CCL Industries Inc.

Good morning and welcome to CCL Industries Third 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 Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Thank you, Holly. Good morning, everyone. Welcome to our third quarter call. We're here in Sioux Falls, South Dakota at our food and beverage facility. I'll draw everyone's attention to slide number two, our disclaimer regarding forward-looking information. I will remind everyone that our business faces known and unknown risks and opportunities. For further details of these key risks, please take a look at our 2023 annual report under the section Risks and Uncertainties. Our annual and quarterly reports can be found online at the company's website, CCLIND.com, or at CDARplus.ca. Moving to our summary of financial information, for the third quarter of 2024, sales increased 9.4%, with 6.9% organic growth, 1.8% acquisition-related growth, and 0.7% positive impact from foreign currency translation, resulting in sales of $1.85 billion compared to $1.69 billion in the third quarter of 2023. Operating income was $288.9 million for the 2024 third quarter compared to $256.1 million for the third quarter of 2023, a 13% increase excluding the impact of foreign currency translation. Jeff will expand on our segmented operating results in a moment for both CCL, Avery, Check Point, and Inovia segments. Corporate expenses were up slightly for the quarter due to short-term variable compensation versus the prior year quarter. Consolidated EBITDA for the 2024 third quarter, excluding the impact of foreign currency translation, increased 11% compared to the same period in 2023. Net finance expense was $19.3 million for the third quarter of 2024, compared to $20.3 million for the 2023 third quarter, down primarily due to a decrease in variable interest rates and a reduction of drawn debt. The overall effective tax rate was 24.5% for the 2024 third quarter, equal to the effective tax rate recorded in the third quarter of 2023. 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 2024 third quarter were $191.7 million compared to $169.1 million for the 2023 third quarter. For the nine-month period, sales, operating income, and net income increased 8%, 16%, and 36%, respectively, compared to the nine-month period in 2023. 2024 included results from nine acquisitions completed since January 1st, 2023, delivering acquisition-related sales growth through the period of 2.6%, organic growth of 5.8%, and foreign currency translation tailwind of 0.5% to sales. Furthermore, net income included a $78 million non-tax non-cash revaluation gain recorded in the second quarter of this year when we acquired the final 50% interest in the Pac-Man CCL joint venture, now fully consolidated. Moving to the earnings per share slide. Basic earnings per Class B share were $1.08 for the 2024 third quarter compared to $0.95 for the 2023 third quarter. adjusted for one cent of restructuring and other expenses, resulting in adjusted earnings per Class B share of $1.09, an improvement of 14.7% compared to $0.95 for the third quarter of 2023. The change in adjusted basic earnings per share of $0.14 is principally attributable to an improvement in operating income, accounting for $0.15, and the combination of interest expense pickup net against joint venture equity earnings and the negative impact of currency translation, summing to a one cent reduction. Moving to slide five. For the third quarter of 2024, free cash flow from operations was an inflow of $233 million, ahead of the $182 million posted in the 2023 third quarter. For the trailing 12 months ended September 30th, 2024, free cash flow from operations was $618.6 million compared to $557.4 for the comparable 2023 period. This change is primarily attributable to an increase in cash provided by operating activities, which was generated by improved adjusted earnings. Moving to our cash and debt summary, net debt as at September 30th, 2024, was $1.68 billion, an increase of $167.6 million compared to December 31st, 2023. The increase is a result of funds used for capital expenditures, business acquisitions, and share buybacks. Total share buyback for the quarter was approximately 1.29 million shares for $100 million summing to 1,852,488 shares and $140.6 million year-to-date September 30, 2024. Although the company's net debt increased, the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was 1.14 times up slightly from 1.13 times reported at the end of December 2023. Liquidity was robust. with $760 million of cash on hand, U.S. $0.9 billion of available undrawn credit capacity in our revolving credit facility. The company's overall average finance rate was 2.8% at September 30th, the same as December 31st, 2023. The balance sheet continues to be well positioned as we move through fiscal 24 and into 25. Jeff, over to you.

Thank you, Sean. Good morning, everybody. I'm on slide seven, highlights of capital spending, $409 million for the year so far. We expect to spend around $465 million for 2024. Moving to slide eight, some investment highlights of what we've been putting that money into. In Lumberton, New Jersey, we're just completing now, in addition to the site there, a very large addition that will allow us to consolidate tube labeling and tube extrusion under one roof for some large customers. In Spain, we've opened a new shrink sleeve plant to supply consumer packaged goods customers in the Iberian Peninsula. And in Bangladesh, we've completed a significant expansion at Checkpoint. The country is the world's second largest sourcing country for apparel about $7 million so far in 2024. Slide 9 highlights for CCL for the quarter, 4.9% organic growth, up mid-single digits in Europe, high single digits in Latin America, double digits in Asia Pacific, and up slightly in North America. Profitability gains are strong in home and personal care and CCL design, modestly lower in food and beverage and healthcare and specialty. but markedly reduced at CCL Secure where we faced tough comps to a strong prior year. Slide 10, highlights for the joint ventures which now exclude Pac-Man CCL for the quarter but still have four months results in the nine month period. Moving to slide 11, highlights for Avery. End of the back to school season was came quite early, but growth in the direct-to-consumer badges and cards segment drove performance in North America. We had solid progress in Europe and Latin America, but Australia was soft, and the horticultural markets in both sides of the Atlantic were in their low off-season. Slide 12, best-performing business for sure. In the quarter was Checkpoint, a very good quarter in the MAS business with solid gains in sales and profitability, but the standout numbers came from the ALS part of the business with over 30% organic sales growth aided by RFID wins and retailer inventory normalization. That drove significant profit gains in that part of the company. Also strong with the results from Inovia on slide 13, Sales growth was aided by label materials industry recovery in North America and Europe and some share gain in North America. Strong operating performance in the Americas in general and transition benefits still to come from the Belgian closure in Europe and Australia, which completed as the quarter concluded. Echo sales in Poland continued to build very nicely. Slide 14, some outlook comments. Label and packaging businesses face higher hurdles in this quarter, and we have a few new plant startup costs to incur. But the quarter has started off pretty well. We had a good October, better than we had actually thought at the beginning of the quarter. CCL design laps a lengthy period of easy comps, and the automotive industry, as we all know, is slowing somewhat. CCL Secure will sequentially improve in Q4. We expect Avery to be stable. Checkpoint RFID growth is expected to continue, and as is the Inovia recovery, especially in the label material segment. And FX, we think at current rates, would be a modest tailwind, although it was a slight drag in the current quarter. So with that, operator, we'd like to open up the call for questions.