CCL Industries Q2 Earnings Call Highlights

Key Points

• Strong second-quarter financial performance: Sales increased 9.1% to CAD 2.11 billion, while operating income rose to CAD 350.6 million and adjusted EPS grew 10.7% to CAD 1.35, supported by organic growth, acquisitions and favorable currency translation.
• Mixed segment conditions: Core CCL businesses, Innovia and Avery posted solid growth, but Checkpoint’s U.S. merchandise-availability business faced tariff-related hard-tag weakness and excess customer inventory. Management expects sequential improvement at Checkpoint in the second half, although comparisons will remain challenging.
• Significant shareholder returns alongside higher leverage: CCL returned CAD 455.1 million through buybacks and dividends in the first half and has authorization for up to CAD 1.2 billion in additional repurchases. Net debt rose to CAD 1.74 billion, while the company maintained substantial liquidity through cash and undrawn credit capacity.

CCL Industries TSE: CCL.A reported higher second-quarter sales, operating income and adjusted earnings per share for 2026, supported by organic growth across several businesses, acquisitions and favorable foreign exchange translation. Management said demand conditions remain mixed in consumer packaged goods markets, while the company expects sequential improvement at its Checkpoint division in the second half.

Second-quarter sales rose 9.1% to CAD 2.11 billion from approximately CAD 1.93 billion a year earlier. The increase included 5% organic growth, 1.8% growth from acquisitions and a 2.3% benefit from foreign currency translation, Chief Financial Officer Sean Washchuk said.

Operating income reached CAD 350.6 million, compared with CAD 322.1 million in the prior-year period. Excluding currency translation, operating income increased about 7%, Washchuk said. The figure included CAD 1.7 million of non-cash acquisition-accounting inventory fair-value adjustments related to the Sleever transaction.

Net earnings were CAD 223.8 million, up from CAD 213.1 million a year earlier. Basic earnings per Class B share were CAD 1.31, while adjusted basic earnings per Class B share rose to CAD 1.35 from CAD 1.22. Washchuk said the 10.7% increase in adjusted earnings per share was primarily driven by improved operating income, share repurchases and foreign exchange, partly offset by a higher tax rate, lower joint-venture earnings, higher finance costs and increased corporate expenses.

Cash Flow, Buybacks and Debt

Free cash flow from operations totaled CAD 189.2 million in the quarter, down from CAD 226 million in the year-earlier period. The decline reflected higher net working capital and slightly increased capital expenditures, partly offset by lower taxes paid. Washchuk said trailing 12-month free cash flow remained near record levels.

During the first half, CCL repurchased 3.8 million shares for CAD 331.6 million. It bought an additional 700,000 shares for CAD 66.3 million between July 1 and Aug. 12 during a blackout period under its automatic share repurchase plan. Together with CAD 123.5 million in dividends paid year to date, the company returned CAD 455.1 million to shareholders.

The board has authorized management to spend up to CAD 1.2 billion on share repurchases over the 12 months beginning March 2. The company raised its annual dividend by 12.5% earlier this year.

Net debt stood at CAD 1.74 billion at June 30, up CAD 479.6 million from year-end 2025, primarily due to capital expenditures, acquisitions and share buybacks. The balance-sheet leverage ratio was approximately 1.0 times, compared with 0.78 times at Dec. 31.

In early July, the company entered a CAD 500 million delayed-draw syndicated term loan agreement. Washchuk said the facility was established as a backup ahead of bonds maturing Oct. 1, citing choppy market conditions and CCL’s status as a relatively small issuer in the bond market. Including the new term loan and its existing revolving facility, CCL had about CAD 1.25 billion of undrawn debt capacity and CAD 975.6 million of cash on hand.

Segment Trends

President and Chief Executive Officer Jeff Martin said the core CCL segment posted 3.7% organic growth, with mid-single-digit gains in North America and Asia and low-single-digit growth in Europe and Latin America. Home and personal care and food and beverage were the strongest businesses during the first half and continued to show strength entering the second half, he said.

CCL’s healthcare business remained steady, while CCL Secure is expected to produce stronger volume gains in the second half. CCL Design declined slightly excluding foreign exchange, affected by slowing automotive markets and tight memory-chip supply that has constrained customer production and prompted customer cost-cutting efforts.

Martin described consumer packaged goods volume conditions as “mixed.” He said World Cup-related promotional activity supported some food and beverage product lines during the first half, while spirits and mass beer categories had been soft. He added that some home and personal care customers were performing well while others faced more difficult conditions.

Avery delivered a stronger quarter than the prior year, without the disruption related to back-to-school loading experienced a year ago. Its RFID wristband and card business also benefited from World Cup-related promotions, while its horticultural business was stable.

Checkpoint and RFID Growth

Checkpoint’s merchandise availability solutions, or MAS, business had a difficult quarter in the U.S., while operations elsewhere were steady. Martin said the weakness was largely tied to the hard-tag business, where tariffs on China-made tags prompted price increases and changed retailer behavior. Some customers stopped using hard tags, while others shifted toward soft tags, which do not require changes to existing hardware installations.

One large soft-tag customer also found excess inventory and largely stopped ordering during the first half, Martin said. Checkpoint expects MAS to improve sequentially in the third and fourth quarters, though comparisons will remain difficult because large technology rollouts in the second half of 2025 will not recur at the same scale.

Apparel labeling improved as retail supply-chain costs eased, and RFID continued to add new apparel business. Martin said CCL’s RFID inlay operations were running at an annualized pace of about 3.5 billion units this year, compared with less than 3 billion units last year. The company is also working with customers on grocery-related RFID opportunities.

Innovia Outlook and Capital Spending

Innovia reported 25% growth, including roughly 15% from volume and 10% from pricing. Volume growth reflected share gains in the Americas, growth of EcoFloat shrink films produced in Poland and inventory buying by label converters ahead of anticipated price increases.

Martin said resin and energy inflation in Europe and Australia remained significant, though price increases, inventory building in the label industry and reduced losses at Innovia’s new German plant helped mitigate the impact. He cautioned that the inventory build is expected to reverse as the label-converter channel consumes existing stock, potentially softening demand in the second half. Continued EcoFloat growth, German plant improvement and price increases that were not fully realized in the second quarter could provide offsets.

CCL spent CAD 200 million on capital expenditures in the first half and continues to plan approximately CAD 470 million for the full year. On acquisitions, Martin said the company’s strategy remained focused on bolt-on transactions and that management was working on several opportunities.

About CCL Industries (TSE:CCL.A)

CCL Industries Inc manufactures and sells packaging and packaging-related products. The company operates through various segments, which include The CCL segment, which generates the majority of revenue, sells pressure sensitive and extruded film materials used for labels on consumer packaging, healthcare, automotive, and consumer durable products. The Avery segment sells software, labels, tags, dividers, badges, and specialty card products under the Avery brand. The Checkpoint segment includes the manufacturing and selling of technology-driven, inventory management and labeling solutions.

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