CCL INDUSTRIES INC (TSX:CCL) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.

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The full earnings call is available at https://www.webcaster5.com/Webcast/Page/2807/53891

Summary

CCL.A reported a 2.8% increase in sales for Q1 2026, driven by organic growth and acquisitions, reaching $1.94 billion.

Operating income rose marginally by 0.2% to $317.5 million, with EBITDA excluding foreign currency impacts up by 1%.

Net earnings slightly declined to $204.9 million, with a slight increase in the effective tax rate to 25.4%.

The company initiated an automatic share repurchase plan and returned $129.8 million to shareholders in Q1, with plans to repurchase up to $1.2 billion in shares over the next year.

Net debt increased to $1.38 billion due to capital expenditures and share buybacks, but liquidity remains strong with nearly $1 billion cash on hand.

CCL segment showed solid organic growth, especially in Asia Pacific, while Avery had strong direct-to-consumer growth, notably in RFID products.

Challenges in Europe due to resin price increases and a bankruptcy in the auto sector affected results, but overall demand remains stable.

The company is managing inflationary pressures through pass-through mechanisms and remains optimistic about demand in key segments like RFID.

Management expects continued solid order flow but acknowledges uncertainties due to inflation and potential macroeconomic impacts.

Full Transcript

OPERATOR

Good morning and welcome to CCL Industries' 2026 first quarter investor update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Jeff Martin, President and Chief Executive Officer, and Joining him is Mr. Sean Woschuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Sean Woschuk (Senior Vice President and Chief Financial Officer)

Good morning everyone. Thank you, Holly. Here we are on our first quarter investor update. I will draw everyone's attention to slide 2. I can advance the slide here. That's our disclaimer regarding forward looking information. I'll let everyone note there are risks and uncertainties and opportunities are under our annual MD&A and our first quarter 2026 report, particularly under the section Risks and Uncertainties. Our annual and quarterly reports can be found online at the company's website, cclind.com or on Sedarplus CA. Moving to our summary of financial results to slide number three. For the first quarter of 2026, sales increased 2.8% with 1.9% organic growth, 0.3% acquisition related growth and 0.6% positive impact from foreign currency translation, resulting in sales of $1.94 billion compared to approximately $1.89 billion in 1Q25. Operating income was $317.5 million for the 2026 first quarter compared to $316.9 million for the first quarter of 2025, an improvement of 0.2%. Jeff will expand on the segmented operating results of our ccl, Avery Check Point and Innovia segments. Momentarily, corporate expenses were down for the 2026 first quarter compared to the prior year first quarter due to lower variable compensation expenses. Consolidated EBITDA for the 2026 first quarter, excluding the impact of foreign currency translation, increased 1% compared to the same period in 2025. Net finance expense was $16.7 million for the first quarter of 2026 lower than the $18.5 million for the first quarter of 2025. The decrease is due to higher finance income earned on the company's cash and cash equivalents and a reduction of finance costs on the company's drawn bank debt. The overall effective tax rate for 1Q26 was 25.4% compared to an effective tax rate of 24.7% recorded in 1Q25 due to an increase in taxable income and higher tax jurisdictions. The effective tax rate may change in future periods depending on the proportion of taxable income earned in different tax jurisdictions with different rates. Net earnings for the 2026 first quarter was $204.9 million compared to $207.4 million for the 2025 first quarter. Moving to Slide 4 earnings per share basic and adjusted basic earnings per Class b share were $1.18 and $1.20 respectively for the 2026 first quarter compared to $1.18 basic and adjusted basic Earnings per class B share for the 2025 first quarter, adjusted earnings per Class B share increased 1.7% compared to 1Q20. The 2 cent increase in adjusted basic earnings per share was primarily driven by 2 cents from reduced share count, 1 cent from reduced interest expenses, offset by a 1 cent increase from our tax rate. Moving to the Next Slide Free Cash Flow from operations for the first quarter of 2026, free cash flow from operations was an inflow of $37.3 million, almost equal to the inflow of $39.1 million posted for the first quarter of 2025. This slight decrease is principally due to an increase in net working capital part offset by lower net capex and taxes paid for 1Q26 compared to the prior year. First Quarter for the trailing twelve months, our free cash flow from operations remains near record levels. Moving to the Next Slide Returns to shareholders during the first quarter of 2026, the company moved from a discretionary share buyback to an automatic share repurchase plan. Therefore, commencing March 2 to the end of the quarter March 31, 2026, the company repurchased approximately 779,000 shares for $67.5 million. In addition, during the blackout period April 1 until yesterday, the company also repurchased an additional 1.4 million shares for $119.5 million, including the 12.5% increase in the 2026 annual dividend that we announced in February. Dividends paid for the quarter amounted to $62.3 million, for a total of $129.8 million returned to shareholders during the quarter. It's the Company's expectation that more will be returned to shareholders in 2026 as the automatic share repurchase plan is active in the market daily, including blackout periods where we were previously restricted in 2025 due to our normal court's issuer bid being discretionary. Our Board of Directors has authorized management commencing March 2, 2026 to purchase up to $1.2 billion of shares over the next 12 month period. Moving to our next slide Cash and Debt Summary Net Debt as at March 31, 2026 was $1.38 billion, an increase of $115.3 million compared to December 31, 2025. This increase is principally a result of higher total debt outstanding due to capital expenditures and share buyback activities. Despite the increase in the company's net debt, the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 0.8 times on March 31, 2026, up from 0.78 times reported at 25-12-31. Liquidity was robust with nearly $1 billion of cash on hand and $949 million US of available undrawn credit capacity in our revolving credit facility. The company's overall average finance rate was approximately 2.5% on March 31, same as 12-31-25. The company's balance sheet continues to be well positioned as we move through 2026. Jeff, over to you.

Jeff Martin (President and Chief Executive Officer)

Thank you, Sean Good morning everybody. I'm on Slide 8 highlights for capital spending for the year. Little under 100 million spent in the first quarter. We're planning to spend 470 million for the year of 2026. Slide 9 highlights for the CCL segment: solid 3.1% organic growth driven by low single digit decline in North America and the Middle East, Mid single digit growth in Europe and Latin America and Asia Pacific where we were very strong due to CCL design up in the mid teens. We had good results at CCL Design, CCL Secure and Healthcare and Specialty and had a strong recovery in food and beverage from recent period of soft comps. But HPC profits were down on the capacity interruption we mentioned in the press Release at our U.S. aluminum container plant and slow tube sales. Labels for mass markets were solid globally with strong results in Europe and Asia. Slide 10 Highlights for Avery Strong calls for the direct to consumer space globally, especially RFID enabled cards and wristbands and recent acquisitions are also performing back to school orders. We expect to be up a little this year and that's to say they're now tariff free unlike last year and we saw solid progress in horticulture checkpoint segment. The MAS business had another good quarter in Europe. It was weak in the Americas and also a little slower in the Asia Pacific region. Apparel label results were impacted by an abundance of inventory caution across the industry supply chain. RFID inlay sales are still however up in a down market, but Mexican startup losses and our new plant there continue. Slide 12 Highlights for Innovia Strong results in our Polish operation where we make a lot of label films. Good growth there including good success with ecofloat volume. However decline from our UK and Australian plants and deliveries to the Middle east also impeded the new German plant startup costs sequentially declined Very solid quarter in North America, modestly below a very robust prior year period outlook for the coming quarter. The overall CCL segment orders are solid, but we have significant inflation to manage, which we'll talk about on the Q and A session. And the Sleever acquisition is due to close late this quarter, probably in June. Avery Direct to Consumer growth is due to continue. Apparel orders are expected to improve in coming quarters at Checkpoint, and our confidence in RFID remains very solid. Inovia demand was strong in April on Buy Forward activity in the label materials supply chain that could aid Q2 but potentially hurt Q3 as buy forward activities normalize. As things progress, FX looks decidedly neutral for the coming quarter. So with that operator we'd like to open up for questions.

OPERATOR

Certainly at this time we will be conducting a question and answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Your first question for today is from Sean Stewart with TD Cowan.

Sean Stewart (Equity Analyst at TD Cowan)

Thank you. Good morning everyone. A couple of questions. Good morning Jeff. Hoping you can give context on the inflationary environment you mentioned,. I guess from two perspectives. It's our impression that you guys have a lot of pass through mechanisms, but we're a few months into this now. Can you give some context on inflation across the system and how those pass through mechanisms are working? And then on the demand side, are you seeing any evidence of broader macro concerns starting to feed into demand pressure at all?

Jeff Martin (President and Chief Executive Officer)

Well, I'll deal with the first part of that question. Aluminum hit $6,000 a tonne a few weeks ago. We have good pass through mechanisms in that business. Whether it'll affect demand for our products. We haven't seen any change to that as we stand, but it's at the very elevated rate compared to historical levels. But the pass through mechanisms are pretty robust and are in process. There's a bit of a lag, so some of the customers have 90 day averages. Some of them are immediate, some of them have no gain, no pain clauses. So it's a bit of a mix, but it's generally speaking a bit of a lag when you get a big increase. But that will probably pass as we accelerate through Q2, as long as aluminum doesn't go to $7,000 or so. The other area of weakness is in Europe where the resin markets have really escalated pretty significantly. Stress mainly in Europe. We've seen some increases in the us, but not to the same extent as we've seen in Europe. The past three mechanisms are much more mixed, so it's much more by negotiation. But everyone has been declaring price increases. So we're pretty sure we know what the customers are expecting and we're expecting to see that margin still stay stable as the quarter progresses. The the CPG space has been quite reasonable in the first quarter. Orders have been okay and you've seen the results from all of our customers. They've been pretty solid with volume increases. Whether that will continue in the light of gasoline prices, any time will tell. We're looking to see what happens with that, same as everybody else does.

Sean Stewart (Equity Analyst at TD Cowan)

Thanks for that detail. Jeff. On the MA front, between Sliever and the other acquisition, you have about $180 million earmarked for acquisitions in Q2. That's small relative to your liquidity position. Can you give some context on your appetite for more MA and the depth of the evolving opportunity set?

Jeff Martin (President and Chief Executive Officer)

Well, we're always interested in ma. That's our priority for for excess free cash flow. But I haven't got anything more to add than that. We still have a pipeline and we'll see what happens as the year progresses. Okay. Okay, that's all I have for now. Thank you very much.

Hamir Patel (Equity Analyst at CIBC Capital Markets)

Your next question is from Hamir Patel with CIBC Capital Markets.

Jeff Martin (President and Chief Executive Officer)

Hi, good morning, Jeff. Appreciate Innovia focuses more on EBITDA dollars than margins, but how should we think about the scale of price comps that you're likely to realize here in Q2 just given the resin headwinds you mentioned. And also I know the prepared remarks referenced a potential volume pull forward from Q3. Just wondering if you could quantify that.

Hamir Patel (Equity Analyst at CIBC Capital Markets)

I can't really quantify it, but I can tell you our orders have been up pretty significantly late March and through most of April so far and also in the early part of May. So how much of that is dollar price increases? How much of that is buying forward ahead of worries about further price increases? Legal materials industry has announced price increases ahead of implementing them. That always triggers demand to people. They will convert us to buy forward and that feeds back into Innovia. So we'll just have to wait and see. The order situation has been very strong, but we know it's not demand based. It's definitely all activity around the current price activity in the channel.

Jeff Martin (President and Chief Executive Officer)

All right, fair enough. I just want to ask on rfid, you sounded confident on the growth there. Maybe if you could speak to your expectations on market growth this year and whether you think you're gaining share in this market.

Hamir Patel (Equity Analyst at CIBC Capital Markets)

The market declined last year. So the numbers of RFID inlays produced by the industry last year declined for the first time in many years. And that was all driven by the changes in the apparel channel. It's stabilized now. We think it will return to growth, maybe even in the coming quarter. We did actually grow a bit in terms of the number of inlays produced across the board, both in apparel and outside of apparel. So that's why we still have great confidence that the business will still grow. It's definitely took a knock in the apparel space for sure.

Hamed Abdullah (Equity Analyst at National Bank of Canada)

Okay, great. Thanks. That's all I had. I'll turn it over.

Jeff Martin (President and Chief Executive Officer)

Your next question for today is from Hamed Abdullah with National bank of Canada.

Hamed Abdullah (Equity Analyst at National Bank of Canada)

Yeah, good morning and thanks for taking my question. Can you quantify the financial impact from the thermal oxidizer outage at the Pennsylvania facility and how much insurance recovery you expect to recognize over the balance of the year?

Jeff Martin (President and Chief Executive Officer)

US dollars five million.

Hamed Abdullah (Equity Analyst at National Bank of Canada)

Five million. Okay, thanks. And just on Innovia, can you give us an update on the utilization ramp and profitability trajectory of the new cengage line in Germany and when do you expect that asset to start contributing positively to segment margins?

Jeff Martin (President and Chief Executive Officer)

Well, I think it'll be a while before that happens. But the pipeline, the order pipeline is progressing quite nicely. Takes a long time to get approvals to switch, as you can see, testing and all the rest of it. But we're quite pleased with the pipeline progress. How soon we'll move into positive, more focused on positive cash flow at the moment. So as soon as EBITDA is positive, we'll let you know that. But I think that'll be a quarter or two before that happens. But before we get EBIT contribution, I think that will be small to limited this year. Should be very different picture in 2027.

Hamed Abdullah (Equity Analyst at National Bank of Canada)

Okay, that's great. And just if I can squeeze in just a follow up on the demand question. At ccl, you referenced softness in higher end beauty markets while mass market demand remained resilient. Are you seeing a broader consumer trade down dynamic across the categories you're in?

Jeff Martin (President and Chief Executive Officer)

I wouldn't call it trade down. It's just that certain categories of products in the high end beauty space, we've definitely seen some impact in those areas in some Specialty brand owners. First quarter for that was slow. It has picked up in Q2. so it may have been situation around excess inventories at holiday last year, I don't know. But it was certainly slow in Q1. It's picked up a bit in Q2, but things like shampoos, skin cares, deodorants, things of that order, everyday items. That's been pretty solid.

Hamed Abdullah (Equity Analyst at National Bank of Canada)

Okay, that's helpful. Okay, I'll pass the line. Thank you very much.

Michael Glenn (Equity Analyst at Raymond James)

Your next question is coming from Michael Glenn with Raymond James.

Jeff Martin (President and Chief Executive Officer)

Hey, good morning, Jeff. Can you just maybe remind us for the label business specifically how some of the inflation and pass through mechanisms work in those product lines?

Michael Glenn (Equity Analyst at Raymond James)

We have tens of thousands of SKUs in the label space, probably hundreds of thousands actually. So a lot of it's done with spot changes. So things are changing all the time, the designs and shapes and sizes. So a lot of it's finesse pass through. Some of it is more where the labels exist in a more continuous form that we have pass through arrangements for. And I just want to stress the heavy area of inflation is in Europe. We aren't seeing that anywhere near the same extent in either Asia, Latin America or Europe or the US So that's. So the focus for us is really around, particularly around Western Europe in the label space and to what degree. It's a nice pass through really.

Jeff Martin (President and Chief Executive Officer)

And as we see resin prices increase specifically, does that naturally lead to flow through on your label input cost?

Michael Glenn (Equity Analyst at Raymond James)

Yeah, absolutely. So it goes from the resin to the film producers, including Innovia and other producers, into the laminators and then out to us. And it happens pretty quick.

Jeff Martin (President and Chief Executive Officer)

Okay, and then just on checkpoint. Can you just frame. You did have very modest organic growth in the segment, but margins were down. What is the big item that is overhanging margins in checkpoint in Q1?

Michael Glenn (Equity Analyst at Raymond James)

It's really weakness in the MAS business in the United States.

Arthur Nagorny (Equity Analyst at RBC Capital Markets)

Okay. Okay, thank you.

Jeff Martin (President and Chief Executive Officer)

Your next question is from Arthur Nagorny with RBC Capital Markets.

Arthur Nagorny (Equity Analyst at RBC Capital Markets)

Hey, good morning. I just wanted to circle back to disruption in the Middle East. It doesn't seem like you had material direct exposure. I think you called that CCL segment organic growth in the region down only low single digits. But is there any chance you can detail for us what your footprint looks like in the region?

Jeff Martin (President and Chief Executive Officer)

Well, we have plants in Egypt which are obviously not really affected by the turmoil there. That's where our biggest operation is. We have a plant in Dubai, plant in Saudi Arabia, a very small plant in Oman, and a plant in Pakistan. That's what we Refer to as the Middle east. And it was very low single digit decline. It was almost flat actually. So we've seen very limited disruption in the CPG space in those businesses since the trouble started.

Arthur Nagorny (Equity Analyst at RBC Capital Markets)

Okay, that's helpful. And then I don't think you'd have any meaningful exposure here, but figured I'd ask anyways. On the Section 232 tariff update that was announced a few weeks ago, would you have any exposure maybe in the aluminum cans business or anything else for us to kind of keep in mind there?

Jeff Martin (President and Chief Executive Officer)

Yeah. So the Section 232 tariff changes really eliminated the potential to be charged for empty cans crossing the border. So filled cans were tariff free. Empty cans, they tried to get those to be subject to a tariff that now seems to have fallen by the wayside. That's good news for us and our customers.

Arthur Nagorny (Equity Analyst at RBC Capital Markets)

Got it. And then maybe switching over to Avery, you noted that the back to school season is expected to be tariff free this time around. Can you maybe just detail what your supply chain exposure looks like at this point in time?

Jeff Martin (President and Chief Executive Officer)

Well, we've localized more of the production into our operation in Mexico, raw material supplies. We managed to localize that to a sufficient extent where we can claim USMCO status. And that's now been documented and agreed. And one or two leading retailers in the US decided not to take supply chain risk from Asia this summer and opted to have brands that were esteemed onshore. That's why we have greater confidence in back to school.

Arthur Nagorny (Equity Analyst at RBC Capital Markets)

That's all for me, thank you.

David McFadden (Equity Analyst at ATB Cormark)

Your next question for today is from David McFadden with ATB Cormark.

Jeff Martin (President and Chief Executive Officer)

Oh, great. Thank you. Yeah, a couple questions. So just on the RFID growth, I guess we should assume that was probably in the single digit range, Right.

David McFadden (Equity Analyst at ATB Cormark)

For the quarter for you, the inlay growth was actually double digits, but most of it occurred in the non apparel space.

Jeff Martin (President and Chief Executive Officer)

Okay, well that's great. And the ARFID market itself, that RFID market itself, that was down right in the quarter, you would think.

David McFadden (Equity Analyst at ATB Cormark)

The year of 2025 was down for sure. You're talking about the whole market? Yes, for sure it was down. Q1, 2026, it was down. It wasn't down by much. I characterize it as flattish.

Jeff Martin (President and Chief Executive Officer)

Okay. And so what would you attribute to your say, outperformance in the market?

David McFadden (Equity Analyst at ATB Cormark)

Well, we're not, you know, we're still a small player, so it's probably more around the law of small numbers more than anything.

Jeff Martin (President and Chief Executive Officer)

Okay. And then just moving to the CCL segment. So the design. Well, it was the auto was weak within CCL design. So how soft was that in the quarter?

David McFadden (Equity Analyst at ATB Cormark)

about 3% in organic sales, down a little bit in profit. It was more than compensated by growth in electronics. We did have one customer in Germany go bankrupt on us, so that cost us. That was most of the profit problem. It was more triggered by customer bankruptcy. But it's an indication of softness in the industry in general.

Jeff Martin (President and Chief Executive Officer)

Okay, so given that, then you're probably going to face that for the next few quarters to lap that event, right?

David McFadden (Equity Analyst at ATB Cormark)

I think it's still going to be offset by growth in electronics.

Jeff Martin (President and Chief Executive Officer)

Okay. Okay. So outside of that one customer, would you say your ccl, like the automotive part of CTL design, was maybe flat and recorded?

David McFadden (Equity Analyst at ATB Cormark)

Not flat in sales, down in sales, close to flat in profit, excluding that one problem.

Jeff Martin (President and Chief Executive Officer)

Okay. And any idea when you think that might improve

Steven McLeod (Equity Analyst at BMO Capital Markets)

in automotive? Yeah, your guess is as good as mine. There's a lot of speculation about automotive right now, so I think it wouldn't be wise for me to comment about what's going on with our customers. Just have to wait and see. But in the label business in that space, we're still growing, so we're still encouraged by that. And it's not a huge business for us. It's on the order of 3,400 million dollars annually. So it's not material to the whole company.

Jeff Martin (President and Chief Executive Officer)

Okay. All right, that's it for me. Thank you. No problem.

Steven McLeod (Equity Analyst at BMO Capital Markets)

Your next question is from Steven McLeod with BMO Capital Markets.

Jeff Martin (President and Chief Executive Officer)

Thank you. Good morning, guys. Morning, Jeff. Just on the CCL segment, you know, the outlook was certainly quite constructive and I'm just wondering, certainly on the top line, I'm just wondering, do you still expect sort of full year organic sales growth in that kind of low to mid single digit range?

OPERATOR

Well, the comps get easier in the second half, we know that. But it's a pretty uncertain situation we face, Steve, with what's going on in the Middle East. So we don't really know what the impact of all that's going to be on consumer behavior. That we have to wait and see. But we haven't seen any signs of weakness yet in terms of business levels of our customers. But we read the newspapers the same as everybody else. When you see gasoline at five and six dollars a gallon in the US that perturbs you to the extent of worrying what effect will that have on consumer spending long term. But so far we haven't seen much.

Jeff Martin (President and Chief Executive Officer)

Yeah, okay. That's helpful. And then just when you think about all the inflation and that you referenced earlier and that obviously we can all see, but when you think about the CCL segment, is it fair to assume that you'd see sort of a more minimal or more moderate impact to margins from inflation just because of your pass through mechanisms and the flow through?

OPERATOR

Yeah, we've got fairly good pass throughs, but there's always a bit of a lag. So we'll see in this quarter if how much impact of that there really is. We've been out putting in surcharges and price increases where that's necessary and pulling our supply chain levers, renegotiating with suppliers and doing all the things you do in situations like this. And we'll just have to wait and see. I'm not going to speculate on what may or may not happen this quarter or the rest of the year. All I can tell you is right now, in a business where we have, you know, four to six weeks backlog, we haven't seen much change in circumstance so far.

B

Okay, that's helpful. Thank you, Jeff. And maybe just one for Sean. Sean, you mentioned you know, you now have the automatic buyback in place. So do you just expect to execute on that as the year progresses? Naturally? Yep. I think, you know, if you look at our monthly reports that get filed, you'll see us in the market each day buying a quantity of shares, depending where the share price is. So as the share price moves up, we'll buy a little less. As it moves down, we'll buy a little bit more. But we'll be active and supporting the stock daily. Right. Okay, great. Thanks guys. Appreciate the color.

A

Once again, if you would like to ask a question, please press Star one. Your next question for today is from Darrell Young with Stifel.

B

Hey, good morning everyone. I just wanted to ask one higher level question around AI Given it's the soup du jour, I would think your business is very well insulated from any disintermediation or disruption risk. But I was just curious if you're seeing any opportunities to implement efficiencies or cost saving exercises you might starting to pursue around that.

C

Well, technology tends to affect the design process first. In any technology revolution that's where we see it happening first. So I think we're more likely to see that in the design intense businesses we have which are really Avery and Check Point, the apparel label business of Check point, which are billion 4 billion 5 of our revenues. So that's to give you a flavor for that. And we're as intrigued by the productivity impact of AI as everybody is. But it's still early days. Okay. Thanks very much.

A

We have reached the end of the question and answer session, and I will now turn the call over to Jeff for closing remarks.

C

Thank you, Holly. And thank you, everybody, for attending the call. We'll see you again in the summer. We'll hopefully have warmer weather than we've had this spring. Thank you very much.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.