CCL Industries Inc.

Good morning and welcome to CCO Industries second 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 Washtuck, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Thanks, Holly. Welcome everyone to our second quarter call. I'll direct everyone to page two of this presentation and your attention regarding our disclaimer for forward-looking statements. I'll 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 2024 annual report, particularly the section risks and uncertainties. Our annual and quarterly reports can be found online at the company's website, CCLIND.com or on CDARplus.ca. Moving to the next slide, a summary of financial results. For the second quarter of 2025, sales increased 4.8% with organic growth of 2%, 1% acquisition-related growth, and 1.8% positive impact from poor currency translation. resulting in sales of $1.9 billion compared to $1.8 billion in the second quarter of 2024. Operating income was $322.1 million for the 2025 second quarter compared to $303.5 million for the second quarter of 2024, a 5% increase excluding the impact of foreign currency translation. Jeff will expand on our segmented operating results for our CCL, Avery, Checkpoint, and Inovia segments momentarily. Corporate expenses were down for the 2025 second quarter compared to the prior year second quarter. Consolidated EBITDA for the 2025 second quarter, excluding the impact of foreign currency translation, increased 6% compared to the same period in 2024. Net finance expense, was $17.3 million for the second quarter of 2025, lower than the $18.6 million for the second quarter of 2024. The decrease is due to higher finance income earned on the company's cash and cash equivalents. The overall effective tax rate for the second quarter of 2025 was 25.3%, compared to an effective tax rate of 18.8%, recorded in the second quarter of 2024. Excluding the impact of the non-cash, non-taxable $78.1 million revaluation gain that was recorded in the second quarter of 2024, the effective tax rate was 24.5%. The effective tax rate may change in future periods depending on the proportion of taxable income that's earned in different tax jurisdictions at different rates. Net earnings for the 2025 second quarter was $213.1 million compared to $279.5 million for the 2024 second quarter, although the prior year second quarter included the aforementioned $78.1 million non-cash revaluation gain. Excluding this gain, net earnings for the prior year second quarter were $201.4 million. For the six-month period, sales operating income, and net income increased 6.7%, 9.1%, and 6.9% respectively, excluding the revaluation gain compared to the six-month period in 2024. 2025 included results from two acquisitions completed since January 1, 2024, delivering acquisition-related sales growth to the period of 1.2%, organic growth of 2.9%, and foreign currency translation tailwind of 2.6% to sales. Moving to the next slide, earnings per share. Basic and adjusted basic earnings per Class B share were $1.21 and $1.22, respectively, for the second quarter of 2025, compared to $1.56 and $1.13 adjusted basic earnings per Class B share for the 2024 second quarter. Adjusted earnings per Class B share increased 8% in 2025 compared to the second quarter of 2024. This 9-cent increase in adjusted basic EPS was primarily driven by improved operating income of 9 cents, favorable currency translation adding 2 cents, and reduced net finance costs adding 1 cent. These gains were partially offset by lower joint venture earnings of 2 cents and a higher income tax rate costing one cent. Moving to the next slide, our free cash flow from operations. For the second quarter of 2025, free cash flow from operations was an inflow of $226 million, compared to an inflow of $118.8 million posted in the second quarter of 2024. The increase is principally due to improved earnings, and a reduction of net capital expenditures from the second quarter of 2025 compared to the prior year's second quarter. For the trailing 12 months, June 25, free cash flow from operations was $759.8 million compared to $567.8 million for the trailing 12 months ended June 2024. This change is primarily attributable to improved adjusted earnings and reduced net capital expenditures over the comparative 12-month periods. Next slide. A return to shareholders. For the 2025 second quarter, the company repurchased approximately 1.3 million shares for $100 million. Including the 10.3% increase in our 2025 annual dividend, now through February of 25, dividends paid year-to-date have amounted to $112.1 million. for a total of $312.1 million return to shareholders. Next slide, a cash and debt summary. Net debt as of June 30th, 2025 was $1.63 billion, an increase of 15 million compared to December 31st, 2024. This increase is principally a result of higher total debt outstanding, only partially offset with an increase in cash and cash equivalents. The company's net debt increased. The balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 1.04 times at June 30th, 2025, down from 1.08 times reported at the end of December, 2024. Liquidity was robust with $963 million of cash on hand and U.S. $0.8 billion of available undrawn credit capacity in the company's revolving bank credit facility. The company's overall average finance rate was approximately 2.7% at June 30, 2025, compared to 2.6% at December 31, 2024. The company's balance sheet continues to be well-positioned as we move through the balance of 2025. Jeff, over to you.

Thank you, Sean. Good morning, everybody. On slide 8, highlights of capital spending. We spent $211 million on a disposal, year-to-date 2025, excluding the right to ask for additions and depreciation in the comparator, and we expect to spend around $485 million for the year 2025. Slide 9, highlights of the CCL quarter. Good quarter, 4.7% organic growth, and that was on top of 9% that we had in the corresponding quarter this time last year. Low single-digit growth in North America and Europe, mid-single digits in Asia Pacific, low teams in Latin America. Probability gains are strong in the HPC business and in CCL design. with Healthcare and Specialty and CCL Secure all moderately improved and moderately down in the food and beverage space. Slide 10, numbers for our joint ventures. Just point out here that background CCL is now fully consolidated, so this is just the numbers for one of our operations. Slide 11, spend a bit more time on this one, highlights for Avery. Our U.S. business was impacted by tariffs and a slow, late start to the back-to-school season, as we expected, given all the turmoil around tariffs, paths offset by growth in direct-to-consumers in North America and Europe. And down in Latin America, we are impacted by foreign exchange, especially for imported raw materials. Slide 12, checkpoint. Our MAS business had a very strong quarter in Europe and solid elsewhere. We did have some tariff impact here on products we manufacture in China and import into the U.S., much less so than Avery, but still a factor. And in the apparel label business, we had a modest decline as retailers all reconsidered the supply chain to mitigate tariff impacts, which caused quite some considerable disruption in the supply chain. With RFID growth, Although moderated, it's still positive. Slide 13, highlights for Inovia. Sales declined on lower resin cost pass-through, but it was a modest volume gain. Excellent performance again in the Americas, and improved results in the UK on the benefits of the consolidated volume from the closed plant in Belgium. Poland continued to gain share in label films, and we did start up on a very low scale The plant in Germany will re-incur $3.8 million loss with very limited revenues. Page 14, just some comments about tariffs, which I'm sure is on everybody's mind. No change in the CCL segment of Inovia products made in Mexico. They are still UCM, USMCA compliant, and therefore currently tariff-free for the U.S. But our Avery ring binders and certain ancillary products, which we also make in Mexico, incurred tariffs due to its high China content, approximately just under $4 million impact in Q2 net of price surcharges to customers. Checkpoint MAS products, the ones I just mentioned in the US, also rely on China's supply. We had a little over a million dollars started a little higher than that in the early part of the course of The price increases pretty much have taken care of it by the time we reached June, but of course the impact was a little less than a million bucks. And a million dollars or so impact across the rest of the company, primarily in suppliers changing raw material prices to reflect tariff costs of imported raw materials. We have a lot of mitigating actions underway in our supply chain, and we're using pricing surcharges with us. deemed to be appropriate. Page 15, the outlook for the coming quarter. The CCL segment, all the backlog is pretty solid going into Q3, and all that so far has been stable. Not great, but not bad either. Avery is expected to improve sequentially, and we have now got results in for our July month, which were pretty good. So certainly it feels more late than slow in the back-to-school season, but replenishment volume, which we'll have to see how that unfolds in the month of August, remains a risk. Checkpoint ALS volume is expected to pick up to the typically busy August to November fall and winter season as customers resolve their sourcing plans to deal with the tariff regimes. Zenobia should still post gains in the next quarter. German plant costs will still continue probably for at least the balance of this year and into next. FX is a modest tailwind and may even be neutral for the quarter ahead. And with that, operator, we'd like to open the call for questions.