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 : Great. Okay. Thanks, Geoff. So I just want to start with some high-level questions and then drill down into some of the segment-specific trends then talk about maybe the resin pricing backdrop and capital allocation. So just in terms of the higher level, the business is really very, very definitely proved out of resilience through the pandemic. Despite the steep drop in global activity, during the depths of last spring's lockdown, organic growth was only down 12%, and then it's steadily recovered. So just as you think back over the last year, what were the biggest surprises for you as to how the business performed and how your people responded? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. And you've talked in the past about -- and even coming into this recession and the pandemic that the business is really GDP minus coming in and GDP plus coming out. As you look forward into 2021, do you expect to see that GDP-plus type growth continuing in the recovery this time around?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Okay. And when you think back over the last year in terms of the company's COVID-19 response, all of your plants remained open through the pandemic. You're were in a very decentralized business. As you think about and talk to your plant level managers around the globe, are they sensing a return to normalcy in most pockets of the world right now?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Great. Competitive landscape question for you. You began making adjustments to the business proactively. If you go back even 14, 15 months from now, 18 months. In anticipation of economic weakness, of course, not knowing that there was a pandemic on the doorstep. And the business really has proven out its resilience. In light of this over the last year, how have your competitors fared through the pandemic? Are there any notable areas of market share gains or new customer wins?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. And with a more regional sourcing business model, presumably, that would benefit you on the label side, at least?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Great. Okay. Well, that's great. I just want to -- and then I wanted to now just talk about each segment.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : So maybe starting with the CCL segment, you're coming off a very strong Q4 with 7.4% organic growth. The highest level, I think you've reported since 2018. Are you still seeing a strong start to 2021 so far? And is this -- is the year likely to play out as you've expected with a stronger first half and tougher comps in the back half?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. And your strength in Q4 was pretty broad-based. But I just wanted to dig into each of the various end markets. So maybe starting with the -- historically, what you might call core label businesses, home personal care, health care, specialty food and beverage. That might be an unfair way to characterize it, but maybe starting with the Home & Personal Care business. Can you give some color on how the label business, labels has trended versus aerosols and tubes. And maybe starting on the aerosol side?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. Okay. And on the aerosol side, if I recall correctly, aerosol and tubes is roughly 40% of HPC and labels are 60% of the -- yes.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : And then within the -- within aerosols and tubes, you talked about specialty retail, which, as I call it, 25% of the overall business. Have you begun to see that sort of pick back up as travel has opened up and economic -- economies have opened?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And then maybe sticking with the -- turning to labels within Home & Personal Care. You talked about how things have certainly normalized on the sanitation side. Profitability came down a little bit in Q4 on the -- sort of on the overall business on the CCL container build-out. Can you talk a little bit about where you are on that capacity expansion and whether this has continued to be a drag?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Great. Okay. Well maybe turning to the Healthcare & Specialty side. You saw sales and profitability growth in Q4 on pandemic demand. We're actually, speaking of which, we have a question that just came in on the line. Specific to the segment, do you deal with any of the COVID-19 vaccine makers or providers? And is that expected to provide any benefit to the Healthcare & Specialty business?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay, okay. And then maybe ex-outside of the vaccines, can you talk about some of the drivers of demand in this business through Q4 and maybe into Q1? And you saw elevated demand around the pandemic. Has that business also began to normalize back to historical levels?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. And can you give -- can you just remind us of the breakdown in the Healthcare & Specialty business between what's sort of core health care versus specialty, i.e., Lawn and Garden?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Right. And what's the split between health care versus Ag Chem, Lawn and Garden?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : The revenue split?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. Okay. So maybe moving to the Food & Beverage business. You saw Q4 sales growth on sleeves and label demand. Can you talk about how that business has trended into Q1 and where you've seen maybe pockets of strength and weakness?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And you saw full year profits down year-over-year in this business, largely due to on-premise and travel-related demand. Have you seen this pick up with on-premise opening?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. Sleeves is a segment of this market that's had outsized growth over the last few years. What's driving that secular demand for sleeves? And is there any end in sight? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 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 the trend, as I recall, has been stronger for sleep demand in places like Asia and Europe, but you're seeing that trend becoming more popular in places like North America?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Great. So maybe moving on to the Design and Secure business. On Design, automotive is 50% of the business, drove the big rebound in Q4. Are you seeing this recovery continue into Q1?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Great. And when you think about the automotive business, are you seeing any secular tailwinds or opportunities from all the investment going into EV and different components that are going into cars?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : And does that -- just speaking of components because the Design business has often, I think, benefited in the past from less metal components being used in electronics. Is that a trend that you're still seeing? So less rivets and things like that, more towards label or...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Great. And CCL Design has been and continues to be a key focus for M&A, I believe. So where do you see the biggest opportunities there?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And what -- when you talk about complementary products, and when all, we've been at label expo in the past, there have been different interesting decorative technologies. Are those things that would fit into the CCL Design bucket?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Yes. Great. Okay. Maybe finishing off the CCL segment with the CCL Secure business, again, coming off a good Q4. And you've talked in the past about new note issuances versus replenishments. Have you seen any change in the tempo of those demand for those 2 drivers?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : And have you seen any changes to long-term demand for this business coming out of the pandemic?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Great. And then maybe -- actually, this will be my final CCL second question. Are there any end markets, just as we think about the business more broadly, are there any end markets where you've seen any structural changes in demand that have come out of the pandemic?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Or is it -- no?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. And you...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. That's great. And even notwithstanding the tough comps in the back half of the year, you'd expect this business to be up year-over-year in 2021? Or is it too early to tell?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Yes. Great. Okay. Maybe moving on to the Avery business, and I'll just pause here and I'd remind people that if you have questions, feel free to submit them through the interface. We have a couple of waiting here that we'll get to. So maybe just turning to the Avery business, which, as people know, it was one of the areas of the business that experienced the most acute pandemic-related weakness. Can you just provide an update on where you are on the DTC business?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst :

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Yes. Okay. Okay. And on the printable media business, how is that business trending?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. And it sounds like you're seeing, as you mentioned at the beginning of the Avery section, you are seeing the gap continue to close. You still expect...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Sequentially?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. And as you begin to comp the Q2, Q3, Q4, -- as you begin to comp in the back half of this year, do you still expect the full year to be up

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Okay. And then once things normalize, do you sort of expect this business to revert back to its longer-term growth rate, which we expect to kind of sort of -- yes.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. And the margin expectation over the long term, do you still see margins potentially getting into the low 20s over the long-term as we continue to Q2?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Okay. And as we were talking about Avery, we got a question that came in from the line here. When you think about the badges business with respect to events, are your people seeing any potential impact to in-person events from a rise in virtual conferences? Or do they think that this will -- things will revert back once we're through the pandemic? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Certainly, there's probably a lot of pent-up demand out there. Okay. Well, that's great. Maybe moving to the Checkpoint business, which was another one of the businesses that was acutely impacted during the early days of the pandemic, but really came back strongly in the back half of the year, certainly seeing some recovery. Can you talk about how that business is trending so far in Q1?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Great. Okay. Just talking about RFID. I had a couple questions here. And we just had one come in on the line. Has increased e-commerce activity due to the pandemic or maybe more likely something trends like buying online, pick up in store, has that led to heightened interest in RFID? And any -- and then from there, any new orders? Or are people getting more -- like more warm on conversions or adoption, I guess?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. How big of an opportunity is it for Checkpoint in terms of...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : And in the past, within that $200 million ALS revenue bucket, how much of it is RFID?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. We had 1 question coming on the line here with respect to Checkpoint, applicable to the Apparel Labeling business. Have you seen -- are you seeing QR codes being embedded into tags? Is that something that...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. That's great. Yes, that -- there's certainly lots of questions coming in on the Checkpoint, which is great. Maybe turning to Innovia, again, coming off a strong Q4. Kind of 2 components in this business that are topical, certainly the demand as well as the cost, the resin price environment. So maybe just starting with demand, can you talk about how -- talk a little bit about how demand evolved through the pandemic and sort of where you are now? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : That's great. So you've -- you're actually up in profits in the Innovia business? Yes.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst :

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Yes. Yes.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes, yes. Okay. That's great. And you would attribute, certainly through the last period of resin -- material resin price inflation was much more painful and then you were able to renegotiate your contracts. Would you attribute how you're performing now to those pricing pass-through mechanisms? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : That's great. One question that came in on the line. It's sort of higher level with respect to resin pricing and other cost inflation. Just to confirm, I know we've talked about this in the past, but your -- you wouldn't expect inflationary pressure on margins in your other businesses? Historically, you've had a very good success either passing on prices through or absorbing those prices without margin...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. A couple of other questions here that have come through on Innovia. So on the margin side, Innovia had a very strong year in 2020 with over 20% EBITDA margins. What margins do you believe are sustainable in the Innovia business?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. And then secondly, do you have any -- you've owned the Innovia Treofan -- Innovia and then subsequently Treofan now for several years. Did you have any reflections on how the business has performed versus when you bought them? If anything surprised you to the upside or the downside, I guess?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Great. So maybe moving away from the operations and a couple of questions around capital allocation here. You've increased your dividend 17% with the Q4 results. How do you see capital allocation evolving coming out of the pandemic? Or is it just went back to where it was before?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Maybe turning to M&A. A couple of questions. In the past, you've indicated, well, certainly through the pandemic, you've indicated that due diligence was difficult to do. We can't do due diligence over Zoom. So with travel opening up. I know you have spoken to some -- the business, some of your senior managers have begun to travel more frequently. Is it any easier to execute on M&A in this environment given that there's easing of restrictions?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Absolutely. A couple of questions here on -- coming in from the line, and these are more high level. And certainly mentioned sustainability packaging has a megatrend coming from your customers and those consumers. How do you see it evolving from here? And does it have any impact on margins as it becomes a bigger part of mix? Any impact on M&A strategies? Or is it -- you do it in your existing businesses and without looking outside, I guess? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Yes. Yes. Okay. And is there -- do you see any potential margin impact? Like are you able to put...

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : No?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Yes. Okay. And you talked about a whole -- you have a whole suite of technologies. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : So lots of things that your customers can leverage your expertise on with respect to sustainability. Is there any -- are you able to give like any examples of things that have led to as things have been more popular with your customers' customer base?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. A couple of minutes left here. And just -- we got to -- just want to remind everyone who's listening online, you can have an opportunity to submit questions. We covered a lot of ground. I'm just going to ask a couple of these questions that have come in. I haven't heard of this before, but 1 participant is asking on the CCL segment. Is there a new sleeve product for aluminum cans that you're aware of?

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. So very -- I thought most of the cans were decorated, but, okay.

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Yes. Okay. Okay. And then another question here on RFID, which is obviously very topical now. Is -- are you seeing any price competition from new entrants coming in from China or anywhere else in the world? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. MARCH 25, 2021 / 3:00PM, BMO.TO - CCL Industries Inc Fireside Chat Hosted By BMO Capital Markets

Question: Stephen MacLeod - BMO Capital Markets Equity Research - Analyst : Okay. Okay. Well, if we just turn to 12:00 on the hour. No more questions have come in. So Geoff, I lost you on my video, but you're still there. I appreciate your time today, very insightful, very timely to get an update on the business. And thank you for your time for this last intra-quarter fireside chat.