CCL Industries Inc.

Good morning and welcome to CCL Industries' 2026 Second Quarter Investor Update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Geoff 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. I'll draw everyone's attention to our second page of this presentation. 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 2026 second quarter report and our 2025 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 on cdarplus.ca. Moving to slide three, our summary of financial results. For the second quarter of 2026, sales increased 9.1% with 5% organic growth, 1.8% acquisition-related growth and 2.3% positive impact from foreign currency translation, resulting in sales of $2.11 billion, compared to approximately $1.93 billion in the second quarter of 2025. Operating income was $350.6 million for the 2026 second quarter compared to $322.1 million for the second quarter of 2025, an improvement of approximately 7% excluding currency translation. This, however, did not include $1.7 million of non-cash acquisition accounting related adjustments to fair value in the inventory from the Sleba transaction. Excluding these non-cash adjustments, operating income excluding foreign exchange increased more than 7%. Geoff will expand on the segmented operating results of our CCL, Avery, Check Point, and Inovia segments momentarily. Corporate expenses were up for the 2026 second quarter compared to the prior year's second quarter due to higher variable compensation expenses and other general costs. Consolidated EBITDA for the 2026 second quarter, excluding the impact of foreign currency translation, increased 6% compared to the same period in 2025. Net finance expense was $18.7 million for the second quarter of 2026, higher than the $17.3 million for the second quarter of 2025. The increase is due to higher finance costs on the company's drawing debt and a reduction of finance income on the company's cash and cash equivalents. The overall effective tax rate for the second quarter of 2026 was 26%, compared to an effective tax rate of 25.3%, recorded for the second quarter of 2025. This is due to an increase in taxable income earned in higher tax jurisdictions. The effect of 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 second quarter was $223.8 million compared to $213.1 million for the 2025 second quarter. For the six-month period, sales, operating income, and net income increased 5%, 3%, and 1%, excluding currency translation, respectively, compared to the same six-month period in 2025. 2026 included results from four acquisitions completed since January 1st, 2025, delivering acquisition-related sales growth through the period of 1.1%, organic growth of 3.5%, and foreign currency translation was a tailwind of 1.4% to sales. Moving to our next slide, earnings per share. Basic and adjusted basic earnings per Class B share were $1.31 and $1.35, respectively, for the 2026 second quarter, compared to $1.21 and $1.23 Two basic and adjusted basic earnings per Class B share for the 2025 second quarter. Adjusted earnings for Class B share increased 10.7% compared to the second quarter of 2025. This 13 cent increase in adjusted basic earnings per share was primarily driven by improved operating income accounting for 11 cents, our share count reduction accounting for 3 cents, and another 3 cents of positive foreign currency translation. partially offset by higher income tax rate, reduced joint venture earnings, increased net finance costs, and higher corporate expenses summing to $0.04. Moving to our next slide, free cash flow from operations. For the second quarter of 2026, free cash flow from operations was an inflow of $189.2 million compared to an inflow of $226 million hosted for the second quarter of 2025. This decrease is principally due to an increase in net working capital, slightly higher net capex, partly offset by lower taxes paid for the second quarter of 2026 compared to the prior year second 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 six months of 2026, the company moved from a discretionary share buyback plan to an automatic share repurchase plan that commenced on March 2nd of this year. Year to date, June 30th, 2026, the company repurchased 3.8 million shares for $331.6 million. In addition, during the blackout period, July 1st to August 12th, The company also repurchased an additional 700,000 shares for $66.3 million, including the 12.5% increase in the 2026 annual dividend announced in February of this year. Dividends paid year-to-date amounted to $123.5 million for a total of $455.1 million returned to shareholders, including the buyback. It is the company's expectation that more will be returned to our shareholders in 2026 as the automatic share repurchase plan is active in the market daily, including blackout periods when the company was not permitted to make share purchases in 2025. Our board of directors has authorized management commencing March 2nd of this year to spend up to $1.2 billion over the next 12 months on share repurchase. Next slide, our cash and debt summary. Net debt as of June 30th, 2026 was $1.74 billion, an increase of $479.6 million compared to December 31st, 2025. This increase is principally a result of higher total debt outstanding due to capital expenditures, business acquisitions, and our share buyback. Despite the increase, The company's net debt on the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 1.0 times at June 30th, 2026, up from 0.78 times reported at December 31st, 2025. Early in July, subsequent to the quarter end, the company signed a delayed draw syndicated term loan agreement for U.S. $500 million. Therefore, the company's current liquidity position is robust, including this new term loan and the legacy syndicated revolving facility. There's approximately U.S. $1.25 billion undrawn debt capacity and cash on hand of $975.6 million. The company's overall finance rate was approximately 2.6% at June 30, 2020, 26, up from 2.5% at December 31st, 2025, reflecting an increase in the company's variably drawn debt. The company's balance sheet continues to be well positioned as we move through 2026. Geoff, over to you.

Thank you, Sean. Good morning, everybody. I'm on slide number eight, highlights of capital spending for the year. We spent $200 million in the first half So slightly behind the eight ball, still planning to spend around $470 million for the full year of 2026. Slide nine, highlights for CCL, another solid quarter of organic growth, 3.7%, up mid single digits in North America and Asia, low single digits in Europe and Latin America. Good profitability gains at HPC in food and beverage, solid results in healthcare and specialty, and CCL secure. The CCL design fell slightly, excluding foreign exchange, on slowing automotive markets and the impact of tight memory chip supply for customers, electronic device production rates, which I'm sure you've all read about in the media. Moving to slide nine, highlights for Avery. Much better quarter than this time last year. Didn't have any of the chaos relating to the back-to-school load-in, which was very good to see, and we benefited from some promotions we did for the World Cup in our FID wristband and card business. Stable quarter in the horticultural business. Checkpoint, we had a pretty difficult quarter. In the MAS business in the United States, and I'll give some more color on that in the Q&A, it was steady in the rest of the world, but it was below a very strong prior year period where we had a number of very large technology rollouts. Apparel labeling results improved as retail supply chain costs, which we've had for several quarters, now eased, and RFID growth continues with new business wins. Inovia, very strong growth, 25%, about 15% of that coming from volume, 5% to 6%, 10% coming from price. And we had very good results in Poland on EcoFloat shrink films growth, continuing robust performance in the Americas, really driven by volume and internal productivity initiatives. The downside are other plants in Europe and the one in Australia were held by very significant and at times rampant Iran effect resin and energy inflation, but aided somewhat by price increases, labor industry stock building, and reduced, much reduced losses, I should say, at the new German plant. Outlook comments on slide 13 for the coming quarter. CCL segment orders remain solid. We are watching the situation with memory chips effect on CCL design closely. We do expect Avery's direct-to-consumer growth and the stronger back-to-school season to continue to play out in this quarter. We do think Check Point will have sequentially better second half than it does in the first half. but our comps remain difficult because that technology rollout I referred to earlier continued for much of the second half of last year and will not repeat this year. Inovia could see some inflation reversal and unwinding of the recent labor industry inventory build, especially in Europe, and we expect foreign exchange to be a modest plus. So with that, operator, we'd like to open up the call 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 Ahmed Abdullah with National Bank of Canada.

Yes, hi, good morning, and thank you for taking my question. On the Check Point MAS, acknowledging the large tech rollouts that made comps difficult, but looking more specifically at your consumable business there, would you note any change in volume trends there or You know, replenishment cycles that you used to see in prior quarters.

It was really a phenomenon driven by our hard tag business. So hard tags are the things you see being pulled off when you buy an item of merchandise, for example, in a clothing store. So those hard tags are all manufactured in China and were all subject to tariffs last year. So we saw quite a bit of change of behavior with retailers, and we went out with price increases. Some retailers elected to stop using them. Some have since reversed that decision because of the amount of shrinkage loss they had, but at the time, they decided not to swallow the price increases and just stopped using the tags. There's been some migration from hard tags to soft tags, and we had our largest, Softag customer for EAS labels found a whole bunch of inventory and stopped ordering from us really for the whole of the first half of this year. So they were the main drivers. So it's somewhat situational around tariffs, some situations with key customers, migration of hard tags to soft tags, and one very large customer just excess inventory.

Thanks, that's helpful. And when you talk about these migrations to a soft tag, is it still with the same hardware installations that you have done, or does this require another?

No, no hardware change.

No hardware change. Okay, thanks. And just looking down the pipeline past the second half of 2026, are there any, you know, Well, when we get to 2027, we'll have 2026 being the comparator, so that's going to ease things considerably. So it's definitely a situation driven by the tariff chaos, so that was the biggest driver.

I'd say the second biggest driver is the move from hard tags to soft tags, but we will eventually benefit from that. I'm also a producer of soft tags. And so I think it's somewhat situational around a few customers, and it'll eventually wash itself out.

Okay, that's fair. And just one last one for me. The RFID new business wins that you've mentioned, are those in apparel or non-apparel? In apparel. That's it. I'll pass the line. Thank you.

Your next question is from Sean Stewart with TD Cowen.

Thanks. Good morning. Jeff, on Anovia, can you give us perspective on how much of the top line growth there was pulled forward of orders, I guess, in advance of price hikes? And the margins there held up really well despite inflationary pressure. and I appreciate German start costs are falling, but can you reconcile that and is there room for margin expansion through the back half of the year as price hikes roll through?

I don't think there's much room for margin expansion from today's level, but there are a lot of levers being pulled in the second quarter. So in Europe at some periods after the Iran war started, inflation in our resin grades hit 80% at its peak. So it was a pretty big swallow. We passed it on immediately to some customers. Other customers, we had a lag. So we've got those price increases coming through now in the second half. But of course, our inventory position in resin reflects those price increases. So we're not really gaining a whole lot. So that's why I don't think there'll be much margin expansion. It was about 15% volume. So we know we gained share in the Americas. I don't think we gained share in Europe. But in the Americas, we most certainly did. So there's some share gain there. And there's also the gains in echo float, which isn't share gain. It's really a new application. So echo float grew pretty strongly, so that was also a factor. So I think there will be some rollback once this inventory starts to be consumed by the label converter channel. that will soften demand in the label materials channel and that will subsequently soften demand to Inovia. But the flip side of that will have the upscale in Germany on growing growth of EcoFlow and the benefit of price increases coming through which we weren't able to get through in Q2. So lots of moving levers all happening at one time. I think the team did an outstanding job this past quarter managing their way through it.

Yeah, it was an impressive result. You've qualified the CCL segment. Q3 order activity is solid. Can you give us perspective on which subsegments or regions are driving that trend? It sounds like CCL design isn't necessarily, but across the rest of it, where are you seeing particularly strong order activity?

Well, the two strongest businesses in the first half, particularly the second quarter, were food and beverage and home and personal care. And that's continuing in the second half. We think we'll see also strong volume gains in the second half in CCL Secure. The healthcare is just steady eddy. and you know the business we've got some concerns about the CCL design relative to that memory shortage but it's that's also moving at fairly rapid speed so there's two problems two problems we face there is the availability of chips affecting demand and also it's pushed the customers we have in that space into Very heavy cost saving mode because they're looking to mitigate whatever they can from the rising cost of chips.

Thanks for that detail. I'll get back in the queue. No problem.

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

Hi, good morning. Jeff, the 3.7% organic growth that you delivered in the core CCL segment, how much of that was price versus volume? And how meaningful would you expect pricing gains to drive the comps in the second half?

Well, that's really impossible for us to measure because we have millions of different transactions over so many designs. It's just not possible to Break that out. So all we can really do in that space is report the organic revenue growth. For sure, there's some inflation in there, not a whole lot. So I think it's really more volume than it is price. That's about all I could really tell you.

Okay, fair enough. And if you did see the label inventory build in Europe unwind somewhat in the second half, do you think you can still sustain the sort of consolidated mid-single-digit organic growth you delivered in Q2 and Q3?

The European inventory thing really only affects Inovia. So it has no effect on the CCL segment, because that's where they're dealing with the CPGs and all the rest of it. So I think we're more dependent there on CPG volume trends.

They are a bit mixed.

Some companies are doing quite well. Some companies are struggling. So I'd describe the volume environment in that space as mixed. But we don't see it being any worse in the second half than it was in the first half.

Fair enough. And just the last question I had, one of your competitors recently pointed to RFID growth in the U.S. grocery category as a major rollout begins in the back half. I believe you've been supporting that retailer with general merchandising, but are you seeing any opportunities on the grocery side?

We're also working with the same customers.

Okay, fair enough. Thanks. That's all I had. I'll turn it over.

Your next question is from Steven McLeod with BMO.

Thank you. Good morning, Jeff. Good morning, Sean. Just wanted to ask about the CCL segment. Margins very strong, almost 17%. And I'm just curious if you can talk about sort of some of the drivers there. Is it mostly mixed? and then I guess separately from that, how do you expect that to evolve in the back half of the year with the inflationary backdrop?

I'm not too concerned about the inflationary backdrop because we're starting to see it ease pretty significantly. So I'm not concerned about that. I don't see a lot of difference in the second half to what happened in the first half. We did have the events around the aluminum can business, aerosol can and bottle business in the first half. We had the issue with a piece of equipment in one of our plants that went down. We had rampant inflation in aluminum, which has since eased off. But we'll certainly have a better second half in that business than we had first half. but I don't see a lot to comment on that is different except for the issue I've raised about CCL design and memory chips.

Okay, that's great. Thanks, Geoff. And then in one of your previous questions, you suggested or talked about demand beginning to soften in the Inovia business in the back half of the year. I was just wondering if you could get a little bit more color on that commentary.

Well that's to do with what happened in the inflation period. The big producers of label materials all announced due to the resin inflation there were going to be very dramatic price increases. So that prompted all of the label converters in their channel to start ordering like crazy and that prompts companies like Avery Dennison and UPM, the public companies in that channel and all the private companies to start ordering materials from Inovia. So at some point that will go back to normal. I don't think we had some circumstances in our course that were separate from that. A new plant in Germany, echo float film gains, share gain in the U.S. So that was a pretty significant offset to that. So I don't think We will suffer that much, but there will definitely be some reverse in the second half. Very difficult to quantify.

Okay, yeah, fair. I just wanted to make sure it wasn't anything on the consumer side. It was more just a reversal of the pre-buying. Yeah, okay. And then just with the new facility that you entered into, the delayed draw term loan, I'm just curious if you can give a little bit of color, maybe this one's for Sean, just about how you're thinking about capital allocation and the backdrop behind the new loan facility and then how you're thinking about M&A in the back half of the year.

Well, we put the facility in place as a backup plan or a cushion to our upcoming bonds that fall due in the first of October. So, you know, given kind of the choppy environment and CCL being a small issuer in the bond market, we thought it'd be prudent to have this facility available if we didn't like where the market was when our bonds come due. So we have secured this undrawn facility at a very attractive spread, less than 100 basis points, and that gives us an attractive all-in interest rate. should we not access the bond market.

That's the plan.

Right. Okay. Thanks, Sean. And then maybe just on the M&A backdrop.

No change, Stephen. I think our focus is still very much on bolt-ons. So we have a number of things we're working on in that space, but no change.

Great. Thanks, Geoff.

Thanks, Sean. Appreciate it.

Your next question for today is from Michael Glenn with Raymond James.

Hey, good morning. Geoff, maybe just to start, can you just discuss what you're seeing across your CPG customer base generally? Are we seeing an improved volume picture emerging or it remains kind of low single-digit growth overall?

Yeah, I characterize it as mixed. We've seen some sectors doing better than others, and I think the World Cup certainly helped in the food and beverage space this year. So there won't be a World Cup in the second half, so we'll see what happens in the mass beer category particularly, spirits particularly, which have been soft for much of 2025 and the first part of 2026. and in HPC, some of our customers are doing quite well in that space. Some have got more struggles. So I wouldn't say it's good or bad. I think mixed is the right word to use on the volume side.

And you didn't really, you didn't call out World Cup for the label Segment, but was there a bit of a World Cup bump embedded in that organic number?

Only in food and beverage and only in a couple of their product lines. It's really promotional activity, special promotions, soccer players stickers and things like that. We definitely saw some impact from that.

Okay.

It wasn't as big as the impact we saw at Avery.

Okay. And on working capital, there has been a bit of an AR build in the front half of the year. I'm just wondering if that's expected to come back to CCL in the back half of the year.

Yeah, it's not AR. It's more in inventory than AR.

Okay. And I think you explained some of that, but would you expect that to reverse in the back half then?

It's inflation driven. So if you have 80% inflation in resin, it can drive some working capital issues. So I would expect that to eventually wash out in the back end of the second half.

Okay. And then just the outlook for corporate expense lines.

I think it's going to be in the neighborhood of what it's been running this year. Probably take the first half and double it for the second half. Okay.

Thank you.

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

Hi, guys. So a couple of questions. So just on Inovian, so it seems like the primary growth driver For the result, in Q2, it was just this pre-build of inventory, how do price increases, right? I mean, so what do you think the organic growth is?

Not really, David. So there was 15% volume growth, and there were three components in volume growth. Share gain in the Americas, echo float, sales growth out of Poland, and the pre-build. So those are the three buckets. Don't ask me what the road ratios of the three, because I'm not sure we fully understand that, but we know for sure they were the three drivers. So it wasn't all pre-buy. Pre-buy was definitely one of the main factors.

Okay, so that's excellent. So then we should see at least two of those factors continuing into Q3 and beyond, right?

I think we'll definitely see that continuing echo flow, whether we'll have the same degree of share gain continuing remains to be seen.

Okay, all right. But as far as the pre-bill goes, do you expect some of that to continue in Q3 as well, probably, right?

I think the pre-bill will reverse because the reasons for it have largely evaporated. It could, of course, all change on geopolitical events. If there's more trouble in the Gulf that generates more resin price increase activity, then obviously that could happen again. But at the moment, it's going in the opposite direction. Resins are dropping. Even despite the news not being that great, the resins are dropping.

Okay. So when I look at the revenue growth of the business, obviously, you know, it's a very good quarter and the revenue growth is strong. And then I look at the EBITDA margins, kind of the same. So just wondering, does this business lend itself to operating leverage or not really?

It has operating leverage, but we had a lot of levers being pulled. So German plants are the costs reversing. 80% inflation in some months during the quarter. So 8-0, not 8, 8-0. So, you know, a lot of things going on.

Okay. All right. So then just moving to checkpoint, you talked about RFID, there was growth in the quarter. Can you quantify that? Was it in the single-digit range?

Yeah. So RFID inlay business, that's for... The technology science behind those labels. So last year we were running at a sub-3 billion unit clip. This year we're running at about a 3.5 billion clip, just to give you a frame of reference. That's one thing we can accurately measure.

Okay. And the pricing is probably consistent? Here we are.

Well, that pricing comes down as login bills, but it wasn't a huge factor.

Okay, all right. And then just on MES, we saw it was a bit weak in the U.S. Is that to be expected in Q3?

I think we'll improve sequentially in Q3 and Q4. will probably still struggle comparatively because last, the second half of last year, we had these very large technology rollouts, which are definitely not there this year. We have some, but they're not at the scale of the ones we had in the second half of last year.

Okay, all right. Okay, thank you.

Your next question is from Jonathan Goldman with Scotiabank.

Hey, good morning team. Thanks for taking my questions. Most of them have been asked already, but Geoff, could you talk about the trend that you're seeing in your GLP-1 business, maybe what you've seen in recent quarters past and what you expect going forward?

It's growing rapidly, but in terms of labels, it's lost in the roundings. It's an important customer for us. We do very well with them. And if we had all the business for every label we use, it would be low tens of millions. It wouldn't be a huge number.

But then market demand is still strong.

Okay.

And market demand, customer demand is still strong.

Absolutely.

And on RFID, is that business still growing at double digits?

Well, I've just gave some color on that. So last year, our RFID inlay business was sub-3 billion. This year, it's running at a 3.5 billion unit. So that's the unit volume picture.

Okay. Thanks for that. Once again, if there are any questions, please press star 1.

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

Okay, thanks very much for joining us everybody and we'll look forward to seeing you next quarter.

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