CCL Industries Q3 Earnings Call Highlights

Key Points

• Third-quarter sales rose 12.9% to $2.22 billion, while adjusted earnings per share increased 12.4% to $1.36; organic growth, acquisitions and currency translation contributed to sales gains.
• Memory-chip shortages and higher chip costs pressured CCL Design, with some customers expecting supply constraints to continue into 2027. Management said the issue reflects supply, not end-market demand.
• Free cash flow fell to $236.5 million from $333.4 million, largely due to working-capital needs and taxes. CCL returned $692.1 million to shareholders through September via buybacks and dividends, while net debt rose to $1.76 billion.

CCL Industries TSE: CCL.A reported higher third-quarter sales and earnings as organic growth and acquisitions boosted revenue, although executives warned that memory chip shortages are weighing on its electronics customers.

Sales rose 12.9% to $2.22 billion in the third quarter of 2026 from approximately $1.97 billion a year earlier. Organic growth contributed 6.9 percentage points, acquisitions added 3.9 points and foreign currency translation provided a 2.1-point benefit, Chief Financial Officer Sean Washchuk said.

Net earnings increased to $223.6 million from $210.8 million. Adjusted earnings per Class B share rose 12.4% to $1.36 from $1.21, helped by higher operating income, a lower share count and currency translation. Higher taxes, net finance costs and corporate expenses partly offset those gains.

Operating income was $356.3 million, up from $321.8 million a year earlier. Washchuk said the latest quarter included a $2 million non-cash acquisition accounting adjustment related to inventory acquired in the Sleever transaction. Excluding that adjustment, operating income improved 11.3%, he said.

Chip Shortages Weigh on CCL Design

President and CEO Geoff Martin said the core CCL segment posted strong organic growth in North America and Europe, with profitability gains in healthcare and particularly food and beverage. Home and personal care label results were solid, but aluminum container profitability declined amid swings in metal costs.

CCL Design faced pressure from higher memory chip costs and limited chip availability for electronics customers in Asia, Martin said. The business also experienced softer automotive orders, while CCL Secure faced a difficult comparison with an unusually strong year-earlier quarter.

For the fourth quarter, Martin said orders in the core home and personal care, healthcare, and food and beverage label businesses were stable. He expects further effects from the chip supply crunch at CCL Design during what is normally a peak demand season.

“It is really a supply issue. It is not about end-use market demand,” Martin said, adding that customers’ ability to build enough inventory was constrained. Some customers expect the shortages to persist for a few quarters into 2027, although he said the timing remains unclear.

Martin said aluminum cost pass-through challenges and the year-over-year profit swing at CCL Secure together accounted for approximately 110 basis points of margin impact in the CCL segment.

Avery and Innovia Growth

At Avery, direct-to-consumer product lines posted high-single-digit growth, Martin said, with particular strength in the U.S. The North American back-to-school season went smoothly compared with the prior year, while horticulture results were stable during a seasonally slow period.

Checkpoint’s merchandise availability business had a solid quarter despite comparisons with large retailer technology rollouts a year earlier. Apparel labels improved modestly as industry demand recovered, and production of RFID inlays rose in the low teens, Martin said.

Innovia’s sales increased 24%, with a little under half of the change driven by volume and the remainder by pricing and product mix, Martin said. EcoFloat continued to gain share in Poland, while productivity initiatives helped results in the Americas.

European results were affected by customers reducing inventories of pressure-sensitive materials after a second-quarter demand spike associated with events in the Middle East. Martin expects some of that destocking to continue in the fourth quarter. He also noted that the fourth quarter is typically shorter for Innovia because of December plant shutdowns.

Cash Flow, Buybacks and Spending

Third-quarter free cash flow from operations fell to $236.5 million from $333.4 million a year earlier. Washchuk attributed the decline principally to increased working capital and taxes paid, which more than offset improved earnings.

Through Sept. 30, CCL repurchased 5.7 million shares for $508.1 million and paid $184 million in dividends, returning a combined $692.1 million to shareholders. Washchuk said the company bought another 1.3 million shares for $128.1 million from Oct. 1 through the day before the call.

Net debt stood at $1.76 billion at quarter-end, up $497.6 million from the end of 2025, primarily reflecting capital spending, acquisitions and buybacks. The company’s leverage ratio rose to 1.03 times from 0.78 times.

Martin said capital spending had reached $302 million through the third quarter and could finish $30 million to $50 million below the company’s $470 million plan for 2026. Washchuk said 2027 spending was expected to be in the neighborhood of CAD 470 million, with the budget process still underway.

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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