CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : So I'll go ahead and get started. And I'd like to begin with maybe some high-level questions for Geoff and then drill down into some segment-specific trends. So maybe just in terms of higher level strategic questions, you gave Q2 guidance when you reported Q1 results. You had expected to see sort of a slow sequential recovery from April lows and May and June, netting to Q2 being down 15% to 20% on the top line. Is that what you've seen transpire and have sales broadly bottomed or recovered as expected?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great. And then maybe longer term on the Q1 call, you did comment that you wouldn't expect a return to 2019 level of earnings until 2022. Maybe more broadly, what would you need to see to pull that recovery time line forward? Are you comfortable today that this will play out as you currently expect? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 05, 2020 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And then just in terms of the COVID-19 response, all your plants have remained open. So they're still open today. You run a very decentralized business. How have your plant-level managers reacted in this uncertain environment? And I guess is it safe to say that this...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Just in terms of the competitive landscape, you guys began making adjustments to the business proactively in anticipation of economic weakness, notwithstanding COVID-19, I mean, even when we spoke back in September. How have your stronger regional competitors fared in this period of disruption?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. So I just wanted to maybe follow that up with some operational updates by segment. So just starting with the CCL segment. I just want to focus first on some areas where we saw strength in Q1. So CCL Design Electronics, CCL Secure, Health Care & Specialty. Maybe starting with the electronics business. We did see some nice gains in Q1. That's continued into April. Following the sort of work-from-home buying spree, have things kind of leveled off here on the design side, electronics? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 05, 2020 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : And I assume you saw the supply chain very much normalized post quarter?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Great. Okay. And then on the secure side, you had a good Q1, but customer plant shutdowns impacted demand late in the quarter and into Q2. Have you seen this reverse? Have a lot of governments begin to open back up the plants?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And then maybe a higher-level question on Secure. With COVID-19, we have seen some companies, at least locally, that have said they're not accepting cash. Do you see this impacting CCL Secure over the long term?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And can you just remind us what percent of the business in secure is note issuance versus ongoing replenishments? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 05, 2020 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great. And then on the Healthcare & Specialty side, Q1 was strong. Are you still expecting Q2 to be even stronger? And do demand trends largely remain solid for 2020?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great. Just a couple of questions from the line here as we were talking about CCL Secure. One had question in, "Is there a huge push by European economies to go cashless right now for a variety of issues? Or is that something that you're not seeing?"

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And it sounds like maybe some of the concerns around cash, as you were talking about, is related to maybe pushing conversion towards polymer notes.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. So maybe moving away from some of these areas where we saw strength in Q1 towards some of the areas where we saw some weakness in Q1, so Home & Personal Care, Food & Beverage, CCL Design Autos. Starting with Home & Personal Care, could you just give a little bit of color on the breakdown of this business? I just want to -- I think it caused some confusion around Q1 with respect to labels versus aerosols and tubes and how each has trended.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And are you seeing any changes in demand with sort of some parts of the world beginning to open up?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And are you sort of -- in that comment, were you talking specifically about China or more broadly?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. That's helpful. So you are expecting a rebound in the back half of the year, okay. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 05, 2020 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. That makes sense. Maybe turning to the Food & Beverage side of things. You indicated that you expect easier Q2 comps on a year-over-year basis, but the on-premise business remains down, obviously, largely for the factors that are impacting the Home & Personal Care business, just with people not out and doing things. But could you talk a bit about like the split between on versus off-premise, if you're able to quantify that? And do you think the on-premise side has bottomed?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Are you able to give us -- quantify a breakdown of the business between those end markets?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. No, that's fair. And then one of the things that's benefited the Food & Beverage business over the long term has been sort of the premiumization of product by some of the brand owners. Is that something that you expect to kind of tick back up as we move out of this COVID-19 weakness? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 05, 2020 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. No, that's helpful. So maybe turning to the CCL Design Autos business, we sort of saw a weaker Q1, and that had continued into April. Have you seen a pickup in activity with customers opening up plants? I know we're in early days.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's helpful. And then maybe on a higher level basis, given some of the changes we've seen in the end markets, are there any end markets where you have seen or would expect to see any structural changes in demand coming out of this COVID-19 pandemic? And then maybe secondly, where are the risks? And where are the opportunities for the CCL segment long term in light of any structural changes...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's helpful. So maybe I'll just pause here for a minute just because we got a few questions coming in on the CCL side of things. One of the questions, coming back to Home & Personal Care. I know you said that 25% of the business is exposed to specialty retail, but how much of that exposure is to skin care. Is that something you're able to quantify?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's helpful. A question here on the line from the aluminum can business, the old container business. How do you view that business over the long term? I mean are you thinking about adding exposure to that side of the business? Or is it status quo for now?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And is that because of the nature of the product that they're selling? Or is...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. And just maybe sticking on the container business. Sun care being a big part of business, but also the beverage side and the -- you do aluminum cans for air fresheners. How are you seeing those businesses perform?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's fair. Okay. So maybe moving to the Innovia side of things. Coming on a very strong quarter, you characterize it as one of the best you've ever had. And as of Q1, the plants were booked solidly into June. Any update now that we're sitting here in June? And what's the expectations for this business now...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : And in a more inflationary environment, would you expect that customers -- will you be able to pass through the more inflationary prices?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. And maybe post pantry loading, you talked about that positively impacting Q1 and Q2. The underlying demand in the business, would

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That makes sense. So maybe turning to Avery. This is one of the areas of the business where you had cited experiencing the most acute Q2 weakness. So maybe going each subsegment by subsegment. Can you just provide an update on the DTC business? We saw some weakness in the event industry and kids labels? Are you seeing any offset from WePrint? And has the demand dynamic shifted or picked up?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And is it right to assume that the DTC business is about 20% of the overall Avery business?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. That sounds great. And then maybe turning within Avery to the distributed products business, I think your recent comments sort of alluded to this. But organizational products still under pressure and, you mentioned on the call, highly dependent on back-to-school demand. Do

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And then maybe just finally within Avery, the printable media business. Have you seen -- do you have any update on demand since Q1?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Well, it's great summary on Avery. Maybe we'll move on here to Checkpoint, and we do have a few questions coming in through the webcast on Checkpoint. So this is another area where you expected acute Q2 weakness. At Q1, you indicated the apparel industry is down about 60% to 70%. Are you continuing to see your sales sort of mimic these trends?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And would you expect -- so would you expect largely that the business has bottomed or will bottom in Q2?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. That's helpful. You mentioned RFID, it was actually a question that we got on the line here. So can you just remind us how big RFID as the size of the overall Checkpoint business? And if you do expect...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And is it -- have you actually seen an increase in interest in the RFID solution given retailers are so focused on e-commerce and/or buy online, pickup in store?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. And outside of RFID, do you still see long-term growth opportunities in Checkpoint? without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 05, 2020 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great. A question on the line here, as we're talking about Checkpoint here in terms of RFID, which other verticals in addition to retail do you sell RFID into? Or are there opportunities to sell RFID into?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's fair. So maybe turning away from the segment-specific commentary, and then I'll come back to some questions we have on the line. Moving to the acquisition environment. A lot of questions that have come in through the webcast on M&A. How do you think the M&A cycle will be impacted by COVID-19 versus '08, '09?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : That's great. And another question here. In which sectors or geographies would you expect to be the most active on potential M&A?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. That makes sense. On the Q1 call, you mentioned that you were more focused on protecting the business at that point. Are you still focused -- but -- and you sort of positioned that as a way to say, we're not looking at M&A right now because we're looking internally. Has that thought process at all changed as we've moved further into this -- the recovery, so to speak.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's a good segue into the next question which is, you recently closed a $600 million debt deal of notes at an attractive rate, 3.05%. Would you characterize this as more defensive or offensive?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. So it sounds like more -- well, maybe opportunistic in the context of a longer-term view would be the way to characterize it. without the prior written consent of Thomson Reuters. 'Thomson Reuters' and the Thomson Reuters logo are registered trademarks of Thomson Reuters and its affiliated companies. JUNE 05, 2020 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great. So I just want to remind everyone, if you do have any questions, feel free to submit them through the webcast. We've got about 7 minutes left here. So I'm actually just going to go to some of the questions that have been submitted that are sort of all over the place, but we'll just jump around. A couple of questions here on the dual-class share structure. Is there any thought process around -- or any plans to sort of make all share classes pari passu in the sense that maybe you collapse the dual-class share structure?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay, that makes sense. A couple of questions here around efficiencies and any adjustments you've made on the cost side. And how do you see margins moving around when demand comes back? And maybe that's a question that's easier answered by looking at each segment individually.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. Okay. Longer term, question from the line here, now that CCL is diversified more geographically and by segments versus '08, '09 is something you pointed out on the Q1 call. What type of GDP multiplier should we expect?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Yes. And you've made a commentary in the past that label converters sometimes tend to be first in, first out in periods of economic weakness. What's typically the lag you see ahead of the recovery? Like you said, a 6-month -- you see things picking up 6 months ahead of time before the economy starts picking up or is it -- how do you think about that?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay, just maybe a couple of final questions here from the line. What kind of returns do you target in acquisitions or CapEx?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. And what are your thoughts on share buyback?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Well, we're -- we just turned 12:00. So I think maybe we'll stop it there. So Geoff, thank you so much for your time today. I really appreciate it. I think it was very useful. We had a lot of people dialing into the webcast. And so I think this was a very useful event, and I appreciate your time. And thank you, everyone, for logging in today and getting an update from Geoff.