Q4 2020 CCL Industries Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, welcome to C. C L industries fourth quarter Investor update.
Please note that there will be a question and answer session. After the call the.
Some of the radar for today is Mr. Jeff Martin President and Chief Executive Officer.
Joining me on as Mr. Shang the wash Chuck.
On your Vice President and Chief Financial Officer.
Please go ahead gentlemen.
Good morning, everyone. It's John Walsh check here I'll draw your attention to page two of our disclaimer regarding forward looking information 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 2019 and now 2020 annual MD&A under the section risks and uncertainties, our annual and quarterly reports can be found online at the company's website, CCL and dot com or on SEDAR Dot com.
Jeff.
Thank you, Sean and good morning, everybody.
So we didn't know the thing you have 2020 results today.
She mulch this year given COVID-19.
As you might like a few.
Thanks about what happened to our employees during the course of the year. So we've taken a lot of time and effort and energy to keep safe all the way through the pandemic. So we havent done of late with 22000 employees of 191 locations in 42 countries share.
On the course of the pandemic just less than 2000 of about 10% of those who've been working from home the.
The rest of the work every day.
Trades as an essential business.
And we've had about 650 positive cases during the pandemic.
Currently there is about 72 of us still positive at 53 of them currently the homes.
The in quarantine.
We have the two fatalities.
Neither of them coals by presence of work both infected the.
At the homes, one of the United States of money in Mexico, but it's of course very sad about that the pretty grateful for all of the Oh herculean efforts by our employees around the world and I'd like to take this opportunity to think of them, but I'm kind of hand, you back to the shown on will take you through the numbers.
Thanks, Jeff.
Turning to slide three for.
For the fourth quarter of 2020 sales increased five 7% income.
Moving the almost half a percent of positive impact from currency translation.
Two 8% of acquisition related sales growth and of consolidated organic growth rate of 2.5%.
The resulting in sales of 1.35 billion compared to 1.28 billion in the fourth quarter of 2019.
Operating income increased 22, 3%, excluding currency translation to $213 3 million for the fourth quarter of 2020 compared to $173 9 million.
For the fourth quarter of 2019.
Jeff will expand on the segmented results of our CCL Avery checkpoint and Adobe of segments momentarily.
Corporate expenses for the 2024th quarter were $16 $4 million compared to $2 $6 million for the 2019 fourth quarter.
The <unk>.
Increase in the corporate expenses is primarily attributable to a clawback of variable compensation accruals and the 20th 19 fourth quarter debt reduced corporate costs.
Consolidated EBITDA for the 2024th quarter, excluding the impact of foreign currency translation increased 11, 2% compared to the same period in 2019.
Net finance expense was $15 $8 million for the fourth quarter of 2020 compared to $18 $9 million for the 2019 fourth quarter.
The decrease of net finance costs is primarily attributable to lower average debt outstanding for the comparative quarters.
The overall effective tax rate was 19% for the 2024th quarter less than the 22, 8% effective tax rate recorded for the fourth quarter of 2019.
The decline.
When compared to fourth quarter effective tax rates can be attributed to the utilization of the.
Previously unrecognized deferred tax asset subsequent to some tax free Scott structuring we did in our German subsidiaries.
Net earnings.
24th quarter.
It was $145 $9 million up.
Excluding the impact of foreign currency translation from 100 and for $4 million from the 2019 fourth quarter.
For the year ended December 31, 2020 sales declined one 8% operating income improved four 3% and net earnings increased 10, 7% compared to 2019.
2020 included the results from 15 acquisitions completed since January one 2019, delivering acquisition related sales growth.
Of $2 one per cent on organic sales decline of three 9%.
And of foreign currency translation tailwind of 0.3% on sales.
Moving to slide four.
Basic earnings per class B share increased 37, 3% to 81 cents for the fourth quarter of 2020 compared to 59 for the fourth quarter of 2019.
Net loss from restructuring and the other items amounted to <unk> <unk> for the 2024th quarter compared to eight cents for the 2019 the fourth quarter.
Restructuring and other costs in the 2024th quarter were primarily for reorganization and severance costs associated with our checkpoint segment.
Adjusted basic earnings per class B share were <unk> 84 up 25, 4% compared to adjusted basic earnings per class B share of <unk> 67 for the fourth quarter of 2019.
The increase in adjusted basic EPS of <unk> 84 cents is primarily attributable to an increase in operating income, resulting in 17 cents per share the.
The decline in quarterly effective tax rate, adding four cents.
On a reduction of net interest expense and the increase in joint venture income each accounting for one cent, partially offset by an increase in corporate costs, reducing EPS by <unk> <unk>.
For the year ended December 31, 2020% to 29% improvement in adjusted basic earnings per class B share was principally attributable to increased operating income, adding 13 cents.
Reduced net interest expense, adding seven cents and the decline in effective tax rate, adding five cents.
This resulted in record annual adjusted basic earnings per class B share of $3.08 for the 2020 year compared to $2 79 for the 2019 year.
Moving to slide five.
For the fourth quarter of 2020 free cash flow from operations improved to $255 million compared to $242 million in the 2019 fourth quarter.
The improvement can be attributed primarily to increased operating income for the company.
For the year ended December 31 2020.
Free cash flow from operations was a record $616 million compared to the prior year of $444 million.
The comparative improvement is attributable to improved income for the company of change in working capital and reduced capital expenditures for the comparative years.
Yeah.
Moving to slide six.
Net debt as at December 31, 2020 was $1 three 9 billion a decrease of approximately $225 $3 million compared to December 31 2019.
This decrease is primarily a result of the record free cash flow for the 2020 year.
The companys balance sheet closed the quarter on its strong position.
She leverage ratio was 1.24 times declining from 161 times at the end of December 2019.
Liquidity was robust with almost $704 million of cash on hand, and $1 2 billion of available Undrawn credit capacity on the company's revolving bank credit facility.
Furthermore, the company does not have any significant debt maturities until 2022.
The company's overall finance rate was 2.29% at December 31, 2020, lower than the approximate 2.35% average finance rate of December 31, 2019. This was the result of a decrease in rates on our variable drawn debt.
The company's balance sheet is well positioned to start the 2021 year.
Jeff.
Thank you Sean and good morning, again, everybody on the slide seven highlights of the capital spending for the year.
We curtailed.
The project plan for the year some malls, we'd originally budgeted 350 million of thereabouts.
We came in at 266 million net of some disposals.
Clearly as right of use asset depreciation there also the.
For the <unk> 16 lease treatment.
The 330 million plan for 2021, I would say it would be at least $330 million may drift, a little hard on that depending on how the year unfolds.
How much capacity, we need to keep up with demand in the recovering economy.
Page eight of highlight.
Highlights of the CCL.
Very good called the seven 4% organic sales growth.
So it was up double digit in the Americas, that's the low double digits in the North America and up over 20% in Latin America.
And the up low single digits in Asia, very mixed sense of Europe was up slightly.
Well realize the so China on the ASEAN countries up in mid single digits on Australia, and South Africa down low double digits.
Well the effect as opposed to increase sales and excellent profitability.
Changes in CCL design, food and beverage health care, and specialty and CCL skill of home and personal care of profits were down slightly when capacity building codes for removing sluggish for a container business some of it.
The results in Asia.
Profitability of just trying to 'twenty, improving the old sectors, except food and beverage, but it was any of the slide.
And that particular part of the company.
And really all caused by the impact of on price on premise I'm trying of related channel for key customers in that space.
So moving to slide nine highlights for the joint ventures here.
And then B any consolidated net income line.
So we have to label of joint ventures in here why didn't rush everyone in the middle East for the one.
On in Russia is that the deal was the decline of the the value of the ruble, which has moved from 45 to 60 in the year of 2020. So that's impacted the sales line because we saw very strong organic organic growth in Russia, 24% in Q4, and 12% for the year of 2020.
So as you can see on the earnings line, we thought of very good the period of time here.
Very pleased for the results in these two businesses.
Moving on to Avery.
Another good.
Proved colton. So if you look of the quarterly progress during the course of the year, we started 2020, but in the first cold of up 1% in revenue.
Q2, we dropped 30% of the pandemic hit Q3, we were down 16 into the fold. The Colter, we were down 11 point day. So we all the things slow gradual recovery in the space.
Well it begins to return to normal.
Tried to consume the strength in labels more than offset steep declines in batches for the.
The declines in the pads business instead of the significant headwind for us and probably will continue to be so for the first half organization products. The two most important the bond is an index as the it's still down on the workplace closures, but the principal media business of mine.
Many labels for <unk> printing has been improving especially in the U S. But also internationally. So we all seeing gradual improvement in a very mature please see slide.
Slide 11 checkpoint.
So the checkpoint yeah. It was it started off in Q1 this year down 10% as the apparel industry really began at the pandemic affected period in January.
This year of.
The last year, sorry in 2020, we were down 33% in Q2 down 8% in Q3 of them just less than three or around 3% $3. One per cent in Q4, but in the second half of the year profits moved above the prior year period. So the thing the good recovery of the particularly.
On sales to re tenant two of them in the in the essential category of doses in the discretionary category.
We had record results on a repower label business boosted by robust for RFID performance.
Sales were down in hardware, but held up nicely and labels and tags, we change it on mix and cost savings initiatives and it shouldnt talked about earlier augmented results.
Moving on to the Innovia.
Now the strong call to here.
It's really out of about a year of cold it by quarter and.
The slow period in the summer months, but it's we've had very strong Q2 in a very strong Q4, and the profits of really followed that really driven by improved mix cost savings and much better asset utilization.
Things have been increasing dramatically they've actually doubled in the North America kind of.
Really serious quite seriously impacted by the part of the installs you've all been reading about in the newspapers who'll give you some more commentary about that in the health of infection.
So page 13 few comments on the first call it for and how things looks of installed for the year has been good so far despite of Lockdowns in many countries.
But as I indicated Avery remains below prior year, but the GAAP. It's cool I think we'll continue to close in Q1.
Checkpoint is now of moving ahead of prior year levels bearing in mind, B were down 10% of and the corresponding quarter last year.
We expect the CCL segment takes to progress in the first half sort.
The first half last year, the CCL were flat in Q1 down 6% in Q2.
And the profits of pretty much flat in the first half the we'd expect the better than that the.
This year the second half of the year, we were up 26% of profits.
That'll take some that'll be on.
We'll have to any of the come in the second half of the year.
I don't think commodity is beginning to rise as I mentioned in some cases rapidly we do have some supply shortages in certain areas chips, which you've been reading about for RFID in the newspapers sort of.
Slide the concerns about that but.
But the impact of the storms in Texas and some of them a couple of our operations.
The LPG gas supply from the <unk>.
On the energy production sources down there.
On the fact that 75 per cent of the resin, making capacity in North America has really been closed down for 10 or 15 day. So that's closing on some short term problems and would likely affect and other of your in particularly in the first culture of the year.
We expect FX to be nominal or moving to all of the slight headwind depending on what happens with the he was total of Canadian Canadian dollar rights of use told me. This is a drag but the other foreign currencies on them.
The wins, so we'll see how that pans out.
So without the operator, we'd like to open the call for questions.
As a reminder, Jack a question you will need the press star one on your telephone.
On your question, perhaps of the pound key.
Please standby of other compile the Q&A the last thing.
The first question comes from the line of Mike <unk> with Scotia Bank. Your line is open.
Hey, Jeff Good morning, guys moving.
Mark.
Maybe just to.
All of the conversations on the commodity.
You know when I think of what your business again I think it's all of these the exposure of the Nokia I guess I'm thinking about the gel segment. Some of the other businesses just maybe talk about the commodity exposure and I think historically, you've done a great job of sort of managing sort of volatility, but maybe some kind of on.
On the sense for how material the okay.
It could be.
Yeah, I think I think you've called it out right Mark I think the the wanted to be concerned about the januvia.
Just because of the it's all happened in North America. Some of it's the impact will be more of that and it will be in Europe and Asia.
Because that's where you've seen the spike in inflation.
And the rest of its really about LPG supply down into Mexico, which also impacts of the Norwegians impacted on the can business.
In terms of its ability to produce so they're the two impacts of the thing I don't see much commodity risk in the other parts of the company that can easily be managed.
Sure you bet.
And the the comments you made hooked up I thought were interesting I'm just curious I guess 222 parts of the question first if.
If there was any parts of the business now where you're capacity constrained and I guess the second.
The second part.
With me.
When you think about of reopening of their sort of any parts of your business do you think other sort of obvious that maybe based on the headwinds I think of a hand sanitizer, but I don't think that actually goes away.
So I'm just I'm just curious if you think there's anything of parts of the business, it's obvious challenges as we reopen.
But I think are the.
The policy that have done well will probably recede and the pilots that have been badly affected will come back for so I think it's the scale really in the.
So we'd expect Adrian checkpoint, which of the two businesses.
The most affected by the pandemic sort of.
Recover quite quite significantly in quite quickly in the in the year ahead.
And businesses that have been on the on the tax because of the.
Restrictions. So we've had a very good year with Sanitizers and I think some of that won't go away I think you're right about that the probably the levels of demand will probably recede.
And the some some of our businesses are focused on products for home improvement for whether that will receipt of no later than the year of its travel opens up of people spend less money at home and more money on more discretionary things of any time will tell but.
But I think we've got we've got on the things that are coming back will outweigh the things of the logging to recede in my opinion.
Okay.
Okay. Thanks, I'll pass the line, but the quarter and pre job for you.
Thank you.
The next question comes from the line of Stephen Macleod with B.
<unk> capital markets.
It's open.
Thank you good morning, guys Hey.
Hey, Steve.
Right.
I just wanted to turn quickly to the CCL side. When you gave some of some comments for the first quarter.
Expect it to progress can you give a little bit of color around.
Maybe some segment specific performance on how that has has.
The difference or varied based on lockdowns around the world.
I don't think it's been a lot different to how it was in the second half of the year so far in the call for.
So things that we're doing well in the second half of the year is still doing well.
So that's the that's kind of what we say we haven't seen any change in trend since the since the second half of last year. So Q3, and Q4 were both good into the CCL segment of the space.
And they've continued the.
Trends of continued so far in Q1.
Okay. Okay, that's great.
And then just turning back to resins.
The <unk> business you did a lot of work sort of changing the contract structures to pass through of those resin.
Cost of resin inflation.
What can you talk a little bit about sort of what you see in terms of the <unk>.
That business's ability to manage this current period of rest of inflation and what that might do the margins well.
You know they they have power three mechanisms, but if you get 100% inflation in the space in three months, it's pretty difficult for them.
So, we'll we'll pulse, it's really about timing Steve.
So some of the contracts of monthly pass through some of them Nicole Italy. So the ones that of coldly, Paul throughs will be problematic the ones for the monthly the millennia of the 30 day lag, but we've got some of them with 90 day lagged.
On the inflation is pretty dramatic for them.
I think we're just not the work our way through it the I think once the resident correct cracking capacity comes back on line I think we will see it as quickly adjusting polypropylene is at all time highs instead of it being higher in its history. So the combination of tight capacity and then the storm has just been.
It's very difficult for them.
But but I think we've done a good job of organizing the pass throughs, but.
I can say, there's always the lag between the two.
Getting getting the projects put through in the.
Moving on from the.
They will be on impacting Q1 on the.
Top of the fact that we haven't been able to run the plant properly because of the availability of LPG from Texas.
Okay. Okay. That's that's helpful. And then maybe just turning to the the API business.
Can you talk talked about talked about recovery through the year, which has been impressive as things of rebounded would you expect maybe the full year to be up year over year of neighborhood.
Yes.
Yeah.
Okay.
The what we're seeing now Stephen.
I mean, the Australia as well.
The one country, where we can see an impact because Australia life is relatively normal down the compared to many other parts of the world and it's the <unk>.
Domestic business and it went up a little of it dependent on travel.
I mean, you've seen of very very strong start for the year down there the slides currently walnuts operating normally.
And and obviously in the first half of the year of the columns the very easy.
And.
If we have a good back to school, we didn't have the good back to school this year well difficult to see how anybody could bounce back pretty quickly as as the economy opens up.
Okay. That's great. Thanks, Jack Thanks, Sean.
Okay.
Next question comes from Walter <unk>, Brooklyn of RBC capital markets.
Thanks, very much operator, good morning, Jeff Good morning, Sean.
So Jeff you put into a fairly big variance in your organic sales growth by region in the CCL Division can you speak of but to what.
The big variance.
And also comment on CCL secure would you say is there still cash hoarding going on or is that more normalized now here in the fourth quarter.
Well I would say the the regional call outs of pretty much what you'd hear for my customers too. So if you look at if you're told to the consumer products industries.
I used to play the little thing very strong numbers in the U S.
The strong numbers in Europe strong numbers in Latin America, and sort of in between in the end.
And Asia and Asia is really a mix between what's going on in China on what's going on in the ASEAN countries, where the lockdowns of pretty extreme so I think the results we see theyre pretty much followed the same trends you see from the the big consumer products groups.
CCL secure on another strong culture and key for them.
We see no there's no end in sight to.
The growth of cash continuing so Uh huh.
There was a lot of some tough comps in the second half of next year, but the first half of the year I don't think we'll be in good shape on them.
So we're still pleased to see how things are going there.
Okay and <unk>.
CCL.
<unk> was up mid single digit in the second half as you mentioned and you said that's going to continue here in the first half comps are fairly obviously meaningfully easier in the first half is mid single digit is higher than mid single digits.
Good day, I mean, we love to say, yes, it could be.
Okay. That's one of my questions. Thank you.
Total.
Next question comes from Adam Josephson of Keybanc.
Jeff and Sean Good morning.
Good morning, Adam.
Good to talk to you about.
Couple of questions just about the comps as you see them for this year. So last year was quite an odd year, obviously in many ways, but your organic sales were down for but your earnings growth was the best it's been in three years. Your margins were near record do you actually had.
Really quite of good earnings year, despite sales being down for so how difficult or easy do you think the earnings comp is in 'twenty one.
Well I I think you have to bear in mind that on the.
Checkpoint did I ever at two of our more profitable businesses and we expect both of those to come back quite strongly this year. So I don't think the mix.
The earnings comp is not that difficult really.
It's small difficult in the CCL segment in the second half because we had 25 25, 26% increases in both Q3 and Q4.
But in Q4 of last year in 2019, it was the soft call for it so.
So if you look at it over a longer period of time, it's really not that difficult and we do expect the food and beverage business, which has been difficult all the way through the pandemic because of that the impact of the on premise trade restriction.
1000 restaurants open up again.
We expect of that business to recover quite quite quickly and the.
And so that's another one that could bounce back so I'm, sorry, I didn't feel that we've got difficult earnings comparison.
Got it thanks for that Jeff one on CCL organic growth outlook. So.
Somewhat remarkably it was up as much last year as it was the year before I end of 19 was the global slowdown, but you know one would think the 'twenty would of been worse. The 19 in terms of CCR organic growth kind of wasn't it was identical so in light of that how are you thinking about 'twenty, one organic growth in <unk>.
C. L. Do you think the last two years were quite depressed in and therefore 21 should be much better than the past few years or how are you thinking about that I think.
I think of we had 1.1% organic growth in both of those years.
And the thing you have to remember about of the pandemic here, we have had the the health care Boone you know so hand sanitizers in right.
The excess sales of over the counter medicines so.
And then the CCL design, the I T peripheral phenomena.
It was the was another another.
Very good tailwind so.
So you know I think that all set of things that were down you know food and beverage parts of the volume in personal care business high end cosmetics and things of leather.
So we had sort of a balance in the portfolio but.
If you look on what happened in the last two years slowdowns and the same thing happened, we slowed right down to <unk>.
Flats of all of them or even down a little on I'd expect our organic growth rate.
If the economy recovers to go back to its normal previous run rates.
3% to 5% something like that.
Right right got it and just two more one on the of novae of margin. So they were the highest they've been obviously you had a tremendous year there, 25% EBITDA margins I'm trying to remember what the margins were when you announced the deal how do you think about those the margins you were in last year, just in the context of what <unk>.
You think normalized margin should be for that business as you see it now.
Well I think the industry had a record year for them.
Supply was tight.
In some parts of the world and the.
Fortunate to be in places, where we could supply from you didnt have any plant closures.
And we did a lot of operational work. So I think of lot of the a lot of the improvements in the in the results for that business came from from a lot of operational turnaround type activity.
And then pruning the mix so we have.
Had some particularly the form of three of five businesses.
We had some bad mixed the prune out.
So that also helps because it got replaced by things the more fundamentally more profitable.
So it's hard to say other yeah. The first calls where I think we're gonna have to deal with the situation in North America with the.
It's sort of incredible rise in resin, it's something south of the sort of happened in history for the highest level of its ever been in the history.
But I think it's likely to recede as quickly as it started.
The resin hit one like the one.
120 cents per pound in the in the month of January and I think it'll probably end up close to the 130 by the time February is out.
But I wouldn't be surprised to see it dropped 50 or 60 by.
By the time of the summer the summer arrived so.
So it's a it's a short term peak really in the.
I don't expect to see at the stay at these elevated levels of very long in the stuff to work our way through it.
Right and one last one Jeff on M&A, you to comment on your release about being well placed to fund your global ambitions, obviously your balance sheets in terrific shape.
The prices globally are very high so with all of that in mind. How are you thinking about sizable M&A in the next year or so.
When you change them.
It's difficult right now for you know, we still travel is still a real problem for us I mean, we.
We were able to get about a little bit now, but it's still pretty restricted.
So I think taking on anything in the near term not likely but.
Valuations are still out there on.
Found things that we've liked the prices of <unk>.
I need to anytime soon is a good level of activity in the bolt ons.
The large scale M&A you know there's nothing immediately on the horizon.
I think that that may change as the year progresses, and we're able to b a bit more a bit more aggressive about going and looking at things that we've been restricted from doing sort of in the.
And some of it throughout the pandemic.
Thanks, so much Jeff.
No problem.
Next question comes from the line of Michael.
Michael.
Operating income.
Hey, good morning.
Just on the <unk>.
Check point as we think of BOE.
The merchandise availability solutions and security tax business ramping is there incremental costs that comes back on the checkpoint.
For that business and the that'll keep the margin.
Say stable at these levels or should we think about the margin there potentially moving even higher.
Well, the emas hardware business the M I.
The S hardware has the lower operating margin on the supply side.
So sort of if we if we if we get more hardware orders that the that hurts the mix.
So, but I think into the generally the improved improves the overall result, because.
We've got people involved in that to the fixed costs. So if we get some some sales in the air.
It comes back which I expect is we're already starting to see it happen.
It'll be on overall benefits, but because.
But we did benefit certainly in the second half cycle from the mix so being more supplies based.
And the being.
Being quite strong in what we called essential retail going on.
The volume of some targets.
The market changed places like that versus sort.
As the more discretionary type retailers.
Okay and just on Innovia.
Do you how do we think about the opportunity for M&A growth in that segment. In particular are there do you see a wider MRI.
The M&A opportunity and the Nokia versus.
Some of the other businesses.
Well, we've made one acquisition last year, there's other.
It was in the pipeline whether any of them happened on all the time will tell.
Okay.
The the resin inflation does that impact the CCL secure merchant.
No.
And the tax rate for next year.
Sure.
Sure.
Slightly less than 25%, maybe 'twenty 'twenty, four and a half ish.
Okay. Thanks, guys.
Your next question comes from the line of buyer of gallon.
Oh.
Good morning, guys.
Moving down.
The one equivalent for the on the checkpoint.
Yeah with respect to RFID and apparel labeling last quarter you mentioned the majority of the of the gross was was just from the recovery.
The pent up demand would you say that's still the same this corner quarter now that you've got record results again or would there be an element of.
Of the shift towards more of a five day during the during the pandemic.
So on in Q for Q4 was we continued to see the shift of the power of label business grew about 7% in Q4. So I think some of that is some of that is the rebound of the on the supply side of the for the retailer.
Retail on the apparel supply chain and some of its RFID.
The combination okay great.
And then on the labels.
We've heard some of the consumer packaged companies talk about taking share from the generics during the pandemic is that something youre seeing and is that a trend that you think will continue as consumers look towards the safety of our premium brand just given pandemic concerns.
Yeah, I think that's certainly true I do think of people who've been loyal to the brands. They know during the pandemic kind of and I haven't been price shopping.
If you look of the results of the P&G, the probably they've been the ORC type of.
Company in regards to your comment there on the.
So that's been the benefit to us but.
Yeah, I think it's for us as we see that space is still mixed because of the.
The impact of travel retail related products for Sun care of cream Sun care aerosols.
The size.
Aerosols.
The things that are sold in the specialty retail stores, but still somewhat down.
So it's still a mixed story in personal care between between brands sort of doing well on.
Yeah.
On the shelf of the supermarket on bonds that are.
Or associated with the different types of activity from being locked down.
Perfect all right. Thanks, very much guys. That's it for me.
The answer question you May press the star one on your telephone keypad.
Next question comes from Scott from some of the I D.
Thanks, and good morning, gentlemen, you've covered most of the operating of market growth issues, but I'm wondering if you can comment on planned initiatives in the sustainability and the other ESG issues.
But not a lot to say the.
The sudden pasta scope out the skull, where we're very much tied to the behavior of our CPG customers in that regard. So we've got on a whole suite of products.
Well, what I would call of sustainability drivers on how whether they get adopted on all of us in the bulk of it is in ours, but it's the topic du jour of the moment for sure.
We will continue to be so for some time.
Thanks, I think that covers it off a lot of turn it over thanks.
Thank you.
Next question comes from dozens of key of.
B.
Michelle.
[laughter].
Alright, good morning, the great quarter I have three very quick questions.
Just on the <unk> side.
And the bad news and events business can you put that into context, you know revenue like so that that's within DTC, how much of it how much of that is part of.
On the overall labor.
There's also one other part of DTC, if I'm not mistaken.
Just to kind of give us the the by the the badge part of Avery is about $100 million.
I mean, it's down 65, 70%.
Okay, and the rest is growing well.
The the threat to the the other part of the threat to consumers of labels and that's growing well.
Okay.
And then the second question is the.
M&A.
Assuming it's done and when it's done, but you're not targeting any specific segment like it will be opportunistic.
Wherever you spoke on the call it any more than I have done on M&A, but nothing we've said.
So I had no zero about what our position on the M&A is.
Got it and then the third the third one just for.
Probably roughly the same the same.
The same answer, but just any nobody on the the way I understand it is you are all.
All of US better prepared this time than in 2018, but the increase in resin now is more sort of.
All the time or more higher than in 2018 as that of boat.
If I compare.
Now in two years ago in resin prices now than two years ago, just out of both the ratio.
Yeah.
Okay.
Okay.
Yes.
Because we're a good way to put it on you know I think what you have to bear in mind is how extreme the price rises of B I'm, just looking to market for you.
So if you take the.
Okay.
The resident in the month of the September was trading at 61 cents per pound in the U S.
And it's trading at close to 130 today.
Yeah.
So it's it's really risen so it's somewhat compounded by the.
It's Goldman Texas because of the 75 per cent of the industry got shut down when the storm came.
And.
So I expect this will graduate of alleviate itself.
As of March unfolds, but right now, there's a sort of it's sort of a pressure cooker.
Okay.
The answer yes.
Thank you Shannon.
Next question comes from B B.
Of course.
Oh, yes on thank you two questions for.
First of all just on angry.
I was wondering if you could maybe provide some color on where you think the business well what the form I would imagine that.
Is it still going to be pretty challenged from 'twenty to 'twenty, one, but maybe it all come back in the latter half of it.
Normalized and then you know there's still a lot of workplace closures the organization on products probably be down. So I was just wondering any direct consumer going on.
Carried the day there is plenty of if you could provide some color on that and then just on free cash flow, obviously very strong free cash flow in 2020 G. B actually thank you Craig the grow your free cash flow on 2021 versus 2020. Thanks.
Well, we're not going to comment we don't give guidance on free cash flow for the year ahead. Some of the numbers will be able to the.
Let's see how the year unfolds.
As for your questions on the Avery.
I think you have to bear in mind, there was a lot of.
Significant drops.
And the performance last year, so down 30% in the in Q2 down 16 in Q3 down 11 in Q4, so the comps on once we get through Q1 on a pretty easy for the rest of the year.
So I think it'll be difficult to do better than prior year in Q1, just because they weren't really impacted by the pandemic in 2020 until Q2 arrived.
And we had of I mean actually had a pretty strong start of the year of 2000 twenty's until the pandemic hit.
But the obviously once we get through that the next three quarters. The comps are going to be particularly easy I don't expect to see any of our product lines showing showing drops so nothing that all of the showing increases of one sort of another once we get into the second third and fourth quarters of the year.
Okay alright, thank you.
Okay.
We have on follow up question from Adam Josephson of Keybanc.
Thanks, Jeff and John just Jeff One question on your comment on resin that you think prices could rather quickly come back down heading into the summer. The reason I ask is obviously resin prices were up dramatically even before the winter storm coming weeks ago, just as men.
Any other global commodity prices have had absolutely surged since last summer, whether you're on steel copper iron ore.
Lumber you name it oil has been surging so I guess, what what gives you confidence.
In that forecast if you will the that resin prices could quickly come back down do you think the supply chain.
Many of the situation in North America, RASM, because residence of not gone up to the same extent in other parts of the world as it has the North America. So it's really of regional comment about the situation in the U S.
And the capacity was tight pricing was tight before the storm the storms exacerbate the day, but a lot of the new capacities coming on stream in.
In the second half on the storm will recover and the.
The rate of the range of premium we have above the supply of resin in the U S is not sustainable.
So you always see if you get one region of the World has the.
Kind of a price premium of 50% above in other regions of the world that doesn't that.
It doesn't sustain itself over time, so it's really it's really the premium nature of the.
Of the price change in North America versus the other parts of the world because of confidence to say the yeah. Yeah. Just one other question Jeff in terms of your visibility I mean, obviously when the pandemic started you and everyone else had non <unk> and the year unfolded much better than I think you might have feared.
You know in March April thereabout. So what are you what are you thinking these days in terms of the economic outlook and how it pertains to you know what do you think.
How would you characterize your visibility and how much better is it now than it was 369 months ago.
Well I mean, I think in the days of March and April of last year, it's difficult to feel confident.
So we feel dramatically better.
This year than we did this time last year.
So.
And I I I do think of I do think the stimulus that's happening all around the world from government.
To have a big impact and on.
I think of peoples behaviors.
Behaviors to go back to normal is also going to have a big impact.
So there'll be some for some of our businesses will receive the.
Benefited from from the from Covid, the Covid ear on the Lockdown era, but others.
Basically her and so.
So I think we'll just see that sort of two edges of the scale of the ones that the businesses have done well on the pandemic will probably receipt of normal but the ones that were already in the toilet, they're gonna come bouncing back in the.
And then I think the balance of that is probably a good thing for us.
Overall index.
Yep.
Are you at all concerned about what happens after the government stopped sending out checks or is that just kind of like.
On your part B.
Yeah, we have the same concerns as everybody else has about debt levels.
And what that means for the near term I think for the year ahead.
I wouldn't be surprised to see U S. G D P.
The five 6% this year.
And the wherever you know we tend to follow that sort of if you see these rises from the previous lows.
That's the kind of help of follow it. So so we feel quite confident about the year ahead.
And so all of them in the short term short term golden with sections, but the but does that work for you.
Quite confident about the use of it.
Thank you.
You have a follow up question from Stephen Macleod BMO capital markets.
Oh, thank you.
Wanted to follow up on the Nokia and I don't want to beat a dead horse or given the rest of the price inflation, but.
I just wanted to.
Is it.
Is it reasonable to expect that.
In Q1, you could be in a situation where.
EBIT gets sort of totally wiped out by the resin price of inflation, given how dramatic it was or or is that is that too.
On to our two extreme of the situations that might be the mandate in the U S. It might be the case in the U S. So Steven so so in the U S. Because it's the state dramatic and then we've had we've had in the plant.
Not able to operate at normal capacity, because we can kind of get LPG.
So so I think in the U S. We might have that problem of I don't think we'll have that problem in the in the rest of the naive yet so.
It's the sort of the thing.
The thing we can disclose on the on the childhood.
Do we have to the U S.
Both of these other parts of the world.
So that's that's the part of it I think it will be particularly impacted but in general I mean.
We had a very good January so I can tell you we didn't see it in January So January numbers were good.
We expect February to be difficult.
Partly driven by the situation in Texas.
Yeah.
And would you expect.
Would you expect that.
We're still seeing strong demand on the <unk> side. This is more of a cost issue than a demand issue.
It's more driven by the the.
The.
The the inflation on the end and our ability to operate the plant because of energy supply because of the.
Two compounding factors both demand driven.
Right. So the demand is still robust.
Yeah, Yeah, yeah, yeah, great. Okay. Thank you so much that the problem.
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There are no further questions at this time for centers you may continue.
Well. Thank you very much everybody for joining the call today and thank you for your attention and we look forward to talking to you again in May.
Bye everyone.
This concludes today's call. Thank you for participating you may now disconnect.
Okay.
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