares to the prior-year adjusted earnings per share adjusted for comparable exchange rates of $0.82. I'd like to mention that the prior-year currency adjusted earnings per share would have been approximately $0.02 lower had our current tax rate been applied.

On Slide 10, you can see that our adjusted EBITDA for the third quarter rose 14%, and this is driven by the strong performance of our Pharma segment despite some of the headwinds outlined earlier that affected our Beauty and Home and Food and Beverage segments.

Turning to Slide 11 and our outlook, we are expecting earnings per share for the fourth quarter to be in the range of $0.81-0.86 per share using an expected tax rate range of 30-32%. The mid-range of this guidance represents an 18% increase over the prior-year adjusted earnings per share had our current effective tax rate been applied to prior-year adjusted earnings per share. Finally, the estimated range for capital expenditures for 2018 is between $190-210 million, and our depreciation and amortization estimate for the year is $170 million.

I have a few other details to share, and then I will hand it back to Stephan. Cash flow from operations in the quarter was approximately $55 million, capital expenditures were approximately $54 million, and our free cash flow was approximately $1 million compared to $62 million a year ago. The decrease in free cash flow is primarily due to a pension contribution of $20 million which was made in the quarter and our restructuring and acquisition costs, which negatively impacted reported net income by approximately $26 million.

Looking at our balance sheet capitalization, on a gross basis, debt to capital was approximately 49%, while on a net basis, it was approximately 43%, and we are 2x levered at the end of September compared to our trailing 12-month adjusted EBITDA. At this time, Stephan will summarize the key takeaways from our remarks today.

Stephan B. Tanda -- President and Chief Executive Officer

Thank you, Bob. Indeed, I'd like to summarize our key takeaways as follows: We had another very solid quarter with strong top-line growth. Our profitability in the quarter was good despite some brisk headwinds. Our balance sheet remains in healthy condition, and we will continue to pursue a balanced capital allocation strategy. As you look to the fourth quarter, we expect core growth across our segments even though we will compare with the very strong fourth quarter of last year. We expect inflationary headwinds to continue, along with isolated weaker Beverage volumes in China. As we address these transitory short-term challenges, we continue to manage this business for the long term. We are focused our strategic priorities, which position us well for continued long-term profitable growth and value creation. And, with that, I would like to turn it over to your questions.

Questions and Answers:

Operator

Ladies and gentlemen, if you have a question or comment at this time, please press *1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, simply press #. In the interests of time and fairness to all participants, please limit yourself to two questions and one follow-up question, then come back into the queue if you have more questions as time allows. We ask that you please also mute your line after you ask your question to prevent any background noise. Once again, ladies and gentlemen, if you have a question or comment at this time, please press *1 on your telephone keypad. Our first question or comment comes from the line of George Staphos from Bank of America Merrill Lynch. Your line is open.

George Staphos -- Bank of America Merrill Lynch -- Managing Director

Thanks very much. Good morning, everybody. Congratulations on the progress and thanks for all the details. The first question I had is related to that sampler package you discussed, I think, for the Paco Rabanne fragrance. What kind of trial -- what kind of order rate are your customers seeing with that type of technology where the customer actually gets it and orders it online? It's very interesting to us.

Stephan B. Tanda -- President and Chief Executive Officer

Hi, George, and thanks for the question. I'm not sure that I can give you that detail. What we do know is that these samples are very popular with our customers and in high demand, contributing to the growth of the Beauty business, and clearly, the connectivity aspect is of high interest as the brands just try to continue to strengthen their relationship with the consumers. So, we've seen good growth in this, and we will continue to fuel this part of the business.

George Staphos -- Bank of America Merrill Lynch -- Managing Director

Okay. Thanks for that, Stephan. My last question -- kind of a multi-part one. Again, I don't mean to pick on too many things because I thought overall, it's again another really good quarter out of Aptar, but the tax guidance again is higher than what materialized in the last quarter. Thoughts around that? The Beverage closure of business in Asia continues to have -- in China -- some lingering issues. When does that get resolved? And, Injectables had a nice rebound off of Q2 in terms of volume. Any thoughts around that? Thank you.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

George, I'll take the tax rate guidance. So, maybe a little bit of look into how we develop the guidance and why maybe this quarter, it came in lower than what we had previously guided in July. So, we basically start with our mix of our projected income in the quarter country by country, and we rough out essentially where we believe the tax rate should be. Generally, that's somewhere around 30-32% depending on the mix of where you're at. We have the volatility quarter to quarter primarily coming from the change in accounting for the stock option exercises that were in the money, and so, if you look at the third quarter, the significant decrease from our actual reported Q3 tax rate versus where we thought we were going to be was primarily driven through the volume of stock option exercises in the quarter, and that was also correlated to hitting an all-time record share price.

Those things are virtually impossible for us to forecast going forward, so we try to give, I would say, a conservative estimate of where we think the actual rate should be based on the mix of income earned. We did not put in a lot for Q4 because typically, you would think with the slight pullback in the share price and as you approach year end, people who are thinking of exercising oftentimes delay until January to avoid the tax consequences. So, our logic to guiding to a higher tax rate is really guiding us to more of a normalized tax rate with very little embedded in there on options.

George Staphos -- Bank of America Merrill Lynch -- Managing Director

That's very clear. That gives us, at least, guideposts to model it for ourselves. Thanks on that.

Stephan B. Tanda -- President and Chief Executive Officer

On the China beverage, I'm afraid I cannot be as precise as Bob here. This is related to one single customer who -- where we have limited visibility, and we give you the best information we can. The general growth picture in China continues to be very strong, not only in food, but also in beverage, but this one client provides us limited visibility, and we call it as we see it or experience. To your last point on Injectables, we clearly continue to see good growth in that market, and I think our growth is in line with the market growth.

George Staphos -- Bank of America Merrill Lynch -- Managing Director

All right, thank you very much.

Operator

Thank you. Our next question or comment comes from Ghanshyam Punjabi from Baird. Your line is open.

Matthew Krueger -- Robert W. Baird and Company -- Analyst

Hi, good morning. This is actually Matt Krueger sitting in for Ghanshyam. How are you this morning?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Good, Matt.

Stephan B. Tanda -- President and Chief Executive Officer

Hey, Matt. How are you?

Matthew Krueger -- Robert W. Baird and Company -- Analyst

Good. Similar stuff -- can you talk a little bit about what you are seeing in terms of demand across the emerging markets along with how your customers appear to be handling inventories across these regions?

Stephan B. Tanda -- President and Chief Executive Officer

We have to separate a little bit demand for our invoicing as opposed to end use demand. When you look at the premium and luxury end of the Beauty business, they see very strong demand. Just last month at the major trade fair in Monaco for this space, all customers are extremely bullish about their demand picture, driven particularly by the Asian luxury consumer and by travel retail, and that continues to drive part of our beauty business.

Is their inventory buildup in the supply chain? You can, of course, be cautious about that. On the other hand, to be honest, the supply chain in that whole part of the business is pretty much under stress and people can't keep up with demand. So, I think that will put a dampener on the inventory build. We also saw some decent growth in Latin America, as you saw, and hopefully, with the elections behind us both in Mexico and Brazil, there seems to be calmer waters ahead -- at least, people have certainty now of what the future government will look like.

Matthew Krueger -- Robert W. Baird and Company -- Analyst

Great. And, my second question is looking forward to 2019, or even just the fourth quarter. What are your expectations in terms of margin recovery across your Beauty and Home and Food and Beverage segments? And then, can you talk a little bit about what type of volume outlook we should expect given the higher, more difficult comparisons and the higher growth that you saw across 2018 across each of your segments?

Stephan B. Tanda -- President and Chief Executive Officer

We're clearly committed to the guidance ranges that we've provided you for each segment, and we already signaled you for Quarter 4 despite the fact that we're comparing to a quarter where we had double-digit growth rates, that we continue to see good growth. Clearly, the transformation in the Beauty and Home business as well as some of the corporate functions is progressing well, and we expect the margin improvement to come into those businesses. I know it's a mixed with the transitionary items, but if you add up some of the things that Bob mentioned, you see the beginning of some margin expansions in the Beauty and Home business, and we certainly will want to see that continue and expect it to continue.

Matthew Krueger -- Robert W. Baird and Company -- Analyst

That's helpful. And, following up, you would expect 2019 volumes to be in line with the long-term targets that you laid out despite the comps?

Stephan B. Tanda -- President and Chief Executive Officer

Yes.

Matthew Krueger -- Robert W. Baird and Company -- Analyst

Okay, that's helpful. Thank you.

Operator

Thank you. Our next question or comment comes from the line of Adam Josephson from KeyBanc Capital. Your line is open.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks. Good morning, everyone.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Good morning, Adam.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Hi, Bob. Stephan, I think you classified most of the near-term drags as transitory. Can you talk about those that you consider transitory and those that perhaps are not transitory?

Stephan B. Tanda -- President and Chief Executive Officer

Well, I think the one that we have limited visibility is, of course, the pace of raw material price increases. As you know, we have a lag there. Now, the gap between the cost we experienced and what we passed on in Quarter 3 was particularly high, but if raw material prices continue to go up, then that will stay with us. Now, the start-up costs in the anodizing facility and Reboul -- those are clearly transitory. We also still continue to work hard on the decorative facility. We've made great progress where our customers are now very pleased with the on-time in full and performance, but the profitability needs to continue to go up. So, I think that gives you a feel that there are very specific situations that we're addressing. We don't start up an anodizing facility every quarter and we don't acquire Reboul every quarter, so these things we will put behind us.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Sure. Thanks for that. Stephan or Bob, just on the cost inflation, can you talk about what impact it had on your EBIT or EBITDA on 3Q, what you're expecting in 4Q from the lags, et cetera? And, given that oil prices have been tanking in recent weeks, are you confident at all that these drags are going to moderate shortly after 4Q? Any thoughts along those lines?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Adam, in the third quarter, the raw material increase hit our Beauty and Home segment by about $4 million, and that would include resin and other raw material costs. And then, in Food and Beverage, we estimated there was about $2 million cost inflation hitting the bottom line. All of that would be resin for Food and Beverage. And then, obviously, we've got significant inflationary pressures down in Latin America, primarily Argentina, as well.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

And, you're expecting a comparable drag in 4Q, Bob, from raw material inflation in total?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

It's tapering off. We're seeing a little bit more decrease, and stabilization is what we're seeing in the fourth quarter, but it's still a while to get through all the passthroughs in all the regions and with all the customers.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks, Bob. Just on your CapEx guidance, correct me if I'm wrong -- it went up by $25 million last quarter, and then you took it right back down by the same amount this quarter, so could you help me understand what's going on there?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Sure. I think the most important thing to understand is coming out of Q2, we actually went back to the board and requested additional capital for some additional transformation projects that we want to initiate, and also, due to the strong growth in the first half of the business, we come back with some additional capacity increases and things of such. So, that was the cause for raising the guidance. I will tell you that the decrease in what we mentioned here back down to pre-Q2 is not because we're pulling back on projects. It only relates to the timing of when we're spending the cash related to those projects.

So, typically, as we get into Q4 -- late Q3, early Q4 -- we get a more realistic view of the timing of when those cash flows are going to go out. Most of that, obviously, is spent on the outside with third parties, so it was more the pullback based on where the cash flow is going to land at the end of the year, but we are not reducing or eliminating any projects that we asked the board to approve, so it's really a timing issue.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks so much, Bob.

Operator

Thank you. Our next question or comment comes from the line of Edlain Rodriguez from UBS. Your line is open.

Edlain Rodriguez -- UBS Investment Bank -- Analyst

Thank you. Good morning, guys.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Good morning

Edlain Rodriguez -- UBS Investment Bank -- Analyst

In Beauty and Home, we saw a sharp deceleration in the core growth sequentially, from 10% to 5%. What should we read into that? And, given that we're pushing prices to recover costs, I would have expected to see more upside on pricing in there. What should we read into that?

Stephan B. Tanda -- President and Chief Executive Officer

I would not read too much into the difference from quarter to quarter. Clearly, the comps are getting more demanding, and we will get closer to our long-term guidance in terms of growth rate for this business, but as I mentioned earlier, we continue to see brisk demand from our customers, and yes, we are working very hard to pass on not only raw material pricing, but also generally for inflationary increases, but I don't see that to have a major impact on the demand level.

Edlain Rodriguez -- UBS Investment Bank -- Analyst

Okay. In the 7% core growth you reported for the company, how much of that was volume versus pricing?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Overall? Okay, overall, on the core sales growth, an estimate is about 2% of that 7% core growth was coming from price increases.

Edlain Rodriguez -- UBS Investment Bank -- Analyst

Okay, perfect. And finally, can you remind us again what's the lag you have in raw materials? How much time do you have to recover those costs?

Stephan B. Tanda -- President and Chief Executive Officer

That's anywhere from one month to a quarter, and then, of course, in those cases where you have a quarter, it's a quarter lag at the beginning of the quarter. By the end of the quarter, it's a six-month lag, so it depends on how you want to look at it, but our agreements are anywhere between monthly and quarterly.

Edlain Rodriguez -- UBS Investment Bank -- Analyst

Okay, thank you very much.

Operator

Thank you. Our next question or comment comes from the line of Chip Dillon with Vertical Research. Your line is open.

Salvator Tiano -- Vertical Research Partners -- Analyst

Hi, guys. This is Salvator Tiano filling in for Chip. How are you?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Good morning. How are you doing, Salvator?

Salvator Tiano -- Vertical Research Partners -- Analyst

Great. So, my first question is actually on one of the other innovations you mentioned -- the Flip Lid -- essentially, the cap that's attached. And, I was wondering -- it seems to come at an opportune moment with the issues with single-use plastics in Europe, and seems it would potentially solve the issue of detachable caps that the European Commission would now like to have eliminated, so what is essentially the market opportunity there in Europe that you see, and how easy would it be for competitors to catch up to this innovation, and perhaps you will not get the full credit for that eventually?

Stephan B. Tanda -- President and Chief Executive Officer

You're absolutely right on. One of the big propositions is to eliminate the flat cap that you screw off and throw away, and somehow, it doesn't get into the recycling stream and then ends up in the ocean in the long run. So, that's what the Flip Lid is designed to avoid. We certainly are a big proponent of fully recycling plastics and also offer more and more products with post-consumer recycling content. Now, we have some IP around this particular Flip Lid, but we have no illusions that this will be a competitive market, and there might be other solutions. I think it's too early to call out the winners, but we think we certainly have a competitive solution and have good customer interest.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

I would also add that, like the majority of our other products, on the surface and from a picture, it may look like a pretty simple thing to manufacture, but you can see the extremely low profile of the Flip Lid, and for us, we're always going to be looking to solve some of the issues that are out there, one of which is either it accidentally opening prematurely when you don't want it, whether you're carrying it around or not, but to counterbalance that, you have the lid force, which can be over-excessive either. So, there will certainly be competition. We're always going to position ourselves from a quality perspective as the right product offering to meet the consumer's needs.

Salvator Tiano -- Vertical Research Partners -- Analyst

Okay, perfect. And so, my second question is actually on the raw material passthroughs. You talked a little bit the 2% price you saw this quarter and the headwinds, but I was wondering -- why did it become a more noticeable issue this quarter? I think you've noted minor headwinds in the prior press releases while pretty much everybody in the industry was having major headwinds, and now that things are cooling off for many other users of plastic resins, it became a bigger headwind. So, can you break down a little bit what happened, why the timing was different with Aptar versus its peers?

Stephan B. Tanda -- President and Chief Executive Officer

The main reason is really what are the detailed mechanics of agreements with each customer and what is the time lag. In our case, the scissor just opened particularly wide, so to speak, in Quarter 3, and agreements for other people might be different. Again, over time, that evens out, but there's nothing special or anything different from prior year. The only other thing I would say is probably 1% of the 2% is raw material, and the other 1% is general inflationary pricing.

Salvator Tiano -- Vertical Research Partners -- Analyst

Perfect. And, just as a follow-up a little bit on the buyback situation, I think you normally buy back stock that's in excess of your dilution from stock options, and I was wondering if the CSP acquisition is changing that, and should we expect actually fewer buybacks for 2018?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

So, in the quarter, if you look at our balanced capital allocation approach, it's always been based on four pillars: Investing in our own business and our core growth, dividends, share buybacks, and acquisitions. So, if you look at what happened in Q3, we raised the dividend $0.02 a quarter, so we increased that. We went back to the board for additional capital authorization to continue to reinvest in our business, and then, of course, we spent $0.5 billion on M&A. So, based on that, we took a little bit of a pullback or did not repurchase any shares in the quarter. We'll continue to evaluate that on a balanced approach quarter to quarter as we move forward.

Salvator Tiano -- Vertical Research Partners -- Analyst

Perfect. Thank you very much.

Operator

Thank you. Our next question or comment comes from the line of Debbie Jones from Deutsche Bank. Your line is open.

Debbie Jones -- Deutsche Bank -- Vice President

Hi, good morning.

Stephan B. Tanda -- President and Chief Executive Officer

Hi, Debbie.

Debbie Jones -- Deutsche Bank -- Vice President

Just a couple questions. So, you highlighted your geographic focus in the map. I don't think it's too surprising given your commentary before, but I wanted to understand -- is there something about putting this up that you're going to be more aggressive in this approach in 2019? Could you talk about where the customer and end market opportunity is, specifically in the high-growth economies that you mentioned? And then, how much of this effort or how much of the sales growth you highlight for your 2022 target of 4-7% sales growth -- how much of this approach on your geographic focus is dependent on success with the strategy?

Stephan B. Tanda -- President and Chief Executive Officer

Let me unpack that a little bit. Fundamentally, what we're doing is adding more capability in the region. We have strong people in India and in China, but the region is bigger than that. So, Xiangwei is really responsible for the total region, making sure that India and China have the resources they need to grow, but also continue to build relationships and create opportunities for us across the region.

The point was that we are managing for the long term, and the demographics are inescapable that a lot of the growth is coming from that region, and even more going forward, and as you've heard from us, through the Beauty segment already, a lot of the demand that's driven -- now, we deliver it to our Beauty customers in France, but the end product ends up in Asia and in travel retail in Asia and the Middle East. It is driven from that region, and you just need over time to make sure that you are well positioned to capture that demand also in the future. So, I think that's a very prudent thing to do. We cannot really break it down for you -- OK, what part of that is part of the 2022 -- because that will be developed over time, but we're quite confident in those targets.

Debbie Jones -- Deutsche Bank -- Vice President

Okay, thanks. Second question, just going back to the sustainability discussion -- it's a little unclear to me where you're positioned in terms of having the ability to use recycled material and how that works from a functionality perspective with the products that you offer, and then how much your customers are looking at it as part of their sustainability goals.

Stephan B. Tanda -- President and Chief Executive Officer

Clearly, there has been a shift in the interest level from our customers, where initially they were mainly interested in what is our environmental footprint, how do we manage our operations, and if you haven't done so, please take a look at our sustainability report that's very extensive. We're probably among the leaders in our industry about how we characterize and how we improve our footprint. Now, they are becoming more and more interested in having post-consumer recycled content and making commitments around having recycled products. So, we have solutions that are based on partial or 100% post-consumer recycled content, we have solutions where we make the products 100% recyclable if they're not already -- most of our products are 100% recyclable, but in some cases, they have some metal components that we might be able to eliminate.

So, there is now more interest from customers, obviously particularly in Europe, and that allows us to have more innovation discussions, more innovation projects with customers, so overall, we think this is good for our business, this drives the right conversations, and every time there is a new project with customers, it allows us to show our value, which is differentiated solutions and, obviously, also repricing opportunities. So, this will be a dynamic space for years to come. We fully support the concept of 100% recycling or the circular economy, if you like, and we have solutions to offer and will continue to develop additional solutions.

Debbie Jones -- Deutsche Bank -- Vice President

Okay, thanks. If I could just ask one more CSP, I'm just curious how the integration is going, and if there's a different approach now that you've had the asset for a few months now, and if you're still confident in your accretion target from the deal.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Thanks, Debbie. I can answer that. We're extremely pleased with the acquisition. The integration started off fast and furious. In fact, we've had several working group sessions with our legacy Aptar folks and some of the key people within CSP. We did that with our Pharma group, we're doing that this week with our Food and Beverage group, and we're actually highlighting some potential projects going forward into the future. So, the goal here is to develop the pipeline for the future in addition to what CSP's core business is. We're also seeing some various interests from some of our cosmetic R&D people as well.

Back to the PCR question that Stephan just answered, one of the issues that some customers are dealing with is there is certain odor tainting using post-consumer resin, and we've also moved that over to CSP to see what types of technology and active packaging they could have that could potentially neutralize or change some of those odor issues that are there. So, honestly, it's growing terrific. I can only say good things about the excitement and enthusiasm on both sides and the collaboration -- it's going as well as we can expect, and yes, we're confirming the $0.10 accretion into 2019 on an annualized basis.

Debbie Jones -- Deutsche Bank -- Vice President

Great, thanks for the update. Good luck in the quarter.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Mark Willermans from Bank of Montreal. Your line is open.

Mark Willermans -- Bank of Montreal -- Analyst

Good morning, Stephan. Good morning, Bob.

Stephan B. Tanda -- President and Chief Executive Officer

Hi, Mark.

Mark Willermans -- Bank of Montreal -- Analyst

Is it possible, Stephan, to get a sense for what you're seeing in the M&A markets right now? Maybe you could give us a little bit of a sense of general target areas for you in terms of M&A.

Stephan B. Tanda -- President and Chief Executive Officer

It continues to be an active environment, and we have, obviously, for each of our segments, a kind of long list and a short list. We're building relationships with the targets. There is no change in that. If an opportunity becomes actionable, then we are ready to engage, to continue to progress down that path. But, like with any M&A, it takes two to tango. You've got to come to a meeting of the minds on process and value, but we continue to see this as an important pillar of our growth plan.

Mark Willermans -- Bank of Montreal -- Analyst

Okay. And then, on the CapEx, the $200 million-ish this year, is it possible to get a sense of where that's going in broad buckets, both geographically and by business line?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

I don't have the breakout at my readiness here, but I would say typically, from a segment perspective, it more or less mirrors the sales contribution with slightly less on the Beauty and Home side and slightly more on the Food and Beverage side, and again, I'll remind you, Mark, that we get a significant co-contribution from our Pharmaceutical customers, so our actual CapEx on that is a little bit understated. From a regional basis, I think it probably matches fairly similarly to our footprint, with the slight exception we're spending a little bit more in Asia on our Guangzhou facility as we ready that for opening in 2019.

Mark Willermans -- Bank of Montreal -- Analyst

All right. Last question for me is that Stephan, you've been in the chair for almost two years now. What's been your biggest surprise at Aptar?

Stephan B. Tanda -- President and Chief Executive Officer

Hmm. After two years, that's not a big surprise. I think I've spoken to it before -- very strong reputation in the industry, with customers around our technical innovativeness, the ability to always come up with another iteration, with another different take on a gesture. Who would have known that there's eight different ways to apply a fragrance? So, we have a lot of innovative folks to come up with innovation. I would say that's one. Secondly, it's not surprising to those of you who've been with us a very long time as investors that there's a very strong culture that is focused on creating value for the long term, continuity, building talent, and if you don't know the company coming in from the outside, that certainly has been a positive surprise. I think those would be the two things I would highlight.

Mark Willermans -- Bank of Montreal -- Analyst

Okay, sounds good. Good luck in the fourth quarter and into next year.

Stephan B. Tanda -- President and Chief Executive Officer

Thanks, Mark.

Operator

Thank you. Our next question or comment comes from the line of Daniel Rizzo from Jefferies. Your line is open.

Daniel Rizzo -- Jefferies and Company -- Analyst

Hi, everyone. Just a quick question on M&A. You mentioned and have mentioned buying innovation leaders and focusing on that, but I was wondering if you're seeing opportunities to buy companies that just expand your footprint, particularly in Asia -- if that's something you would consider, or if it would have to be some sort of technologically based acquisition.

Stephan B. Tanda -- President and Chief Executive Officer

Well, each situation is different, and certainly, expanding footprint can be attractive. We actually looked at some of those opportunities, and yet, the equation just didn't work out. But, we're always looking for a good fit, and certainly, adding a footprint in Asia can be a very strong argument. The economics still need to work.

Daniel Rizzo -- Jefferies and Company -- Analyst

Okay. And then, just to revisit -- you mentioned the Beverage volumes in China. You mentioned one large customer. I'm sorry if you said this, but is that customer destocking, or are you walking away from sales, or -- what did you say was really happening there?

Stephan B. Tanda -- President and Chief Executive Officer

Well, it's basically one large customer where we have limited visibility, which also implies that I can't really answer your other questions what exactly, but clearly, they have developed a second source, and it's a competitive game. This is the result.

Daniel Rizzo -- Jefferies and Company -- Analyst

Okay, thank you very much.

Operator

Thank you. Our next question or comment comes from the line of Gabe Hajde from Wells Fargo Securities. Your line is open.

Gabriel Hajde -- Wells Fargo Securities -- Analyst

Good morning, gentlemen. Thanks for taking the question.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Morning, Gabe.

Gabriel Hajde -- Wells Fargo Securities -- Analyst

To start, going to Slide 7, the strategic priorities -- if I'm interpreting this correctly, it's seeming that more focus on faster-growing economies combined with what seems to be an appetite for probably acquisitive growth in those regions -- how do you risk-adjust those investments with issues like you're seeing with your Chinese Beverage customer? How do you think about that, Stephan?

Stephan B. Tanda -- President and Chief Executive Officer

Well, risk is very much correlated to closeness, so if you're a Chinese multinational expanding, the U.S. looks like a highly risky venture. The reverse is also true. So, I would temper the risk a little bit with how much you understand of the market and the situation. Believe me, we have U.S. customers who are just as demanding as this Chinese Beverage customer or more, so this is not a Chinese situation, just a commercial situation.

So, we look at each situation -- what is the attractiveness, what is the long-term growth opportunity, and how can we best position ourselves for value creation? And, again, as I mentioned, demand is there. Look at our internal attrition business. It's growing very rapidly. Look at other companies -- I might mention Apple, General Motors, who just announced. Demand is there. You just need to position yourself the best way to capture the demand, and it's not a given that we can forever shift from Europe to meet that demand.

Gabriel Hajde -- Wells Fargo Securities -- Analyst

Okay. Bob, you affirmed the $0.10 accretion number. The D&A figure that's sort of embedded in there -- is that the $22-23 million range?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Yup, that's correct. That's right in the ballpark.

Gabriel Hajde -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Thank you. Our next question or comment comes from the line of Brian Rafn from Morgan Dempsey. Your line is open.

Brian Rafn -- Morgan Dempsey -- Partner

Good morning, guys.

Stephan B. Tanda -- President and Chief Executive Officer

Good morning, Brian.

Brian Rafn -- Morgan Dempsey -- Partner

I got on a little late. Could you talk a little bit about -- we're heading into the Christmas season. Anything on the perfume/fragrance market? And then, maybe break out any trends, projects, mass market versus maybe the prestige, and how do you see stockpiling for this Christmas season? There's been a lot of rhetoric about how this is supposed to be a blockbuster Christmas given the economy. Just any overall macro comments.

Stephan B. Tanda -- President and Chief Executive Officer

Well, indeed, we see strong demand. I mentioned earlier that most of our luxury premium Beauty customers see brisk demand. There are pressures on the supply chain, meaning their ability -- and frankly, our ability -- to keep up with the demand and bring online capacity. So, certainly, that hasn't changed. We saw that throughout the year. Now, also, year-end -- there's a little bit difference between the West and the East, as you know, with different holidays, so I wouldn't see any particular change here.

I also want to highlight -- we haven't talked much on this call -- very strong demand across our Pharma portfolio. Allergic rhinitis continues to grow. There's more or less now a year-round allergy season. We see the C&S drugs -- including, unfortunately, the opioid overdose antidote -- continue to grow, and people put more focus on their respiratory health, so, saline sprays, ophthalmic is growing like gangbusters, the dermal space, and we talked earlier about injectables. So, we see strong demand across our Pharma portfolio, good demand for Beauty and Home, and with the exception of this one customer we talked about, also very solid demand and new projects in the Food and Beverage space.

Brian Rafn -- Morgan Dempsey -- Partner

Got it. You mentioned a little bit about your Asian luxury customer. How culturally centric or specific are design differences from a consumer market in Japan versus one in maybe China, or one that might be Singapore, or some of the Pacific tigers? How segmented are those markets for specific different packaging solutions?

Stephan B. Tanda -- President and Chief Executive Officer

Obviously, there's a big difference between the luxury and "Western" customer who -- so, let's say an Estee Lauder or Clarins -- who sells into China versus a Chinese or Korean company. They might address different segments, but in the end, you go through the different gestures of how to apply a skincare product or how to apply a fragrance, and what customers most look at is innovation. So, indeed, the gesture on how to apply a fragrance might be different in the Middle East than it might be in Paris, than it might be in Japan, but we have solutions for each of those different potential solutions, and then, we work with customers -- whether it's Western customers who sell into those markets or local customers -- to develop their portfolio. That's one of our strengths: Knowing the local markets and then leveraging our global technology platforms to design products that meet that local preference.

Brian Rafn -- Morgan Dempsey -- Partner

Okay. And, are there any first-mover adopters that -- or others that tend to be followers, or are there always unique incubations by these different cultures? I'm just trying to think of how a trend might be copied in the dispensing solution from one geography to another, or do they all have their own separate incubations?

Stephan B. Tanda -- President and Chief Executive Officer

I would say you certainly have in recent years a bigger influence from smaller and more independent brands, and they tend to pop up often in different locations, so, South Korea certainly has become much more important as a source of innovation and a trendsetter than it was in years past. Also, in the U.S., it used to be New York. Now, the West Coast is much more important. So, the trendspotting and who is kicking off a trend -- of course, it's a science and an art in itself, but that has shifted more toward smaller and more independent brands. As you know, the large CPT companies tend to buy up the more successful ones.

Brian Rafn -- Morgan Dempsey -- Partner

Got it. I appreciate it. And then, Bob, on the CapEx, would there be any -- you answered the breakout by geography or product line. Would there be any bulk or any sizable projects that you can single out in that $200 million CapEx?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

No. I don't have the breakout, but one thing -- in the total portfolio of capital and the increase from some of our previous years, we do have about $54 million that is linked to the transformation project. So, from that, that's really accounting for the bump up from, I would say, more of our historical levels of capital expenditures.

Brian Rafn -- Morgan Dempsey -- Partner

All right, guys. Thanks.

Operator

Thank you. Our next question or comment is a follow-up from Mr. George Staphos from Bank of America Merrill Lynch. Your line is open.

George Staphos -- Bank of America Merrill Lynch -- Managing Director

Hi, guys. Thanks for taking my follow-on. Just a quick one here. During earnings season, one of the companies that we track in the industry talked a fair amount about what they're seeing in terms of deodorant packaging mix, and in particular, it seems to be growing in aluminum aerosols, at least from their vantage point. Now, obviously, I think they're somewhat biased in that regard, but nonetheless, growing in aluminum aerosol cans in some large emerging markets. Are you seeing that? And, just generally, how is the dispensing market evolving relative to different container trends in that market? Thank you, and good luck in the quarter.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Thanks, George. Specifically relating to deodorant, obviously, it all started in that aerosol-type format, and then we hit a little bit of a trend with the non-aerosolized spray, and then, I would say in the last 10 years, we got into more of a roll-on or a stick-type culture, but again, this is going to vary geographically region by region. So, if you look down in Latin America, actually, one of the strongest markets for aerosolized deodorant is down in Argentina. So, to Stephan's earlier point, we have to have the local people on the ground to follow where those trends are. Certainly, in the last 10 years, you also saw resurgence in the U.S. with fragrance-type products like Axe body sprays and things like that. So, I don't know if we're seeing any seismic shift, but definitely, we keep track of what those trends are in each geography.

George Staphos -- Bank of America Merrill Lynch -- Managing Director

But, if something moved on from roll-on or stick, if that's been a trend, to aerosol spray, that would help you even though the traditional aerosol nozzle is traditionally your highest-margin business. Would that be fair? So, broadly, if that's happening, it's a positive relative to what has been a roll-on stick trend.

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

Absolutely.

George Staphos -- Bank of America Merrill Lynch -- Managing Director

That's what I was getting at. Thank you, guys.

Operator

Thank you. Our next question or comment is a follow-up from Mr. Adam Josephson from KeyBanc Capital. Your line is open.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks, Stephan, Bob, and Matt. Two follow-ups. Stephan, on the $80 million of incremental EBITDA to which you guided from your cost savings program, I know you were asked this on a previous call, but can you help us at all with the sequencing of those $80 million of savings next year versus '20 versus beyond?

Stephan B. Tanda -- President and Chief Executive Officer

As we discussed in February, basically, we have -- as usual in these programs -- the cost leading for us to make the investment, and then the benefit toward the latter part of it. So, it's phasing in. Already as you speak, you see some of the EBITDA benefit from the top-line improvements, and the savings are phasing in in the coming quarters, coming year, and by the end of Year 3, you get to the $80 million. We tracked that very detailed. Bob and I review it on a weekly basis, so those initiatives are on track.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

On that point, how much do you expect to realize this year, Stephan, if you're at liberty to say that?

Stephan B. Tanda -- President and Chief Executive Officer

I appreciate your asking, Adam, but we haven't broken it down by year.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Okay, fair enough. And just also around the transformation, Stephan, before your arrival, obviously, Pharma was always the rock, and the other two segments were somewhat volatile quarter to quarter and year to year. Since you got here, obviously, core sales growth has accelerated dramatically across the board, but Beauty and Home and Food and Beverage continue to have profit fluctuations, much more so than pharma. Do you envision that changing post this transformation, or do you still think that those two segments will be more vulnerable to profit volatility than your Pharma business? Thank you.

Stephan B. Tanda -- President and Chief Executive Officer

Great question. I wouldn't say it's vulnerable, but the fact is if you're in the consumer-facing businesses, the changes are happening more rapidly, you have a much higher velocity of new product introductions, new projects -- that is our lifeblood, frankly. That's how we create value, by coming up with innovations that address emerging needs, being able to work with our customers to refresh their brands. So, you have a constant churn in the business by bringing in new products, which also allows you to reprice as customers look for a way to differentiate. That's the nature of the game. Also, the footprint is a much broader footprint than the Pharma footprint, so you will have many more sites with things going on.

Now, again, to -- I'll be the first one to criticize transitory costs with my guys, but the fact is if you have a fire and you restart a facility, that's not something you plan on, and the same for an acquisition ramp-up. But, I will be the first one to say you will always have some activity, some churn in those businesses. For Pharma, we are harvesting the things that have been put in place five years ago, and we are planting the seeds for what's going to drop to the bottom line five years hence. It's a very different business from a cycle point of view even though a lot of the product technology is identical. As I've said many times before, when you look at our Pharma operations, it's basically Beauty operations with a clean room over it and put to Pharma quality standards. So, the unit operations are very similar, but the timelines are completely different.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thank you, Stephan.

Operator

Thank you. Our next follow-up question is a follow-up from Mr. Chip Dillon from Vertical Research. Your line is open.

Salvator Tiano -- Vertical Research Partners -- Analyst

Hi, guys. Salvator Tiano again. I was wondering -- as you mentioned earlier, out of the 7% core sales growth, 2% was pricing. Is there any chance you could provide a breakup by segment, or at least some more color to understand where that's helped more or less?

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

The majority of that is going to be coming in the Beauty and Home segment on the pricing side, certainly with the business weighting in Latin America trending more toward the Beauty and Home. That's where we saw a lot of the inflationary passthroughs, and slightly less on the Food and Beverage side.

Salvator Tiano -- Vertical Research Partners -- Analyst

Perfect, thanks.

Operator

Thank you. I'm showing no additional audio questions in the queue at this time. I would like to turn the conference back over to Mr. Tanda for any closing remarks.

Stephan B. Tanda -- President and Chief Executive Officer

Yeah. Thank you, everybody, for joining us. We look forward to discussing more when we meet on the road.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone have a wonderful day.

Duration: 64 minutes

Call participants:

Matt DellaMaria -- Senior Vice President, Investor Relations

Stephan B. Tanda -- President and Chief Executive Officer

Robert W. Kuhn -- Executive Vice President, Chief Financial Officer, and Secretary

George Staphos -- Bank of America Merrill Lynch -- Managing Director

Matthew Krueger -- Robert W. Baird and Company -- Analyst

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Edlain Rodriguez -- UBS Investment Bank -- Analyst

Salvator Tiano -- Vertical Research Partners -- Analyst

Debbie Jones -- Deutsche Bank -- Vice President

Mark Willermans -- Bank of Montreal -- Analyst

Daniel Rizzo -- Jefferies and Company -- Analyst

Gabriel Hajde -- Wells Fargo Securities -- Analyst

Brian Rafn -- Morgan Dempsey -- Partner

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