CCL Industries Inc.

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 Waschuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Good morning, everyone. Thank you, Holly. Here we are on our first quarter investor update. I'll draw everyone's attention to slide two. If I can advance the slide here. That's our disclaimer regarding forward-looking information. I'll let everyone note that our 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 CDARplus.ca. Moving to our summary of financial results, 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 the first quarter of 2025. 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 Inovia 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 the first quarter of 26 was 25.4% compared to an effective tax rate of 24.7% recorded in the first quarter of 25 due to an increase in taxable income and higher tax jurisdictions. Gift. 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 four, earnings per share. 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 the first quarter of 2025. The $0.02 increase in adjusted basic earnings per share was primarily driven by $0.02 from reduced share count one cent from reduced interest expenses offset by a one 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. The slight decrease is principally due to an increase in net working capital, part offset by lower net capex and taxes paid for the first quarter of 26 compared to the prior year first quarter. For the trailing 12 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 2nd to the end of the quarter, March 31st, 2026, the company repurchased approximately 779,000 shares for $67.5 million. In addition, during the blackout period April 1st 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 course 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 31st, 2026 was $1.38 billion, an increase of $115.3 million compared to December 31st, 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 at March 31st, 2026, up from 0.78 times reported at December 31st, 2025. Liquidity was robust, with nearly $1 billion of cash on hand and $949 million U.S. of available undrawn credit capacity in our revolving credit facility. The company's overall average finance rate was approximately 2.5% at March 31st, same as December 31st, 25. The company's balance sheet continues to be well positioned as we move through 2026. Jeff, over to you.

Thank you, Sean. Good morning, everybody. I'm on slide eight, highlights for capital spending for the year. A little under $100 million spent in the first quarter. We're planning to spend $470 million for the year of 2026. Slide nine, 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 on healthcare and specialty, and had a strong recovery in food and beverage from recent period of soft-gons. But HPC profits were down under 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, but 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's supply chain. RFID inlay sales are still, however, up in a down market, but Mexican startup losses in our new plant may continue. Slide 12 highlights Renovia. Strong results in our Polish operation, where we make a lot of label films. Good growth there, including good success with Ecofloat. Volume, however, declined from our UK and Australian plants. The deliveries to the Middle East also impeded. The new German plant start-up costs sequentially declined. Very solid quarter in North America, modestly below a very robust prior year period. Outlook for the coming quarter. The overall CCO segment orders are solid, but we have significant inflation to manage, which we'll talk about on the Q&A session, and the sleeper acquisition is due to close late this quarter, probably in June. Avery-directed 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. Innovative demand was strong in April on buy-forward activity in the labor 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, would you like to open up for questions?

Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 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.

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?

Well, I'll deal with the first part of that question. Aluminum hit $6,000 a ton a few weeks ago. We have good pass-through mechanisms in that business, but it will affect demand for our products. We haven't seen any change to that as we stand, but it's at a 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 there'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 a ton. The other area of weaknesses in Europe where the resin markets have really escalated pretty significantly, a stress mainly in Europe. We've seen some increases in the U.S., but not to the same extent as we've seen in Europe. There, 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 CPG space has been quite reasonable in the first quarter. All the 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, only time will tell. We're looking to see what happens with that, same as everybody else is.

Okay. Thanks for that detail, Jeff. On the M&A front, between Sleever and the other acquisition, you have about 180 million a year marked for acquisitions in Q2. That's small relative to your liquidity position. Can you give some context on your appetite for more M&A and the depth of the evolving opportunity set?

Well, we're always interested in M&A. That's our priority 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. Thanks. No problem.

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

Hi. Good morning. Jeff, I appreciate at Inovio the focus is 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. I'm just wondering if you could quantify that.

I can't really quantify it, but I can tell you our orders have been up pretty significantly for 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 for people, label converters to buy forward. And that feeds back into Inovia. So we'll just have to wait and see. The older 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.

All right. Fair enough. And 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 and whether you think you're gaining share in this market.

Well, 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'll 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.

Great. Thanks. That's all I had. I'll turn it over.

Your next question for today is from Hamed Abdullah with 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?

US dollars, $5 million.

$5 million. Okay, thanks. And just on Inovia, can you give us an update on the utilization ramp and profitability trajectory of the new thing gauge line in Germany? And when do you expect that asset to start contributing positively to segment margins?

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

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 duty markets, while mass market demand remained resilient. Are you seeing a broader consumer trade-down dynamic across the categories you're in?

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. So the first quarter for that was slow. It has picked up in Q2, I can tell you that. So it may have been a 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.

Okay. That's helpful. Okay. I'll pass the line. Thank you very much. All right.

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

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?

Well, 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 the 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 U.S., So the focus for us is really around, particularly around Western Europe in the label space. It's a finesse pass through, really.

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

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

And then just on Checkpoint, can you just frame the – 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?

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

Okay. Thank you.

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

Hey, good morning. I just wanted to circle back to the 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 a little single digits, but is there any chance you can detail for us what your footprint looks like in the region?

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, a 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.

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?

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, and that now seems to have fallen by the wayside. That's good news for us and our customers.

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?

Well, we've localized more of the production into our operations in Mexico, the raw material supplies. We managed to localize that to a sufficient enough extent where we can claim USMCA 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 seemed to be onshore. So that's why we have greater confidence in back-to-school.

Great. That's all for me. Thank you.

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

Oh, great. Thank you. Yeah, a couple questions. So just on the RFA growth, I guess we should assume it was probably in the single-digit range, right, for the quarter for you?

The inlay growth was actually double digits, but most of it occurred in the non-apparel space.

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

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 certainly wasn't down by much. I characterize it as slattish.

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

Well, we're still a small player, so it's probably more around the law of small numbers more than anything.

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?

It wasn't too bad. It was down about 3% in organic sales, down a little bit in profit, but it was more than compensated by growth in electronics.

Okay.

We did have one customer in Germany go bankrupt on us, so that was most of the profit problem. It's more triggered by customer bankruptcy, but it's an indication of softness in the industry in general.

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

That's correct.

Yeah. Okay.

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

Okay. Okay. So outside of that one customer, would you say your CCO, like the automotive part of CCO design was maybe flat in the quarter?

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

Okay. And any idea when you think that might improve?

In automotive? Yeah. Your guess is as good as mine.

Okay.

I mean, 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. I mean, we'll 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 $300 million, $400 million annually. So it's not material to the whole company.

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

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

Thank you. Good morning, guys. Morning, Steve. 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?

Well, the cons get easier in the second half. We know that. But, you know, 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 in newspapers the same as everybody else. When you see gasoline at $5 and $6 a gallon in the U.S., That perturbs you to the extent of worrying, well, what effect will that have on consumer spending long-term? But so far, we haven't seen much.

Yeah. Okay. No, that's helpful. And then, you know, just when you think about all the inflation 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?

Yeah, we've got fairly good pass-throughs, but there's always a bit of a lag. So we'll see in this quarter 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. 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 four to six weeks backlog, we haven't seen much change in circumstance so far.

Okay, that's helpful. Thank you, Jeff. And maybe just one for Sean. Sean, you mentioned 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 call, Art.

No problem.

Once again, if you would like to ask a question, please press star 1. Your next question for today is from Daryl Young with Stiefel.

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 be starting to pursue around that.

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 Checkpoint, the apparel label business of Checkpoint, which are, you know, a billion, billion four, billion five 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.

Got it. Okay. Thanks very much. No problem.

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

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.

This concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.