Q2 2022 CCL Industries Inc Earnings Call
you please hold and an operator will be with you momentarily morning conversation you
I hope you see that.
Slide 11 highlights the results of Avery. A strong trajectory in this business continues, especially in North America, where we've seen a big recovery in nine batches.
Not quite yet a full recovery because we're still seeing some slowness in the convention space but sports events and other forms of events are back to normal.
Long cash acquisition accounting affected the AVRI results as Sean already mentioned to the tune of $3.5 million down in Brazil.
Royal materials inflation and elevated freight component costs from China pass through were successfully implemented but supply variability in this business is still challenging.
HOD12, hod for checkpoints.
The MAS business had a tough quarter actually. We saw declines in all regions except that in America, but birth is a very strong prior year and our profits were impacted by China freighting component inflation and lockdowns in the country which affected a large supply plant that's based in China.
The apparel labeling business on the other hand and another exceptional quarter exceeding expectations 25% organic growth driven by RFID and augmented by the unitaire and Technoblue acquisition.
one soft story at MAS and one strong story at ALS.
5.13, in Novia. Two stories again here. Volume was up in the Americas but down in Europe and the sales game was largely priced to pass through the inflation.
The down story was really all in Europe where we had higher than expected energy and freight inflation and the cost of the New Line startup in Poland, all three of which impacted profitability in the quarter and accounted for all the decline in the quarter.
Profitability did increase in the Americas and was held by the revaluation of inventories in the US, and we also saw higher freight costs in North America.
Slide 14, our outlook comments for the coming quarter.
Final price pass-through initiatives have now been implemented to benefit the core CCL label businesses where we had some lag and that will definitely benefit the second half of the year and the orders picture remains very solid.
CCL design outlook still depends on the chip availability recovery, especially in automotive, and consumer demand holding up.
in the electronics space where it's been a little bit soft recently.
Recent acquisitions are additive.
constant CCL security significantly for the second half AB Volum should continue to improve and are bended by recent acquisitions.
Checkpoint RFID growth at ALS is also expected to continue.
but the softer MAS picture in broad retail may well continue in the second half. I'll have to just wait and see.
You may be yourself likely to decline on lower resins, so resin has been dropping in the last three months at today's purchase prices.
And we have to balance the freight and energy in place in Europe to match the second half of 2021 profitability.
We are working on both of those things.
Company-wide, our China operations are back to near normal, but demand in the country overall remains soft.
Okay operator, with that we'd like to open the call for questions.
Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time.
If we ask that while posing your question you please pick up your handset if listening on speakerphone to provide optimum sound quality. Once again please press star 1 if you have a question at this time.
And the first question today is coming from Mark Neville from Scotiabank.
Mark your Linus Life.
Hey, good morning guys.
Thanks for taking the time. Thanks for the time, Jeff. Maybe first, just on prices, just so I'm clear. Are all the price increases that you intend to do through now?
There's a little bit of lag in a couple of parts of the businesses. So I'd say the three areas of lag you can think about.
Food and beverage in the CCL space, we've got some lagging contracts there that we've now fixed.
So we'll have the benefit of that in the second half.
Checkpoint MAS, the freight and component cost inflation increases going through, particularly in Europe in the second half. We've got some energy and freight transportation surcharges to pick up in Europe .
I wouldn't say any three of them are terribly material. I would say we've passed on.
85-90% of the inflation we've received.
That's all. Thanks.
Can you just, on the regional differences that you're seeing in the CCL segments, is that more to do with sort of the rate of inflation in those geographies or the mix?
Well, the Latin American...
situations really about share gain in some parts of the business.
So that's as high as it is.
I think in Europe it's definitely, inflation in Europe has been running at a higher clip than it has in the US, so that's probably fair comment about the contrast in Europe versus the US for sure.
And also in Asia where it's running at a much lower clip.
In terms of volumes and demand picture, I'm just curious how that differs regionally, if there's a marked difference between what you see in Europe and North America and Asia.
It feels like with the economic data that there are risks. It feels like they wipe you off, but they don't know.
Yeah, I would say the strongest region right now for us is North America.
Europe is patchy in parts and Asia is patchy in parts, especially in China.
mirrors what most of our customers are saying you know the North America has held up pretty well some some bothersome data coming out of Europe and also from parts of Asia.
You know, that's helpful. Just it gets a little blurred by the price, but that's super helpful. Maybe just one last one for me then. Maybe just in your NCIB, like your stock's gone from sort of mid 50s to mid 60s. I'm just curious if you tend to be as active.
I'll have to wait and see.
All right, got it. All right, thanks. Thanks, Jeff. Thanks, John .
Thank you. The next question is coming from Steven McLeod from BMO.
Steven, your line is live.
Thank you. Good morning, guys.
Thanks, Steve.
Morning. Just on the CCL segment, you had really nice EBIT performance there and given the fact that most of the growth was from price, I would have thought you'd see a little bit of EBIT margin pressure. So I'm just curious if you can talk about some of the drivers on EBIT in the CCL business in Q2.
Well two of our bigger businesses in there HPC and HN Healthcare and Specialty did particularly well.
and I would say I've done.
particularly in North America have done probably the best job of the price pass through so we had very little lagging inflation in those two parts of the businesses.
So at CCL Design, you know, it was more of a mixed story because we had the impact of the chip problem. Demand was soft in automotive, demand was soft in electronics.
And in food and beverage, we had some contracts where we had inflation lag. And then at CCL Secure, we had a very strong EBIT quarter last year with very high margins. We had higher sales this quarter, but mix was very challenging and still above the average for the company, but not as good as it was last year. Okay, that's great. So mostly, it sounds like mostly mix and price related.
On the MAS business in Check Point, it sounds like you expect some of the softer retail sales.
Impact to continue in H2. I'm just curious you expected to worsen or you is your is your sort of your guidance based on what? You're seeing today
What we're seeing today, I mean it's that business is broad retail so we sell into all kinds of stores.
operators in the MAS business so grocery, pharmacy chains, you know all those changes seeing them all so it's really broad based retail and we've certainly seen some slowdown in sales globally
And that business, North America's not the largest reason in that business, so Europe is. So some softness in Europe and some softness in Asia, partly due to the lockdowns in China.
Okay, that's great. And then just finally on Anovia, obviously with residence lowering, you're talking about sales being impacted. Would you expect the back happy bit to be flat given what you see right now or are you sort of guiding to it potentially being lower at this point? Yes, please.
I think it depends on how well we do with the energy and freight situation in Europe . That was the main problem this past quarter. I mean, we've still got the startup cost of the line in Poland that wasn't terribly material, but freight and energy catch up on that, making sure we've got enough recovery on that and our pricing is important in the second half. If we do that, I think we'll be okay. If we don't do it, we'll have a repeat of what happened this past quarter, but we're working on it.
Okay I'd expect to see some sequential improvement maybe maybe doing as well as we did this time last year with a squeeze in inventory we're going to have might be difficult.
Okay, that's great. Okay, great. Thanks. Yeah
Thank you. And the next question is coming from Walter Sprachlin from RBC.
Walter, your line is live.
Hi, gentlemen. Thanks for taking the question. This is Lewis on for Walter.
I know we ask you this every quarter, but any change to the M&A landscape? Is market volatility prompting any new sellers? Are evaluations still elevated?
No change.
Okay.
Okay, this one's on CCL. So organic growth and CCL core segment has been solid and your outlook sounds optimistic. How far would you say you have visibility on demand and any views as to sustainability beyond that direct line site?
Well it's a short lead time business in large part.
In numeric terms, we have visibility for about six weeks. But we don't see any anecdotal change in circumstance, so customers are still very much focused on supply availability than anything else. So supply chain issues still remain in many areas of packaging, and customers are more focused on making sure they've got what they want when they need it. That's the big issue right now.
Okay, thanks, Chad.
Thank you. The next question is coming from Adam Josephson from KeyBank.
Adam, your line is live.
Jeff and Sean, good morning.
Good morning.
Morning, Adam. Jeff, morning, Jeff. You just, in response to the last question, you just talked about how supply chain problems are leading.
packaging buyers to keep keep their stocks up yet in the earnings release you talked about supply chain problems easing.
So can you help me square those two things?
Well the slide change...
It's all relative. So it's not as bad as it was, but it's still terrible compared to how it was a year ago.
So is it better than it is it looking like it's improving? Yes, it is. How is it compared to a year ago? Terrible.
So, you know, our key raw materials, pressure sensitive raw materials, typically we used to wait two to three days to get an SKU of raw material from a supplier. Today we wait six to eight weeks.
Yeah, and do you see that? Yeah. Pretty dramatic, but it has some of the pain points we were experiencing.
You know the UPM strike particularly, you know, obviously over so some of the pain points are easing but compared to how it was in The last time we call it normal. It's still pretty difficult.
Do you see that? I'm sorry, go ahead, Jeff. No, go ahead.
Do you see that easing further in the weeks and months ahead for I mean, there's no other event like that the UPM strike. So is there anything that sticks out to you that would suggest to you that these problems will significantly further ease. In short order.
Well yeah I would say we're certainly seeing some some some signs of easing and and also you're seeing that in deep deflation rather than inflation you know resins and aluminum.
and
So and things are a little bit easier than they were so I think papers the big a big big question So paper supply industry in the US with all these conversions to boxboard
paper supply in the US has become challenging just in general.
Yeah, no, understood Jeff. When we look at your CCL segment organic growth and try to compare it to.
historical when we've been in recessionary periods. It's fluctuated anywhere from, call it flat, up five to six percent, but this time it's distorted with all the price increases related to all the inflation. How do you characterize your volume trends now compared to what you've seen in past recessions? I think you said your volume is slightly up in the second quarter, and I assume you're expecting something similar in the third quarter.
can you just frame what the volume trends your experience are compared to years past and recessions past?
Well.
It's a very different economic outlook compared to how it was in the last one where we had, the last big one was the global financial crisis of 08 and 09 which was a real recession, you know with unemployment and all the rest of it. So this time we have a technical recession and GDP's declined two quarters in a row but we still can't find people and unemployment and employment is at record level so it's an unusual situation.
and on top of it you've got supply chain constraints which we didn't have in the last recession. So it's very hard to read what's actually going on underneath it all. But if you look at the results of our customers...
Most of the sales increases.
that we saw, there were exceptions, but a lot of them were price-led rather than volume-led.
So we look at that quite closely and follow it quite closely.
And.
You'll be out looking.
Probably like it's been this quarter. There will still be a little bit of volume growth, yes, but not much.
Yeah, I appreciate that. And on the price pass-through initiatives that you talked about earlier, how much inflation did you actually recover in your CCL business in the first – I'm just trying to understand how much more growth one should reasonably expect year over year in profitability given whatever additional price recovery you will have had along with all the other benefits, the easier comps in CCL Secure, the acquisitions in CCL design.
My gut tells me the volume of the situation is unlikely to change for the second half of the year.
But, presumably, the price-cost relationship will be more favorable in the second half than it was in the first half.
Yeah, yeah, but don't forget we've got a lot of pass-through arrangements and the things that are really dropping like aluminum we pass on pretty much real time.
So that's kind of a wash on the bottom line, really. I got it. Okay. Yep. And just one last one, Jeff, on RFID. Can you talk about what – Huge oil leak
from your seat, what the penetration is and apparel and other.
markets compared to what it was, say, a year ago, and has your thinking or outlook changed with respect to the long-term opportunity you have in RFID.
Well, most of our sales, like everybody in the industry today, are in apparel.
apparel has been is the hundred pound gorilla in the room of RFID and it's still continuing to grow and the technology is still continuing to develop so the form factor of RFID is also beginning to change so it's not just not just the rollout of RFID it's the form factor that's using
So more use of soft tags, less use of hard tags specifically.
And so we still think we're in the...
early to mid phases of RFID growth and I haven't seen a lot of change in that comment between you know since last quarter.
We are getting quite excited about opportunities outside of apparel, but they're all in niches and there's lots of them.
So the challenge there is to find, you know, making sure you've got the last mile of the...
business development, sales and marketing activities.
The product is properly priced to make a real profit in that part of the business.
But we're excited about it.
Wonderful. Thanks, Jeff.
No problem.
Thank you. The next question is coming from Ahmed Abdullah from National Bank of Canada. Off-head, your line is live.
Thank you. Good morning all. You managed to deliver strong results of about 11% organic growth in the first and second quarters of this year. Given where you stand and all the moving pieces and how pastures have gone and inflationary pressures, should we be thinking about a similar level of organic growth in the back half of the year?
Have to wait and see.
I mean we've got some resin and aluminum boats dropping quite significantly so we definitely won't see the same rate of growth in Ovia in the second half of the year because resins are dropping and where we've got pass through arrangements like in our aluminum can business.
which has also been dropping we're going to see impacts there so the bottom answer is no I don't think we'll see the same rate of organic growth because I don't think we'll have as much inflation in the second half but what the number will be I wouldn't like to say
Okay, that's fair. And at Avery, you highlighted that you saw a bit of a pull forward as the back to school season saw an earlier than usual start this year. Can you perhaps quantify how much of a pull forward that may have been? I mean, will we still see a bigger third quarter in the year for the segment?
Well, technically the big month for the back to school shipment is July , but this year it was in June .
Because the pull forward was really from June into May so first time I can ever remember back to school shipments beginning in May.
So they started in May, they accelerated in June , so July was below what it was for July last year. But we're expecting to see some pick up in August because the reorders are much more organised this year. The retail industry had a calamitous back to school industry last year with all the chaos of retail. They're much better organised this year. So over the season, we're expecting sales to be up.
But I think there'll be more in Q2 this year than there was in Q2.
this time last year and less in Q3 than this time last year.
Okay, that's fair. And on the Inovia, the sales decline given the lower resident prices, are you thinking more sequentially or versus last year as well?
Sequentially.
sequentially.
I think we'll be out versus last year, but I'll have to wait and see.
Okay, that's it for me. Thank you.
Thank you. The next question is coming from Michael Glenn from Raymond James. Michael, your line is live.
Thanks. Just to start, if we're looking at CCL design and we're thinking of the automotive business there, can you give some sense as to how much below trend or how much opportunity for upside there might exist there?
Well it's about 300, a little over 300 million in sales.
before McGathergans and McGathergans we've added a fair chunk to it and
It's still difficult in automotive, so we've still got lots of problems with OEMs, rescheduling production, parts availability, so that's the big challenge in automotive.
and it's disrupting our operations everywhere, particularly in the US, and we're not very big in China, but particularly in the US. Europe seems to be better, Europe is performing better than North America.
That's probably the best colour I can give you.
And is the bigger exposure for that business overall, is it in North America versus Europe ?
Well now we have McGatagans. No, no, Europe is the biggest.
but then they're frozen in automotive.
Okay, and then for the MAS, there's these stories we read about increased, you talk about the grocery and the pharma broad exposure, and then we read these stories about increased use of security products on an expanding line of items. Are you seeing any of that come through in your results?
You can see that in the CTL space, not in Checkpoint MAS.
Okay. And then if the pharmaceutical company wants to use RFID, those revenues would appear in the CCO segment on a checkpoint.
But putting secure, like we read these articles about people putting security products around meat and stuff like that. It's really around RFID, it's not really around security, it's really around tracking of inventory.
Okay.
We're doing something about a checkpoint in Europe , so we're doing in-store.
So in-store fresh meat is one of the new potential applications for RFID. We have a lot of traction about a checkpoint in the pilot stage.
Okay, and then are you able to isolate out? There's a bunch of M&A. How much M&A contributed to the EBITDA in the quarter? Are you able to isolate that out? No.
Okay, thanks for taking the questions.
Thank you. The next question is coming from Daryl Young from TD Securities.
Sirel, your line is live.
Hey, good morning gentlemen.
The first question is just around potential for trade down to private label products. We're starting to hear, I would call it an acceleration of companies talking about about seeing consumers stretched and trading down. I'm just curious if that started to percolate into your order book yet or if it's still the supply chain driving ordering volumes.
Yeah we don't see a lot of that in the spaces we're in in the CCL business, so, Daryl...
and the home and personal care sector.
The area where we see it in a recessionary environment is less use of salons, so professional products which are a premium product. People tend to buy a professional grade shampoo at Walmart rather than go to a salon and pay for it there.
So you see a little bit of it there, but it's not very material.
and in the food and beverage space we don't see a lot of that.
And mormg for
So private label is not very big for us.
But the categories that we're in in the CCL space, we don't, are not really vulnerable to private label attack.
Got it. Okay.
and then you've called out both paper and aluminum as being big costs and potentially some easing there. I guess it's free. It's my problem, not a cost problem.
Thank you for the supply problem.
But when you layer on freight as well and potential for, let's call it over the medium term, some softening there as well, does that pose a pretty big headwind for the revenue line?
the organic growth trends as we look out say 12 months from now.
The freight is really only a factor in Europe for us because in the United States...
You know most of our customers pay for the freight themselves and organize the freight themselves It's not a big factor in North America for us It is in it is in Europe so it affects and Ovia in Europe particularly and a novia in North America because we we Transcribe from Mexico into into the United States and pay for that
So I wouldn't say freight is a material item, the revenue line. So the revenue line is going to be driven by what's going on in the resin market and what's going on in the aluminum.
both of which are dropping quite well. In aluminum's case it's dropped 25% in three months.
Got it, okay. Perfect. And then just one last one on CCL design and electronics market. There is some talk of lower PC sales.
I guess the mix within CCL design between the consumer electronics. How big of a exposure or concern would that be or are you seeing any of that with your clients? Yeah well you know they're all they're all large customers of ours all the big names in that space and the PC industry had a big boom in the pandemic and now has soft sales for the global predictions are the PC market will drop 10% this year cloud computing is also on the way.
So we're expecting to have to contend with that in the second half.
But we've got some new programs in some other parts of CCO design that are quite a big offset, so we'll have to wait and see how that all unfolds.
Thanks for your time.
No problem.
Thank you. The next question is coming from David McFadden from Coremark Securities. David, your line is live.
A couple of questions.
First of all, on the MES business, I was wondering, was that a surprise to the results that you recorded in the second quarter? And is it kind of indicative of just the general macroeconomic slowdown and you're seeing that show up on retail?
Yeah I would say so because it was broad-based.
If you saw where it happened, it was most pronounced in Asia.
So the lockdowns in China had a factor in that.
The next region that was most impacted was Europe , which is probably not a surprise. And the region that was least impacted was North America, which was down in low single digits. And the region that was most impacted was Europe , which was down in low single digits.
So regional color was a big factor in it. And our largest business in MAS is in Europe and Asia.
to North America.
smaller part of that segment.
So it would appear based on your Q2 results that...
the business that seems most impacted by a slowing macroeconomic environment is
checkpoint in MAS. So is that correct? I mean the rest of the business is pretty resilient despite maybe a slowing macroeconomic environment.
I think that's a fair statement, yes.
Okay, and then can you remind us about the size of the MAS business and revenue?
400 million.
Okay.
And then lastly, just on inflation, it seems like you're nearing the end of the past year, so is the correct way to interpret that that inflation is indeed slowing down and you're seeing that show up in your numbers?
We're definitely seeing inflation easing in the direct commodity space. Resins going down, aluminum going down, metals going down.
So we haven't seen that transfer into, the commodity gets converted into intermediary material. We haven't seen any deflation in that of any significance so far.
but it does eventually flow through. So presence drop.
film prices go down, laminate prices from raw material suppliers go down. Just how it is.
Okay, but I would characterize it as easing at the moment rather than.
The area where we see real deflation is in resins and aluminum.
Resins is only for anovia and aluminums for our container business which is 250 million in sales.
as a total company it's not that big an impact.
Okay. All right. Thank you.
Okay.
Thank you. The next question is coming from Ben Jackich from PI Financial. Ben, your line is live.
Thank you. Good morning.
Jeff, I just have a quick question on MS just to make sure I understand fully.
You had an operating margin that was the lowest in the last eight quarters. Is it demand driven or is the impact of the freight and component inflation or both? And in what relation?
Both.
Both. OK.
If I look at your outlook, it seems like that dynamic is still going to...
to persist in the second half.
Should we be thinking of a similar margin as in 2Q or at least directionally a little bit higher? Let's go wait and see.
Okay.
Okay, thank you.
Thank you. The next question is a follow-up coming from Mark Neville from Scotiabank. Mark, you're line is five.
But thank you having more morning again. I'm just.
Just curious to talk about energy and freight costs in Europe .
your success or what you're doing. Push those, if you're pushing surcharges through and I'm also curious about.
maybe if there's any risk or if your business is
our reliance on natural gas from Russia and if you're taking sort of PR measures to just how you're dealing with the whole situation.
Yeah, well the energy intensive business we have in Europe is in Ovia.
the plant the main supply plant for that business is in the UK
So we do have a small operation in Germany but it's not very big.
So the main supply plant is in the UK. So the freight transportation has been...
the fact that it's in the UK has been a significant factor because most of the revenues are on the continent.
and the UK energy prices have been rampant and so that's also been a factor.
and so that's also been a factor.
We are implementing search charges.
implementing surcharges.
there is some lag in that and we've got some sequential improvement over Q1. I think we'll see some sequential improvement in Q3 and Q4 again too.
Certainly that's very much top of mind at the moment.
All right, thanks again.
Okay.
Thank you and once again ladies and gentlemen if there are any final questions please press star 1 on your phone at this time.
We have another follow-up coming from Adam Josephson from KeyBank. Adam, your line is live.
Thanks, Jeff. Just one more question on the label demand issue. On the last call you talked about how...
It wasn't clear to you how much of the demand was related to your customers just keeping excess supply on hand versus real
demand. Is it any more clear to you now than it was three months ago?
Not really. I think...
If you look at the impact of packaging on the gross margin of our customers, it's pretty immaterial.
So, particularly when you talk about labels. So, no one's going to run risk of supply availability in labeled supply in a situation like this. So, if your job is to buy labels for the XYZ, you're going to be a big CPG company.
There's a huge plant somewhere filling whatever brand it is and there's no labels. You're going to deep do the pretty much straight away.
So there's a lot of people taking.
taking supply risk out of the equation making sure there's no availability of labels is not a problem
And so we're seeing demand levels.
don't really gel with the sales, the volume results of our customers.
It's technically in North America.
In Europe and Asia it's more matched to the customers, but in North America where retail is bigger and supply chain is more, businesses are bigger.
we're seeing some caution in the behavior of big CPGs to make sure they have what they want.
So, you have no good way of knowing, it seems like, if your customers, in effect, have excess inventory that eventually they're going to have to work off.
Well they don't always work it off sometimes they may just throw it away because labels shop and change all the time too.
Labels are economically immaterial to them.
So just at the moment there's so much caution on the supply availability. Just buying.
if you need a million by two million.
You know, you can do that with labels, but then take up space.
There's a lot of caution being taken to make sure the customers make sure they have what they want and when they need it.
I guess for all you know they could keep buying more than they need for months if not quarters to come it's just there's no way to know. It tends not to happen in things that take up space so you know cheap business and the aerosol business that wouldn't happen.
although we also have long lead times there and beyond what we would expect to see given the current condition of...
You know when our large big CPGs report you know 1% volume growth and we see 10 or 15 something something tells you that that doesn't gel.
And this has been going on for how long, this seeming disconnect between the volumes of their reporting and their order. I think since the supply chain issues really started, it's probably a year old now. It's been going on for about a year.
So the sign's a bit easing a little bit.
in this summer but only a little.
in this summer, but only a little.
So we'll have to wait and see.
And why do you suppose that's a North American phenomenon and not also happening elsewhere?
Where you got space here?
Right, yeah, that's a good point.
It's a much more congested part of the world than as is Asia. So the US has always got warehouse space available to put stuff. Not so easy in Germany.
Yeah. Yeah. No, I understand. Just two other things. On M&A multiples, I mean, you've talked about, I think, private market multiples for label companies having been quite high in recent years. Have you seen any changes along those lines recently? How would you characterize?
multiples these days and how attractive or unattractive they might be to you.
Well I think they're still elevated.
but we are seeing signs of transactions being impaled by the financing markets so that's usually the first the first indicator that things are going to change
So we've seen some public to private transactions.
go slightly pear shaped on the financing of those deals.
The deal still went through but the financing was very difficult. That's the first early sign you tend to see and we've seen early evidence of that.
Yeah, and just one last one on it. Your exposure to ocean freight, Jeff, have you, in terms of the supply chain easing, but staying pretty bad on it from a historical perspective, any observations on the ocean freight to the extent you're reliant on that?
Well we're reliant on it at Avery for importation of rings for binders.
in North America in particular. So that's a big factor. And Checkpoint is we make everything we make in Checkpoint is made in countries, in places where we ship by ocean freight and in a container.
So that's also a big factor.
I mean the rampant inflation has stopped but it's the pricing levels are still highly elevated compared to historical norms.
Is that because of the poor congestion that continues from the best you can tell? Well, everything. Just China lockdowns. It's one thing after another. Poor congestion in the US.
Yep, yep. Thanks so much, Jeff.
Thank you so much, Jeff. No problem. Thank you.
Thank you and we had another follow-up call from Mark Neville from Scotiabank. Mark, your line is live.
Sorry to keep coming back. Maybe just to follow up on Adam's questions, just in terms of the inventory situation, I don't know if you have a historic comparison to this, but if they are building inventory and it gets to a point where they're overstocked, does this inventory become obsolete or is it something they work through? You touched on it earlier, but just a little more color if you're good.
Well labels do tend to obsolete pretty quick so if you over order the rate of obsolescence typically goes up because designs change all the time, regulatory comments have to be added into the label graphics.
So there's a fair amount of obsolescence can occur when people over order.
Okay, so it doesn't sound like the risk.
Is that material if? No, I don't think it's material. I just think that I think that the you know I think what will happen Mark is when is when if demand once the supply chain issues go.
People will be less conservative in the supply chain risk taking than they are today.
All right, thanks again.
Thanks again.
Thank you. There were no other questions from the lines at this time. I would now like to hand the call back to Geoff Martin for closing.
Okay everybody, well thank you very much for joining our call today. We look forward to seeing you next quarter. Thank you very much.
Thank you ladies and gentlemen. This does conclude today's conference. You may disconnect your lines at this time and have a wonderful day. Thank you for your participation.