Q3 2024 CCL Industries Inc Earnings Call
Good morning, and welcome to C C L industries third quarter Investor update.
Operator: Good morning, everyone. Welcome to our third quarter call. We're here in Sioux Falls, South Dakota, at our food and beverage facility.
Note that there will be a question and answer session. After the call.
Speaker Change: The moderator for today is Mr. Jeff Martin President and Chief Executive Officer, and joining him is Mr. Shawn washed Chuck Senior Vice President and Chief Financial Officer. Please go ahead gentlemen.
Sean Washchuk: I'll draw everyone's attention to slide number two, our disclaimer regarding forklifting information. I will 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 2023 Annual Report under the section Risks and Uncertainties. Our annual and quarterly reports can be found online at the company's website, cclind.com, or at cedarplus.ca. Moving to our summary of financial information, for the third quarter of 2024, sales increased 9.4%, with 6.9% organic growth, 1.8% acquisition-related growth, and 0.7% positive impact from foreign currency translation, resulting in sales of $1.85 billion, compared to $1.69 billion in the third quarter of 2023.
Speaker Change: Thank you Holly.
Jeff Martin: Morning, everyone welcome to our third quarter call.
Jeff Martin: We're here in Sioux Falls South Dakota.
Jeff Martin: Our food and beverage facility.
Speaker Change: I would draw everyone's attention to slide number two our disclaimer regarding forward looking information.
Speaker Change: I will 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 2023 annual report.
Speaker Change: Under the section risks and uncertainties.
Speaker Change: Our annual and quarterly reports can be found online at the company's website.
Speaker Change: C L I N E dot com or SEDAR plus dossier.
Speaker Change: Moving to our summary of financial information for the third quarter of 2024 sales increased nine 4% or six 9% organic growth, one 8% acquisition related growth and 0.7% positive impact from <unk>.
Sean Washchuk: Operating income was $288.9 million for the 2024 third quarter compared to $256.1 million for the third quarter of 2023. A 13% increase excluding the impact of foreign currency translation.
Speaker Change: Foreign currency translation, resulting in sales of $185 billion compared to $1 six 9 billion.
Sean Washchuk: Geoff will expand on our segmented operating results in a moment for both CCL, Avery, Checkpoint and Inovia. Corporate expenses were up slightly for the quarter due to short-term variable compensation versus the prior year quarter. Consolidated EBITDA for the 2024 third quarter, excluding the impact of foreign currency translation, increased 11% compared to the same period in 2023. Net finance expense was $19.3 million for the third quarter of 2024, compared to $20.3 million for the 2023 third quarter, down primarily due to a decrease in variable interest rates and a reduction of drawn debt. The overall effective tax rate was 24.5% for the 2024 third quarter equal to the effective tax rate recorded in the third quarter of 2023.
Speaker Change: In the third quarter of 2023.
Speaker Change: Operating income was $288 $9 million for the 2020 for third quarter compared to $256 1 million for the third quarter of 2023.
<unk>, 13% increase excluding the impact of foreign currency translation.
Speaker Change: Jeff will expand on our segmented operating results in a moment for both CCL Avery checkpoint and Adobe or segments.
Speaker Change: Corporate expenses were up slightly for the quarter due to short term variable compensation versus the prior year quarter.
Speaker Change: Consolidated EBITDA for the 2024 third quarter, excluding the impact of foreign currency translation increased 11% compared to the same period in 2023.
Speaker Change: Net finance expense was $19 $3 million for the third quarter of 2024 compared to $23 million for the 2023 third quarter down primarily due to a decrease in variable interest rates and a reduction of drawn debt.
Sean Washchuk: The effect of tax rate may change in future periods, depending on the proportion of taxable income earned in different tax jurisdictions with different rates. Net earnings for the 2024 third quarter were $191.7 million compared to $169.1 million for the 2023 third quarter.
Speaker Change: The overall effective tax rate was 24, 5% for the 2020 for third quarter.
Sean Washchuk: For the nine-month period, sales, operating income, and net income increased 8%, 16%, and 36%, respectively, compared to the nine-month period in 2023. 2024 included results from nine acquisitions completed since January 1, 2023, delivering acquisition-related sales growth through the period of 2.6%. Organic growth of 5.8% and foreign currency translation tailwind of 0.5% to sales. Furthermore, net income included a $78 million non-tax, non-cash revaluation gain recorded in the second quarter of this year when we acquired the final 50% interest in the Pac-Man CCL joint venture, now fully consolidated.
Speaker Change: Equal to the effective tax rate recorded in the third quarter of 2023.
Speaker Change: The effective tax rate may change in future periods, depending on the proportion of taxable income earned in different tax jurisdictions with different rates.
Speaker Change: Net earnings for the 2020 for third quarter.
Speaker Change: Were $191 $7 million compared to $169 $1 million for the 2023 third quarter.
Speaker Change: For the nine months period sales operating income and net income increased 8% 16%.
Speaker Change: 36%, respectively compared to the nine months period in 2023.
2024 included results from nine acquisitions completed since January one 2023, delivering acquisition related sales growth for the period of two 6%.
Sean Washchuk: Moving to the earnings per share slide. Basic earnings per Class B share were $1.08 for the 2024 third quarter compared to $0.95 for the 2023 third quarter. Adjusted for one cent of restructuring and other expenses resulting in adjusted earnings per class B share of $1.09 an improvement of 14.7% compared to $0.95 for the third quarter of 2023. The change in adjusted basic earnings per share of $0.14 is principally attributable to an improvement in operating income, accounting for $0.15, and the combination of interest expense pickup Net Against Joint Venture Equity Earnings and the Negative Impact of Currency Translation Summing to a One-Cent Reduction.
Speaker Change: Organic growth of five 8% and foreign currency translation tailwind of 0.5% to sales.
Speaker Change: Furthermore, net income included a 78 million non tax.
Speaker Change: Noncash revaluation gain recorded in the second quarter of this year.
Speaker Change: When we acquired the final 50% interest in the Pac Man CCL joint venture now fully consolidated.
Speaker Change: Okay.
Speaker Change: Moving to the earnings per share slide.
Speaker Change: Basic earnings per class B share were $1 eight for the 2020 for third quarter compared to 95.
Speaker Change: It is 2023 third quarter.
Adjusted for one set of restructuring and other expenses, resulting in adjusted earnings per class B share of a dollar and nine an.
Sean Washchuk: Moving to slide five. For the third quarter of 2024, free cash flow from operations was an inflow of $233 million ahead of the $182 million posted in the 2023 third quarter. For the trailing 12 months ended September 30th, 2024, free cashflow from operations was $618.6 million, compared to 557.4 for the comparable 2023 period. This change is primarily attributable to an increase in cash provided by operating activities, which was generated by improved adjusted earnings.
Speaker Change: An improvement of 14, 7% compared to 95.
Speaker Change: For the third quarter of 2023.
Speaker Change: The change in adjusted basic earnings per share of 2014.
Speaker Change: It's principally attributable to an improvement in operating income accounting for 15.
Speaker Change: And the combination of interest expense pick up.
Speaker Change: Net against joint venture equity earnings and the negative impact of currency translation summing to a <unk> <unk> reduction.
Speaker Change: Yeah.
Speaker Change: Moving to slide five.
Speaker Change: For the third quarter of 2020 for free cash flow from operations was an inflow of $233 million ahead of the $182 million posted in the 2000 Twenty's research quarter.
Sean Washchuk: Moving to our cash and debt summary. Net debt, as at September 30th, 2024, was $1.68 billion, an increase of $160 billion. $7.6 million compared to December 31st, 2020. The increase is a result of funds used for capital expenditures, business acquisitions, and share buybacks.
For the trailing 12 months ended September 32020 for free cash flow from operations was $618 6 million compared.
Speaker Change: Compared to $557 four for the comparable 2023 period.
Speaker Change: This change is primarily primarily attributable to an increase in cash provided by operating activities, which was generated by improved adjusted earnings.
Sean Washchuk: Total share buyback for the quarter was approximately. 1.29 million shares for $100 million, summing to 1,852,488 shares and $140.6 million, year-to-date September 30, 2024. Although the company's net debt increased, the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was 1.14 times, up slightly from 1.13 times reported at the end of December 2023. Liquidity was robust, with $760 million of cash on hand.
Speaker Change: Moving to our cash and debt summary.
Speaker Change: Net debt as at September 32024 was $1 68 billion an increase of 160.
Speaker Change: $7 6 million.
Speaker Change: Compared to December 31, 2023.
Speaker Change: The increase is a result of funds used for capital expenditures business acquisitions and share buybacks.
Speaker Change: Share buyback for the quarter was approximately.
Speaker Change: 1.29 million shares for $100 million.
Sean Washchuk: U.S. $0.9 billion of available undrawn credit capacity in our revolving credit facility. The company's overall average finance rate was 2.8% at September 30th, the same as December 31st, 2023. The balance sheet continues to be well positioned as we move through fiscal 24 and into 25.
Summing to a million 850 to 488 shares and $146 million.
Speaker Change: Year to date September 32024.
Speaker Change: Although the company's net debt increased the balance sheet closed the quarter in a strong position our balance sheet leverage ratio was 1.14 times up slightly from $1. One three times reported at the end of December 2023.
Geoffrey Martin: Geoff, over to you. Thank you, Sean.
Geoffrey Martin: Good morning, everybody. I'm on slide seven, highlights of capital spending, $409 million for the year so far. We expect to spend around $465 million for 2024. Moving to slide eight, some investment highlights of what we've been putting that money into. In Lumberton, New Jersey, we're just completing now an addition to the site there, a very large addition that will allow us to consolidate tube labeling and tube extrusion under one roof for some large customers. In Spain, we've opened a new Frank's Leaf plant to supply consumer packaged goods to customers in the Iberian Peninsula. In Bangladesh, we've completed a significant expansion at Checkpoint.
Speaker Change: Liquidity was robust with $760 million of cash on hand.
Speaker Change: U S zero point $9 billion.
Speaker Change: Available undrawn credit capacity and our revolving credit facility.
Speaker Change: The Companys overall average finance rate was two 8% at September 30 is the same as December 31 2023.
Speaker Change: If the balance sheet continues to be well positioned as we move through fiscal 'twenty four and into 'twenty five.
Jeff Martin: Jeff over to you.
Jeff Martin: Thank you Sean good morning, everybody I'm on slide seven highlights our capital spending $409 million for the year so far.
Jeff Martin: We expect to spend around $465 million for 2024.
Geoffrey Martin: The country is the world's second largest sourcing country for apparel, about $7 million so far in 2024.
Jeff Martin: Moving to slide eight some of the highlights investment highlights of what we've been putting that money into.
Jeff Martin: And lumber to New Jersey, we've just completing now in addition to the site. There are very large addition goodwill.
Geoffrey Martin: Slide nine highlights for CCL for the quarter. 4.9% organic growth, up mid-single digits in Europe, high single digits in Latin America, double digits in Asia-Pacific, and up slightly in North America. Profitability gains were strong in home and personal care and CCL design, modestly lower in food and beverage and healthcare and specialty, but markedly reduced at CCL Secure where we faced tough comps to a strong prior year.
Jeff Martin: Allows us to consolidate cheap labeling and extra Chiba extrusion under one roof. So some large customer loves in Spain. We've opened a news shrink sleeve plant to supply consumer package goods customers in the Iberian Peninsula.
Jeff Martin: In Bangladesh, we completed a significant expansion of checkpoint.
Jeff Martin: The country is the world's second largest sourcing country for apparel.
Jeff Martin: $7 million so far in 2024.
Geoffrey Martin: Slide 10 highlights the joint ventures, which now exclude Pac-Man CCL for the quarter, but still have four-month results in the nine-month period. Moving to slide 11, highlights for Avery, end of the back-to-school season came quite early but growth in the direct-to-consumer badges and cards segment drove performance in North America. We had solid progress in Europe and Latin America, but Australia was soft. and the horticultural markets in both sides of the Atlantic were in their low off-season.
Jeff Martin: Slide nine highlights the PCL for the quarter, a four 9% organic growth.
Jeff Martin: Well made up mid single digits in Europe high single digits, and Latin America double digits in Asia Pacific and up slightly in North America.
Jeff Martin: Profitability gains was strong and heightened postal Kevin CCL design.
Jeff Martin: Golden State water, and food and beverage and health care and specialty, but mark will be introduced at CCL secure we faced tough comps to a strong prior year.
Jeff Martin: Slide 10 highlights for the joint ventures, which now exclude Pac man CCL for the quarter, but still have full months results in the nine months period.
Geoffrey Martin: Slide 12, best performing business for sure. In the quarter was Checkpoint, a very good quarter in the MAS business with solid gains in sales and profitability, but the standout numbers came from the ALS part of the business with over 30% organic sales growth aided by RFID wins and retailer inventory normalization. That drove significant profit gains in that part of the country. Also strong were the results from Inovia on slide 13, sales growth was aided by label materials industry recovery in North America and Europe and some share gain in North America, strong operating performance in the Americas in general and transition benefits still to come from the Belgian closure in Europe and Australia which completed as the quarter concluded.
Jeff Martin: Moving to slide 11 highlights for Avery.
Jeff Martin: And as a back to school season was came quite early but growth in the direct to consumer badges and called second segment drove performance in North America, We had solid progress in Europe, and Latin America, Australia. It was soft in.
Jeff Martin: And the whole thing cultural markets in both sides of the Atlantic where in the off season.
Jeff Martin: Slide 12, best performing business for sure and Nick Coulter was checkpoint.
Jeff Martin: Very good culture, and the M. A S business as solid gains in sales and profitability, but the standout numbers came from the ILS part of the business with over 30% organic sales growth aided by RFID wins and retailer inventory normalization that drove significant profit.
Geoffrey Martin: EcoFloat sales in Poland continue to build very nicely.
Geoffrey Martin: Slide 14, some outlook comments. Label and packaging businesses face higher hurdles in this quarter and we've a few new plant start-up costs to incur, but the quarter has started off pretty well. We had a good October, better than we had actually thought at the beginning of the quarter. CCL design lapsed a lengthy period of easy comps and the automotive industry, as we all know, is slowing somewhat. CCL Secure will sequentially improve in Q4. We expect Avery to be stable. Checkpoint RFID growth is expected to continue, and as is the Inovia recovery, especially in the label material segment.
Jeff Martin: Gains in that part of the company.
Jeff Martin: Oh, so strong with the results from a nightmare on slide 13 sales growth was aided by the label materials industry recover recovery in North America, and Europe, and some share gain in North America.
Jeff Martin: Strong operating performance in the Americas in general.
Jeff Martin: And transition benefits still to come from the Belgium closure in Europe alone.
Jeff Martin: And Australia, which completed the quarter concluded.
Jeff Martin: Flu sales in Poland continues to build very nicely.
Yeah.
Jeff Martin: Slide 14, and some outlook comments.
Jeff Martin: Our label and packaging businesses faced higher hurdles and in this quarter I mean, there's a few new plant startup costs to incur.
Geoffrey Martin: And FX, we think at current rates, would be a modest tailwind, although it was a slight drag in the current quarter.
Jeff Martin: But the cold so it started off pretty well we had a good October.
Operator: So with that, operator, we'd like to open up the call for questions. Certainly. At this time, we will be conducting a question If you would like to ask a question, please press star 1 on your telephone. Information tone will indicate your line is in the Press Star 2 if you would like to remove. For participants using speaker equipment, it may be necessary to use headphones. One moment, please, while we poll for questions.
Jeff Martin: That's when we'd be it actually falls at the beginning of the quarter T cell design labs, a lengthy period of easy comps on.
Jeff Martin: In the automotive industry as we all know is slowing somewhat.
Jeff Martin: CCL secure will sequentially improve in Q4.
Jeff Martin: We expect each of these.
Jeff Martin: Stable checkpoint RFID growth is expected to continue.
Jeff Martin: I didn't see an over recovery, especially in the label materials segment.
Jeff Martin: Effects, we think at current rates would be a modest tailwind, although it was a slight.
Jeff Martin: The slight drag in the current quarter.
Speaker Change: So with that operator, we'd like to open up the call for questions.
Speaker Change: Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Hamir Patel: Your first question for today is from Hamir Patel with CIBC. All right, sorry, can you hear me? Yes, good morning. Good morning. Hi, Geoff.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Speaker Change: You May press Star two if you would like to remove your question from the queue.
Geoffrey Martin: Could you comment on, you pointed to startup costs weighing on the Q4 in the CCL segment would make it challenging to match prior year profitability. Could you quantify what that headwind would be from startup costs and should we expect that to persist into Q1 as well? Well, we've got a couple of large and new operations starting up, particularly the one in Spain. I can't get into what that's going to be because we don't really know, but we know when we have start-up costs, they'll run for a quarter or two when we're starting a new operation.
Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Speaker Change: Okay.
Speaker Change: Your first question for today is from Samir Patel with CIBC capital markets.
Speaker Change: Hey.
Speaker Change: Hi.
Speaker Change: Alright, so forgive me.
Speaker Change: Yes, good morning.
Geoffrey Martin: So we'll wait and see how things unfold in Q1. It's not a huge material number, so the bigger... impact is really the comps, so much tougher comps in Q4 and in the first half of next year than we've had in the last 12 months or so.
Speaker Change: Hi, Jeff.
Speaker Change: Could you comment on you pointed to startup costs.
Speaker Change: Weighing on the the Q4.
Speaker Change: The CCL segment would make it challenging to match prior year profitability could you quantify what that headwind would be from startup costs and should we expect that to persist into Q1 as well.
Speaker Change: Well, we've got a couple of large large and new operations, starting up particularly the one in Spain.
Hamir Patel: Having said that, I'd also add we had a better start to the quarter than we had originally anticipated in the CCL segment, but it's only one month, it's two months more to go. Fair enough, Geoff.
Speaker Change: I can't get into what that's going to be because we don't really know, but we know when we have startup costs.
Speaker Change: They they they'll run for a quarter or two when we're starting a new operation.
Geoffrey Martin: Are you able to comment on how pricing is varying across the different segments? and... Okay so far, so we've got some deflation happening in parts of the business, so we're doing some pass through of that to some of the customers, but certainly I would say in the consumer packaged goods space. There is a lot of pressure from retailers to reverse some of the inflation that we had in the last three or four years on our customers, and they tend to pass that back to us. It's probably more prevalent in the food and beverage space than it is in home and personal care so far.
Speaker Change: So, we'll wait and see how things unfold in Q1, it's not a huge material number so the the bigger the bigger.
Speaker Change: The impact is really the comps are much much tougher comps in Q4 and in the first half of next year than we've had in the last 12 months or so.
Speaker Change: Having said that I mean, I don't I don't say I'd also add we had a bachelor salt into the quarter than we had originally anticipated in the Ccs segment.
Speaker Change: It's only one month two months altogether.
Speaker Change: Fair enough, Jeff Matt are you able to comment on how pricing is it's varying across the different segments.
Speaker Change: Okay.
Speaker Change:
Hamir Patel: But I would say in the CPG space, that comment we made about the stressed consumer with the inflation of the last few years, that's certainly coloring the environment at the moment. Great, thanks, Geoff. That's all I had.
Speaker Change: Okay. So saw so.
Speaker Change: We've got some deflation happening in parts of the business. So we're doing some part some pass through of that to some of the customers.
And.
Speaker Change: Certainly I would say in the consumer packaged goods space.
Geoffrey Martin: I'll turn it over. Okay.
Speaker Change: There is a lot of pressure from retailers to resolve.
Unnamed Speaker: Your next question for today. with National Bank of America. Yes, good morning. Thanks for taking my question. Given the one month visibility you have at the CCL label segment, are you sitting at a very different order level or, you know, backlog versus last year? Or is this cost more to do with the last weeks of December?
Speaker Change: The some of the inflation that we had in the last three or four years on our customers and they tend to pass that back to us but.
Speaker Change: It's probably more prevalent in the food and beverage space than it is in home and personal care so far.
Speaker Change: But I would say in the CPG space, but comment we made about the.
Speaker Change: Distressed consumer with an inflation of the last few years.
Speaker Change: That said certainly color I mean in the environment at the moment.
Geoffrey Martin: I think it's just, there's no difference in the backlog, so I think it's just that the comps really for this coming quarter are much more difficult than they've been for some period of time. Okay, that's fair. And taking, I mean, the outlook commentary for the whole CCL segment, do you still expect to see even that growth year over year for the segment?
Speaker Change: Great. Thanks, that's all I had I'll I'll turn it over okay.
Speaker Change: Your next question for today is from Ahmed Abdullah with National Bank of Canada.
Speaker Change: Yeah. Good morning, Thanks for taking my question.
Speaker Change: Given the one one months visibility you have at the EPA label segment.
Unnamed Speaker: Not sure yet. It's November and December are difficult months to forecast because we have a very short November in the U.S. with Thanksgiving. We've got the year-end lottery in December. So I can only tell you what we know. October was better than we thought, but we had a strong end to the quarter last year, so we'll have to wait and see how things unfold. Okay, that's fair.
Speaker Change: Are you sitting at a very different order level or you know backlog versus last year or is this costing more to do with the last weeks of December.
Speaker Change: Yeah, I think it's just it's.
Speaker Change: No difference in the backlog. So I think it's just the comps really for this.
Speaker Change: This coming quarter.
Speaker Change: Small difficult than they've been for some period of time.
Geoffrey Martin: And just on the Inovia operational savings, I see the margin definitely improved year over year. Is there any of these savings that have crickled in into the 3Q or is this more a story of 4Q and into 25? No, no, the overperformance in Q3 was driven by North America, so that's where the performance came from. Things did improve in Europe with labor industry volume going up, but we haven't yet seen the cost benefit savings with the transition from Belgium to the UK yet, but we expect to see them start to come, and we saw the early signs of that in October with the transition now complete.
Speaker Change: Okay, that's fair and taking I mean, the outlook commentary for the whole segment.
You still expect that the EBITDA growth year over year for the segment.
Speaker Change: No not show Yeah. It's it's it's November and December are difficult months to phone calls because we have very short in November in the U S with Thanksgiving, we've got the year end luxury in December.
Speaker Change: So I can only tell you what we know so October was better than we thought but we had a strong end to the quarter last year. So we'll have to wait and see how things unfold.
Speaker Change: Okay, that's fair and just on the Nokia operational savings I E. The margin definitely improved the year over year is there any of these savings that are critical then into the re queue or is this more authority of <unk> and into 'twenty five.
Unnamed Speaker: Okay. All right.
Unnamed Speaker: Thank you. I'll, I'll keep back up. Thanks.
Speaker Change: No no the over performance in Q3 was driven by North America.
Unnamed Speaker: Good morning, everyone. Geoff, I'm wondering if you can, wondering if you can provide some. context on perceived exposure in the event that Trump imposes a blanket U.S. import tax. how that could affect your business, whether it's with respect to finished product or procuring feed.
Speaker Change: So that's the that's where the performance came from things did improve in Europe with with label industry volume going up.
Speaker Change: But we haven't yet seen the cost benefit savings with the transition from Belgium to the U K, yet, but we expect to see them.
Speaker Change: I mean, so the early signs of that in October.
Geoffrey Martin: Well, by and large, our company is what I would call a local, local business. So the customers that we're billing in the 43 countries that we operate around the world are located in the countries where we're manufacturing, and that also applies to the raw materials. So we're not really terribly exposed as CCL to tariff changes, but the real nub is what happens to our customers. So if some of our customers are impacted, they may ask us to start making things in countries that we don't know. that they would like us to switch to rather than the countries we're making them in today.
Speaker Change: With the transition now complete.
Speaker Change: Okay.
Speaker Change: Alright, Thank you I'll queue back up.
Speaker Change: No problem.
Speaker Change: Your next question for today is from Sean Stewart with TD Cowen.
Speaker Change: Thanks, Good morning, everyone.
Speaker Change: Jeff I'm wondering if you can I'm wondering if you can provide some.
Speaker Change: Some context on perceived exposure in the event that shrunk and poses a blanket X U S import tax.
Speaker Change: How that could affect your business, whether it's with respect to finished product are procuring feedstock.
Geoffrey Martin: But the impact on us directly, I think, is negligible.
Speaker Change: Oh, well by a larger company is what I would call a local local business. So with the customers that we're billing in the 43 countries that we operate around the world are located in the countries, where it was a matter of fact shrink.
Geoffrey Martin: Thanks for that detail. And then within the CCL segment, you noted Latin American organic growth in the high single digit range, which I think is a little bit of a deceleration from what you've seen. in recent quarters and hoping you can provide perspective on is that just lapping difficult comp? Where do you see Latin Americans? Organic Growth Normalized. Yeah. Well, I think what we're seeing in Latin America is more control over inflation. So that's a good thing, I think, for us in the long run. So certainly, we always have to look at Latin America as the organic growth rate net of inflation.
And that's also applies to the raw material, so but not really.
Speaker Change: Ruby exposed as C C L.
Speaker Change: Two two tariff changes.
Speaker Change: The real the real love is what happens to our customers.
Speaker Change: So some of our customers are impacted they may ask us to stop making things in countries.
Speaker Change: They would like us to switch to rather than the countries, we're making them in today.
Speaker Change: But the impact on US directly I think is is is negligible.
Speaker Change: Yeah.
Speaker Change: Okay, Thanks for that detail.
Then within the <unk> segment.
Geoffrey Martin: So we've seen, particularly in Brazil, things get under pretty good control there. And currency has improved in Mexico. But we're still very encouraged by the opportunities throughout that region and the world. But it is volatile, driven by exchange rates and the impact on inflation.
Speaker Change: Latin American.
Speaker Change: Organic growth in the high single digit range, which I think it was a little bit of a deceleration from what you've seen.
Speaker Change: In recent quarters and.
Speaker Change: Hoping you can provide perspective on is that just lapping difficult comps.
Speaker Change: Where do you see Latin American.
Organic growth normalizing.
Speaker Change: Yeah for the business well I think with what we're seeing in Latin America is more control over it inflation.
Unnamed Speaker: That's all I have for right now. Thanks very much. No problem. Thank you.
Speaker Change: So.
That's a good thing and I think for us in the long run so.
Speaker Change: Certainly you always have to look at Latin America is the organic growth rate in that sort of inflation. So.
Unnamed Speaker: Good morning, guys. Hey, Steve. Thank you. Just wanted to follow up, ask a couple of things, just on the checkpoint business. Can you talk a little bit about, you talked about the ALS business up 30%. Can you talk about the breakdown between the drivers of that number on RFID versus retail or inventory normalization? It's almost all RFID-driven. Okay. The vast majority of it, Steve. Yeah, yeah.
Speaker Change: So we've seen particularly in Brazil things get under pretty good control there.
Speaker Change: And and currencies improved in Mexico. So.
Speaker Change: But we're still very encouraged by that.
Speaker Change: The opportunities and threats throw out throughout that region in the world and.
Speaker Change: But it is volatile driven by by exchange rates and the impact on inflation.
Speaker Change: Okay.
That's all I have right now thanks, very much no problem.
Geoffrey Martin: And are you seeing any moderation in the RFID growth rates as you sort of turn the page into Q4 in 2025? I think we're very encouraged by the outlook. The whole industry is growing. There are more and more use case applications appearing. We're in a very good position. We have knowledge in hardware, knowledge in software. We've got two world-class inlay production facilities. We've got coding equipment installed in a number of operations around the world. We have an extremely good position to capitalize. without doubt in our industry the biggest growth opportunity for us and for all the players in the space.
Your next question is from Stephen Macleod with BMO.
Speaker Change: Thank you good morning, guys Hi.
Speaker Change: Hi, Steve.
Speaker Change: Just wanted to follow up a couple of things just on the checkpoint business can.
Speaker Change: Can you talk a little bit about you talked about the L. S business up 30%.
Speaker Change: Can you talk about the breakdown between the drivers of that number on RFID versus retailer inventory normalization.
It's almost all RFID driven.
Speaker Change: Okay.
Speaker Change: The vast majority vast majority of it Steve.
Speaker Change: Yep.
Speaker Change: And are you seeing any any moderation in and those are in the RFID growth rates as you sort of turn the page into Q4 and 2025.
Unnamed Speaker: Yeah, okay. That's great.
Speaker Change: No I think were very encourage by but Bobby on the outlook.
Unnamed Speaker: And would you would you sort of characterize it? You know, you already have relationships with with all the a lot of the large label buyers around the world. So is it is it fairly, fairly easy or simple to kind of embed RFID into those relationships and as a conduit for incremental sales? Yeah, I mean, I'd say we've got a highly developed infrastructure for delivering RSID in the apparel space. So in these new categories. The customers and ourselves and all the people in the supply chain still have some things to organize. to be able to implement the technology without difficulties, but the retailer interest in deployment is going up and up and up, and also in some spaces outside of retail.
Speaker Change: The industry is growing there are more and more use case applications appearing.
Speaker Change: We're in a very good position, we have no knowledge in hardware and knowledge and software.
Speaker Change: We've got two world class in life production facilities, we'd go coating equipment installed in a number of operations around the world Silver, where where we have an extremely good position to.
Speaker Change: Capsulize.
Speaker Change: And Oh, what is without doubt in our industry. The the biggest growth opportunity for <unk> for all of sudden for all the players in the space.
Speaker Change: Yeah.
Speaker Change: Yeah, Okay, that's great and would you would you sort of characterize it.
Speaker Change: You already have relationships with all the a lot of the large label buyers around the world. So is it a is it fairly fairly easy or simple to kind of embed RFID into those relationships.
Unnamed Speaker: So I think we're just in a really good place, but some of these new applications may take a bit of time to unfold. while we get things organized. Right. Okay. That's great, Paul. I appreciate it.
Speaker Change: As a as a conduit for incremental sales.
Speaker Change: Yeah, I mean, I'd say, it's we've got a highly developed infrastructure for delivering RFID in the apparel space.
Unnamed Speaker: Just turning to the buyback, obviously very active this quarter with $100 million of deployment. Can you talk about sort of how you're thinking about the buyback? now and heading into Q4. Well, we're definitely buyers of the stock at the moment. We still think the stock, it's a good option for use of our surplus-free cash flow. We do want to make sure we, at the very least, we buy enough back to offset any dilution from compensation programs. and you know I think the outlook is for things to continue along the lines you've seen so far. Okay, great.
Speaker Change: So in these in these new categories.
Speaker Change: The customers on ourselves and all the people in the supply chain you still have some things to organize.
To to be able to implement the technology without without difficulties.
Speaker Change: But but the retailer the retailer interest in and in deployment is going out for long enough and also in some spaces outside of retail.
Speaker Change: So I think we're just in a really good place, but some of these new applications may take it may take a bit of time to unfold.
Speaker Change: Oh, well, we get things organized.
Unnamed Speaker: Thanks, Geoff.
Geoffrey Martin: And then maybe just finally, you know, in terms of other capital deployment, can you talk a little bit about what you're seeing on the on the consolidation or M&A front? Yeah, so we're still working on a number of opportunities in the M&A arena, valuations still sometimes challenging in some of the spaces we'd like to be in, but we've still got an active list of targets we're working on and it's still our number one priority for free cash flow, but as you've seen from Sean's slides, the free cash flow number is mounting. So optionality for either Greenfield Investments or M&A or buybacks, we're in a very happy state of affairs.
Speaker Change: Right, Okay, that's great color. Thanks, Jeff.
Speaker Change: Yeah, I'm, just turning to turning to the buyback obviously very active this quarter.
Speaker Change: With the $100 million of deployment can you talk about sort of how youre thinking about the buyback now and heading into a into Q4.
Speaker Change: Well, what well do that but definitely baas are installed at the moment, we still think the stock is at.
Speaker Change: It's a good option for us that ive surplus free cash flow.
Speaker Change: Do want to make sure we are at the very least we buy enough back to offset any dilution from compensation programs.
Speaker Change: And you know I think the outlook is for things to continue along the lines you've seen so far.
Speaker Change: Okay, great. Thanks, Jeff and then maybe just finally.
Unnamed Speaker: That's great. Thanks so much, Geoff.
Speaker Change: In terms of other capital deployment.
Unnamed Speaker: Appreciate it.
Speaker Change: Can you talk a little bit about what youre seeing on the AR on the consolidation or M&A front.
Arthur Nagorny: Arthur Nagorny with RBC News. Hey, good morning. Morning, Arthur.
Speaker Change: Yeah, Yeah. So we still we're still working on a number of a number of opportunities in the M&A arena.
Geoffrey Martin: I just want to go back to RFID. I believe your Mexico facility came online in Q2 and I was just wondering how that's ramping up, I guess, relative to your initial expectations. It's ramping up. It's still in startup mode. It's not making money yet, but it's more focused and targeted on non-apparel-related applications. They come less frequently and a bit more lumpily, but we're very encouraged by the opportunities that we're facing. We certainly expect that operation to turn a profit as we go into 2025 at some point in the year.
Speaker Change: The valuations still sometimes challenging in some of the spaces, we'd like to be in.
Speaker Change: But we've still got an active list of targets, we're working on and.
Speaker Change: But it's still our number one priority for.
Speaker Change: So free cash flow, but as you've seen from children's slides.
The free cash flow number is mounting so.
Speaker Change: So optionality for either Greenfield investments or M&A or buybacks, we're in a very happy state of affairs.
Speaker Change: That's great. Thanks, so much I appreciate it.
Speaker Change: Yeah.
Speaker Change: Your next question for today is from Arthur <unk> with RBC capital.
Speaker Change: Hey, good morning.
Speaker Change: Awesome.
Geoffrey Martin: And then just one more on RFID. I think you called out some customer wins in the quarter. Is there anything in particular that you would call out there? I don't want to disclose anything about customers, but everything we're involved in is really in the retail space so far that's of substantial importance.
Speaker Change: Just wanted to go back to RFID I believe your Mexico facility came online in Q2.
Speaker Change: And I was just wondering how that's ramping up I guess relative to your initial expectations.
Speaker Change: Yeah, it's ramping up it's still it's still in startup mode. So, it's not making money yet but.
Speaker Change: It's more focused and targeted on non apparel related applications. So they they come more frequently and a bit more lumpy Lee.
Geoffrey Martin: All right, and then last one for me, sounds like the Pac-Man acquisition is progressing ahead of expectations in the first fully consolidated quarter here. What trends are you seeing in the Middle East? Yeah, so. The Middle East, obviously, everyone's asking us about what's going on with the conflict, but the territories we're in, Egypt, the UAE, Pakistan, Oman, Saudi Arabia, these are not countries affected by the situation down there. And we still see pretty strong demand levels, especially in Egypt and especially in Saudi Arabia. Perfect. Thanks, Geoff. No problem.
Speaker Change: But we're very encouraged by the opportunities that we are facing.
Speaker Change: And we certainly expect that operation to turn a profit as we go as we go into 2025 at some point in the year.
Speaker Change: And then just one more on RFID I think you called out some customer wins in the quarter is there anything in particular that you would call out there.
Speaker Change: But what is disclosed anything about customers, but the evidence of everything that we're involved in is really in the retail space. So far that's a that's a substance.
Speaker Change: Yes.
Michael Glen: from Michael Glen with Raymond. Hey, good morning, Geoff, I just want to circle back to RFID. So if apparel label is comping 30%, but just to make sure I understand that correctly, like RFID would be a much smaller portion of that business overall. So it's comping meaningfully higher. Is that the right way to think about that? Well, I wouldn't say so, I wouldn't put it quite as succinctly as that. So the incremental growth is all coming from RFID. So yeah, if you look at the growth rate in pure RFID, it's sort of a bit of premium to the average that we see for the ALS business in total.
Speaker Change: Alright, and then last one for me it sounds like the Pac Man acquisition is progressing ahead of our expectations.
Speaker Change: Expectations on the first fully consolidated quarter here are what trends are you seeing in the middle East.
Speaker Change: Yeah. So.
Speaker Change: The middle East, obviously everyone's asking us about what's going on with the conflict but.
Speaker Change: But the territories were in Egypt.
Speaker Change: Do you a package Oman.
Speaker Change: Saudi Arabia. These in all countries affected by the situation down there and we still see pretty strong demand levels.
Speaker Change: Especially in Egypt and as.
Speaker Change: Especially in Saudi Arabia.
Speaker Change: Perfect. Thanks, Jeff.
Speaker Change: No problem.
Geoffrey Martin: That's for sure the case. I don't have a number in my head what that would be, but it's certainly north of the numbers for the growth in the business overall. And ALS, ALS traditional business, would be a mid-single digit or high-single digit type comp? Is that correct? That doesn't have the data, but it... The vast majority of the growth came from RFID.
Speaker Change: Your next question is from Michael Glen with Raymond James.
Hey, good morning, Jeff I, just wanted to circle back to RFID. So if apparel label is comping, 30%, but just make sure I understand that correctly like RFID wood.
Speaker Change: Would be a much smaller portion of that business overall, so it's comping meaningfully higher is that the right way to think about that.
Jeff Martin: Well I.
Geoffrey Martin: Okay, and I just want to circle back on the Trump question. Can you just remind us about what your China export business looks like and maybe give some indication of... some of the steps you've taken over the past, call it eight years. mitigate any risk from China tariffs or China supply chain. Well, one of the reasons we built the RFID inlay plant in Mexico, that was a factor in that. So, the main exports that we have... to around the world in that regard really revolve around the checkpoint hardware business. So that would be the area that we would be most exposed, but that's a pretty small part of what we do, and we would have lots of options if we needed to relocate it for any reason.
Speaker Change: I wouldn't I wouldn't say so.
Speaker Change: But it but quite as succinctly as that but.
Speaker Change: So the incremental growth is all coming from RFID.
Speaker Change: So yeah. If you look at if you look at the growth rate in pure RFID instead of at a premium to the average that we see for the ILS business in total that's for sure the case.
Speaker Change: But I wouldn't I don't have the number in my head what that would be but it's certainly north of the numbers of the growth in the business overall.
Speaker Change: And a L S with a L. S traditional business would be a mid single digit or high single digit type comp does that.
Speaker Change: Correct.
Speaker Change: But but but it's.
Speaker Change: The vast majority of the growth came from RFID.
Speaker Change: Okay.
Speaker Change: I just wanted to circle back on the.
Speaker Change: Trump question can you just remind us about what your China export business looks like and maybe give some indication of some of the steps you've taken over the past call. It eight years to.
Geoffrey Martin: And I think you also have to recall, remember that in the event there are any tariffs, it's only on the transfer price, not the full retail price of what we make. So I think the impact is relatively small.
Speaker Change: Mitigate any risk from China, tariffs or China supply chain issues well, we we we were one of the reasons, we built the RFID inlays plants in Mexico.
Geoffrey Martin: The much bigger question. It really revolves around our customers, so obviously in the electronics industry we've got a very large number of customers making and assembling devices in China. question will be, what will happen in the future to their supply chains and where they might be relocated to or will these tariffs really get put in place in the way that some people say they might?
Speaker Change: That was a that was a factor.
Speaker Change: And that so the main exports that we have.
Speaker Change: Around the world and the and in that regard really really revolve around the checkpoint hardware business.
Speaker Change: So that's that's that moved that would be the area that we will be most exposed, but that's a pretty small part of what we do and we would have lots of options if we needed to relocate it.
Geoffrey Martin: Okay, and, and finally, for me, so North America Organic. does appear to have slowed sequentially. I think it was high single digit in 2Q and now it's low single digit in 3Q. Was there anything specific that you could call out on North America? Just comps. Just the comps? Yeah. Thank you.
For any reason.
And I think you also have to recall remember the ER and the <unk>.
Speaker Change: There are and the terrorists, it's only on the transfer price.
Speaker Change: The full retail price of what we make.
Speaker Change: So I think the impact is relatively small the much bigger question.
Speaker Change: Really revolves around our customers so.
Unnamed Speaker: Further questions? No problem.
Obviously in the electronics industry, we've got a very large number of customers, making in assembling devices in China.
Daryl Young: This question is from Daryl Young.
Speaker Change: And.
Geoffrey Martin: Good morning, everyone. Just one higher level question from me around your approach to M&A. So historically, you've shied away from competitive processes and been more long-term relationship focused, but Given the elevated monetization environment for the private equity landscape, is there an argument for maybe adapting to participate in some of these processes as some of these assets come to light, just given how active private equity has been in your space in the last decade? Well, the private equity industry has been very active and very irresponsible in our space for a long time now, and received many bloody noses as a result of that.
Speaker Change: The question will be what will what will happen in the future to their supply chains, and where they where they might be relocated to or will these terrorists really get.
Speaker Change: Put in place and the way that some people say they might be.
Speaker Change: Okay.
Speaker Change: And.
Speaker Change: And then finally for me So North America organic.
Speaker Change: Does it appear to have slowed sequentially I think it was high single digit in Q and now it's low single digit and three Q was there anything specific that you could call out on North America just comps.
Speaker Change: Just the comp.
Speaker Change: Yeah.
Geoffrey Martin: And there is not very much of great interest to us that's held by private equity players in our industry, in the core CCL label business. So our focus remains on the better quality assets in our industry, which tend to be privately owned companies with more reasonable expectations. with better investment profiles because they've been putting capital play into their business over the long term versus somebody who's been highly leveraged and not been deploying capital during their period of ownership. That's good color.
Thank you for the questions no problem.
Speaker Change: Yeah.
Speaker Change: Your next question is from Daryl young with Stifel.
Speaker Change: Hey, good morning, everyone. Just one higher level question for me around your approach to M&A. So historically, you've shied away from competitive processes and been more long term relationship focus but.
Speaker Change: Given the elevated monetization environment for the private equity landscape. It is there an argument for maybe adapting to to participate in some of these processes is as some of these assets come to light just given how active private equity has been in your space in the last decade.
Unnamed Speaker: Thank you very much, Jeff.
Speaker Change: Well the private equity industry has been very active and very irresponsible enough space for a long time now.
Unnamed Speaker: That's all for today.
Unnamed Speaker: Thank you.
Unnamed Speaker: Okay, a couple questions. Just circling back on the checkpoint business. So in your presentation, you talk about the fact that, you know, you've had ALS going up over 30% driven by RFID wins. So when you say RFID wins, does that mean new clients? Or does that mean converting existing clients to RFID? It's a combination of new clients, share gains at customers. that we already have where we have gained shares. It's a combination of those two things. So new clients and share gains that customers we already have.
Speaker Change: And then receive many bloody nose is as a result of that.
Speaker Change: And there is not very much of great interest to us that's held by private equity players in our industry in the KOL CCL label business.
Speaker Change: But our focus remains on the better quality assets into our industry, which tend to be privately owned companies.
Speaker Change: More reasonable expectations.
Speaker Change: The Bachelor investment profiles, because they've been putting capital play into their business over the long term.
And somebody who's been highly leveraged and not been deploying capital during the periods of ownership.
Geoffrey Martin: Okay, I don't know if you can help us out on this one, but like what percentage of your existing clients have adopted RFID. And then I'm just wondering what the opportunity is just with your existing clients today. Well, the best way to answer that, the apparel industry is around one-third adopted in our opinion. And I would qualify that by saying that in the apparel space, a number of players initially adopted RFID with hard tags, so these would be multiple trip RFID tags that are taken off in the store and then reused. So there'll be a number of conversions of those to soft tags, which is a better business for us.
Speaker Change: That's good color. Thank you very much Jeff.
Speaker Change: Great.
Speaker Change: Your next question for today is from David.
Speaker Change: With core Mark.
Alright, I'm kind of a question, but just just circling back on the checkpoint business. So in your presentation you talk about the fact that.
Speaker Change: You know you've had oh, that's going up over 30% driven by RFID. When so when you say RFID wins does that mean, new clients or does that mean converting existing clients for RFID.
Speaker Change: It's a combination of new clients share gains.
Speaker Change: Customers.
Speaker Change: So that we already have.
Speaker Change: We have a world where we have gained share it. So it's a combination of those two things so.
Geoffrey Martin: which would be one-way tags that are not recycled and reused. So I think there's a long runway left, when you think about it in that regard, in apparel. And I do think it will eventually become a ubiquitous technology, broadly adopted in the apparel industry. So quite a long runway still left. Okay.
Speaker Change: New clients and share gains that customers, we already have.
Speaker Change: Okay I don't know if you.
Speaker Change: And at the time on this one that like what percentage of your existing clients.
Have a doctor in RFID and then I'm just wondering what the opportunity is just with your existing clients Tonight.
Speaker Change: Well they they are the best way to answer that the apparel industry is around one third adopted in our opinion.
Geoffrey Martin: And that business within Check Point, it's about a $250 million business today, right? Correct.
Speaker Change: And I I would qualify that by saying that in the apparel space.
Geoffrey Martin: And then just a question on CCL Secure. So you said that, you know, with downmarking in the quarter, These are very volatile parts of business. If we have orders, we make very good money. And obviously, given the nature of the customers, it's very difficult to influence them to do anything short term. So when they need supply, we do well when they don't need supply. We have what happened in Q3. OK. Okay, great. Thanks.
Speaker Change: Number of players that initially adopted RFID with hard tags. So these would be multiple trip alright, if I D.
Tags that are taken off into the store and then reused.
Speaker Change: So there'll be a number of conversions of those to soft tags, which is a better business a better business for us.
So it should be one way tags that the the not recycled and reused.
Speaker Change: So so I think there's a long runway left when you think about it and in that regard in apparel.
Speaker Change: I do think it will eventually become a ubiquitous technology.
Totally adopted in the apparel industry, so quite a quite a long runway still still left.
Operator: Again, if you would like to ask a question, please press star 1.
Speaker Change: Okay.
And that that business will then checkpoints and say, it's about a $250 million business today right.
Speaker Change: Correct.
Speaker Change: Okay.
Speaker Change: And then just a question on T cells take care see you said that you know was down markedly in the quarter just.
Speaker Change: Thank you Cotter just strong comps, but are there any other factors that caused it to be down in the corner.
Geoffrey Martin: The end of the question and answer session, and I will now turn the call over to Geoffrey Okay, well thank you very much everybody for joining the call and we'll look forward to talking to you at our year-end call in the middle of February. Thank you very much.
Speaker Change: It's a volatile.
Speaker Change: Oh, it's all public part of the business.
Speaker Change: If we have old as we make very good money. If we don't have orders we don't.
Speaker Change: And obviously given the nature of the customers, it's very difficult to influence them to do anything short term.
Operator: This concludes today's... and you may disconnect your line. Thank you.
Speaker Change: So when when they when they when they need supply, we do well when they don't need supply.
Speaker Change: We may have what happened in Q3.
Speaker Change: Okay.
Speaker Change: Okay, great. Thanks.
Speaker Change: No problem.
Speaker Change: Once again, if you would like to ask a question. Please press star one.
Speaker Change: We have reached the end of our question and answer session and I will now turn the call over to Jeff Martin for closing remarks.
Speaker Change: Yes.
Jeff Martin: Okay, well. Thank you very much everybody for joining the call and we'll look forward to it.
Talking to you at our year end cold in the Middle of February. Thank you very much.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.