CCL Industries' Q1 net earnings up 13.4% year-over-year to C$30.4M, sales up 8.2% to C$341.4M driven by label and tube segments, lower costs, partially offset by negative impact of foreign currency translation
May 3, 2012
– CCL Industries Inc. ("CCL" or "the Company") is a world leader in the development of label solutions for global producers of consumer brands in the home & personal care, healthcare, durable goods, and premium food & beverage sectors; and a specialty supplier of aluminum containers and plastic tubes for the same customers in North America.
First Quarter 2012 Results
Sales for the first quarter of 2012 were $341.4 million, an increase of 8.2% compared to $315.6 million for the first quarter of 2011. Excluding the impact of foreign currency translation, sales increased 8.0% organically with an additional 0.8% increase from the acquisition of Sertech in April of 2011.
Operating income (a non-IFRS measure; see note 2 below) for the first quarter of 2012 was $52.6 million, an improvement of 8.0% compared to $48.7 million for the first quarter of 2011. Operating income improved 8.6%, excluding the negative impact of foreign currency translation for the comparative quarters. The Label and Tube segments increased operating income, partially offset by a decline at the Container segment, for the first quarter of 2012 compared to the first quarter of 2011.
EBITDA (a non-IFRS measure; see note 1 below) was $71.2 for the first quarter of 2012 compared to $66.4 million for the first quarter of 2011, a 7.8% improvement excluding the impact of foreign currency translation.
Net earnings for the 2012 first quarter increased 13.4% to $30.4 million, compared to $26.8 million posted for the first quarter of 2011. The increase in net earnings is attributable to the above-mentioned improvement in operating income, and a reduction in net finance cost partially offset by an increase in the effective tax rate.
Basic earnings were $0.91 per Class B share in the first quarter of 2012 compared to $0.81 per Class B share in the prior year quarter.
Geoffrey T. Martin, President and Chief Executive Officer commented, "I am pleased to report another solid quarter and excellent start to the 2012 year for CCL. Our Label and Tube segments capitalized on robust organic growth particularly in North America, to post strong results for the quarter. Foreign currency translation effects were nominally negative for the first quarter of the year."
Mr. Martin continued, "CCL Label enjoyed another quarter of strong double digit growth driven by a very good performance in North America where we saw evidence of a solid consumer recovery. Growth rates were compounded by the Healthcare sector with certain customers operating at normal levels in 2012 compared to a regulatory driven hiatus in the prior year period. Asia Pacific continued to deliver strong growth as demand levels in Thailand recovered from the fourth quarter floods. Overall operating income reached record levels and increased 11% in line with sales gains, excluding foreign currency translation. Results were held in check by a small, but not entirely unexpected decline in European profitability given macroeconomic events in the region, although sales were up low single digits. We also faced difficult comparisons in Latin America where currency depreciation and cost inflation affected results compared to the reverse effect in the prior year despite solid sales increases. Overall, CCL Label delivered a return on sales of approximately 17% for the first quarter of 2012, beyond the high end of our target range but not untypical for this period which has favourable seasonality factors."
Mr. Martin commented, "Our two joint ventures, CCL-Kontur in Russia and Pacman-CCL, the Company's third quarter 2011 investment in the Middle East, both contributed positively to first quarter results. Consolidated first quarter net earnings from the joint ventures totalled two cents per share. Acrus-CCL, our new wine label joint venture in Santiago, Chile, will commence trading during the 2012 second quarter."
Mr. Martin then added, "First quarter sales for CCL Container declined 3% and operating income fell compared to the prior year period but improved sequentially over each of the previous three quarters of 2011. The year-over-year decline was driven by significantly lower volumes of beverage bottles at our U.S. operation coupled with an unusual seasonal shift in aerosol demand from the early months of the year to the spring and early summer. The plant is now booked solid for the second quarter. The Canadian operation continues to improve and the Mexican business posted solid performance as volume grows at our new facility. We were also pleased to see Container deliver strong free cash flow for the quarter. CCL Tube continued its outstanding performance, with solid sales growth and strong profitability gains driven by improved mix. Operating income was a record $4 million for the 2012 first quarter."
Mr. Martin continued, "The recent strong performance of our business in North America gives us cause for cautious optimism for the coming quarter and 2012 as a whole. The caution stems from macroeconomic uncertainty in Europe, the recent currency depreciation in Latin America and concerns being raised by some commentators on the near term sustainability of growth rates in Asia. The early part of the 2012 second quarter is influenced by holiday periods but order intake for all three of our business segments has been solid, with North American growth so far offsetting slow markets in Europe. Despite this, the Company will likely see the rate of performance improvement moderate appreciably in the coming quarter as comparisons to a strong prior year period are more challenging. Foreign currency exchange rates to the Canadian dollar could also impact translated earnings while strengthening in the U.S. dollar would affect raw material costs in Latin America."
Mr. Martin concluded, "CCL's balance sheet remains strong at the end of the 2012 first quarter with $142 million of cash on hand, $91 million of unused credit facilities and net debt to total capital down 140 basis points to 19.3% compared to December 31, 2011. Based on our strong cash flow and our prospects for the coming year, your Board of Directors has declared a dividend of $0.1950 per Class B non-voting share and $0.1825 per Class A voting share payable to shareholders of record at the close of business on June 15, 2012, to be paid on June 29, 2012."
Donald G. Lang, CCL's Executive Chairman, added "At our AGM today, we bid farewell to Jon Grant, who has retired from the Board after 17 years of service as a Director. We wish him well. He will be replaced as Lead Director by Alan D. Horn who has been with us since 2008 and is uniquely qualified to serve in this capacity. I also want to welcome Philip M. Gresh who joins the Board effective today. Phil had a lengthy career as a senior executive with Illinois Tool Works and brings specific industry knowledge of global markets to our deliberations. Shareholder interests continue to be represented by a majority of strong independent Directors on the Board who also provide wise counsel to management."
With headquarters in Toronto, Canada, CCL Industries now employs approximately 6,400 people and operates 70 production facilities globally located to meet the sourcing needs of large international customers. CCL Label is the world's largest converter of pressure sensitive and film materials for label applications and sells to leading global customers in the consumer packaging, healthcare, automotive and consumer durable markets. CCL Container and CCL Tube are leading producers of aluminum aerosol cans, bottles and extruded plastic tubes for consumer packaged goods customers in the United States, Canada and Mexico.
(1) EBITDA is a critical non-IFRS financial measure used extensively in the packaging industry and other industries to assist in understanding and measuring operating results. It is also considered as a proxy for cash flow and a facilitator for business valuations. This non-IFRS financial measure is defined as earnings before net finance cost, taxes, depreciation and amortization, goodwill impairment loss, earnings in equity accounted investments and restructuring and other items. See section entitled "Supplementary Information" below for a reconciliation of operating income to EBITDA. The Company believes that it is an important measure as it allows management to assess CCL's ongoing business without the impact of net finance cost, depreciation and amortization and income tax expenses, as well as non-operating factors and one-time items. As a proxy for cash flow, it is intended to indicate CCL's ability to incur or service debt and to invest in property, plant and equipment, and it allows management to compare CCL's business to those of CCL's peers and competitors who may have different capital or organizational structures. EBITDA is a measure tracked by financial analysts and investors to evaluate financial performance and is a key metric in business valuations. EBITDA is considered an important measure by lenders to the Company and is included in the financial covenants of CCL's senior notes and bank lines of credit.
(2) Operating Income is a key non-IFRS financial measure used to assist in understanding the profitability of the Company's business units. This non-IFRS financial measure is defined as income before corporate expenses, net finance cost, earnings in equity accounted investments, restructuring and other items and taxes.
(3) Adjusted Basic Earnings per Class B Share is an important non-IFRS financial measure used to assist in understanding the ongoing earnings performance of the Company excluding items of a one- time or non-recurring nature. It is not considered a substitute for basic net earnings per Class B share but it does provide additional insight into the ongoing financial results of the Company. This non-IFRS financial measure is defined as basic net earnings per Class B share excluding restructuring and other items and tax adjustments.