Q2 2025 CCL Industries Inc Earnings Call

Moderator: Good morning and welcome to CCL Industries Inc.'s second quarter investor update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Geoffrey T. Martin, President and Chief Executive Officer, and joining him is Mr. Sean Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.

Speaker #2: The moderator for today is Mr. Geoffrey Martin, President and Chief Executive Officer, and joining him is Mr. Sean Washchuk, Senior Vice President and Chief Financial Officer.

Speaker #2: Please go ahead, gentlemen.

Speaker #3: Thanks, Holly. Welcome, everyone, to our second quarter call. I'll direct everyone to page two of this presentation and your attention regarding our disclaimer for forward-looking statements.

Sean Washchuk: Thanks, Holly. Welcome, everyone, to our second quarter call. I will direct everyone to page two of this presentation and your attention regarding our disclaimer for forward-looking statements. 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 2024 annual report, particularly the section Risks and Uncertainties. Our annual and quarterly reports can be found online at the company's website, cclind.com, or on cdrplus.ca. Moving to the next slide, our summary of financial results. For the second quarter of 2025, sales increased 4.8%, with organic growth of 2%, 1% acquisition-related growth, and 1.8% positive impact from foreign currency translation, resulting in sales of $1.9 billion compared to $1.8 billion in the second quarter of 2024.

Speaker #3: I'll remind everyone that our business space is known and unknown, risks and opportunities. For further details of these key risks, please take a look at our 2024 Annual Report.

Speaker #3: Particularly, the section 'Risks and Uncertainties.' Our annual and quarterly reports can be found online at the company's website, cclind.com, or on cedar.ca. Moving to the next slide, our summary of financial results.

Speaker #3: For the second quarter of 2025, sales increased by 4.8%, with organic growth of 2%, 1% acquisition-related growth, and 1.8% positive impact from foreign currency translation.

Speaker #3: Resulting in sales of $1.9 billion, compared to $1.8 billion in the second quarter of 2024. Operating income was $322.1 million for the Q2 2025, compared to $303.5 million for the second quarter of 2024.

Sean Washchuk: Operating income was $322.1 million for the 2025 second quarter, compared to $303.5 million for the second quarter of 2024, a 5% increase excluding the impact of foreign currency translation. Geoffrey T. Martin will expand on our segmented operating results for our CCL, Avery, Checkpoint, and Innovia segments momentarily. Corporate expenses were down for the 2025 second quarter compared to the prior year's second quarter. Consolidated EBITDA for the 2025 second quarter, excluding the impact of foreign currency translation, increased 6% compared to the same period in 2024. Net finance expense was $17.3 million for the second quarter of 2025, lower than the $18.6 million for the second quarter of 2024. The decrease is due to higher finance income earned on the company's cash and cash equivalents.

Speaker #3: A 5% increase, excluding the impact of foreign currency translation. Geoff will expand on our segmented operating results for our CCL, Avery, Checkpoint, and Inovia segments momentarily.

Speaker #3: Corporate expenses were down for the 2025 second quarter compared to the prior year’s second quarter. Consolidated EBITDA for the 2025 second quarter, excluding the impact of foreign currency translation, increased 6% compared to the same period in 2024.

Speaker #3: Net finance expense was $17.3 million for the second quarter of 2025, lower than the $18.6 million for the second quarter of 2024. The decrease is due to higher finance income earned on the company’s cash and cash equivalents.

Speaker #3: The overall effective tax rate for the second quarter of 2025 was 25.3%, compared to an effective tax rate of 18.8% recorded in the second quarter of 2024.

Sean Washchuk: The overall effective tax rate for the second quarter of 2025 was 25.3% compared to an effective tax rate of 18.8% recorded in the second quarter of 2024. Excluding the impact of the non-cash, non-taxable $78.1 million revaluation gain that was recorded in the second quarter of 2024, the effective tax rate was 24.5%. The effective tax rate may change in future periods depending on the proportion of taxable income that is earned in different tax jurisdictions at different rates. Net earnings for the 2025 second quarter was $213.1 million compared to $279.5 million for the 2024 second quarter, although the prior year's second quarter included the aforementioned $78.1 million non-cash revaluation gain. Excluding this gain, net earnings for the prior year's second quarter were $201.4 million.

Speaker #3: Excluding the impact of the non-cash, non-taxable $78.1 million revaluation gain that was recorded in the second quarter of 2024, the effective tax rate was 24.5%.

Speaker #3: The effective tax rate may change in future periods depending on the proportion of taxable income that's earned in different tax jurisdictions at different rates.

Speaker #3: Net earnings for the 2025 second quarter were $213.1 million, compared to $279.5 million for the 2024 second quarter. Although the prior year's second quarter included the aforementioned $78.1 million non-cash revaluation gain.

Speaker #3: Excluding this gain, net earnings for the prior year second quarter were $201.4 million. For the six-month period, sales operating income and net income increased by 6.7%, 9.1%, and 6.9% respectively, excluding the revaluation gain compared to the six-month period in 2024.

Sean Washchuk: For the six-month period, sales, operating income, and net income increased 6.7%, 9.1%, and 6.9% respectively, excluding the revaluation gain compared to the six-month period in 2024. 2025 included results from two acquisitions completed since January 1st, 2024, delivering acquisition-related sales growth for the period of 1.2%, organic growth of 2.9%, and foreign currency translation tailwind of 2.6% to sales. Moving to the next slide, earnings per share. Basic and adjusted basic earnings per Class B share were $1.21 and $1.22 respectively for the second quarter of 2025, compared to $1.56 and $1.13 adjusted basic earnings per Class B share for the 2024 second quarter. Adjusted earnings per Class B share increased 8% in 2025 compared to the second quarter of 2024. This $0.09 increase in adjusted basic EPS was primarily driven by improved operating income of $0.09, favorable currency translation adding $0.02, and reduced net finance costs adding $0.01.

Speaker #3: 2025 included results from two acquisitions completed since January 1st, 2024, delivering acquisition-related sales growth for the period of 1.2%. Organic growth of 2.9%, and foreign currency translation tailwind of 2.6% to sales.

Speaker #3: Moving to the next slide, earnings per share. Basic and adjusted basic earnings per Class B share were $1.21 and $1.22, respectively. For the second quarter of 2025, compared to $1.56 and $1.13 adjusted basic earnings per Class B share for the second quarter of 2024.

Speaker #3: Adjusted earnings per Class B share increased 8% in 2025 compared to the second quarter of 2024. This nine-cent increase in adjusted basic EPS was primarily driven by improved operating income of nine cents, favorable currency translation adding two cents, and reduced net finance costs adding one cent.

Speaker #3: These gains were partially offset by lower joint venture earnings of two cents and a higher income tax rate costing one cent. Moving to the next slide, our free cash flow from operations.

Sean Washchuk: These gains were partially offset by lower joint venture earnings of $0.02 and a higher income tax rate costing $0.01. Moving to the next slide, our free cash flow from operations. For the second quarter of 2025, free cash flow from operations was an inflow of $226 million compared to an inflow of $118.8 million posted in the second quarter of 2024. The increase is principally due to improved earnings and a reduction of net capital expenditures from the second quarter of 2025 compared to the prior year's second quarter. For the trailing 12 months, June 2025, free cash flow from operations was $759.8 million compared to $567.8 million for the trailing 12 months ended June 2024. This change is primarily attributable to improved adjusted earnings and reduced net capital expenditures over the comparative 12-month periods. Next slide, our return to shareholders.

Speaker #3: For the second quarter of 2025, free cash flow from operations was an inflow of $226 million, compared to an inflow of $118.8 million posted in the second quarter of 2024.

Speaker #3: The increase is principally due to improved earnings and a reduction of net capital expenditures from the second quarter of 2025, compared to the prior year's second quarter.

Speaker #3: For the trailing 12 months ended June 25, free cash flow from operations was $759.8 million, compared to $567.8 million for the trailing 12 months ended June 2024.

Speaker #3: This change is primarily attributable to improved adjusted earnings and reduced net capital expenditures over the comparative 12-month periods. Next slide. I'll return to shareholders.

Speaker #3: For the 2025 second quarter, the company repurchased approximately 1.3 million shares for $100 million. Including the 10.3% increase in our 2025 annual dividend announced in February of '25, dividends paid year-to-date have amounted to $112.1 million for a total of $312.1 million returned to shareholders.

Sean Washchuk: For the 2025 second quarter, the company repurchased approximately 1.3 million shares for $100 million. Including the 10.3% increase in our 2025 annual dividend announced in February of 2025, dividends paid year to date have amounted to $112.1 million for a total of $312.1 million returned to shareholders. Next slide, our cash and debt summary. Net debt as at June 30th, 2025, was $1.63 billion, an increase of $15 million compared to December 31st, 2024. This increase is principally a result of higher total debt outstanding only partially offset with an increase in cash and cash equivalents. The company's net debt increased, the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 1.04 times at June 30th, 2025, down from 1.08 times reported at the end of December 2024.

Speaker #3: Next slide. Our cash and debt summary. Net debt as of June 30, 2025, was $1.63 billion, an increase of $15 million compared to December 31, 2024.

Speaker #3: This increase is principally a result of higher total debt outstanding, only partially offset by an increase in cash and cash equivalents. The company's net debt increased; the balance sheet closed the quarter in a strong position.

Speaker #3: Our balance sheet leverage ratio was approximately 1.04 times at June 30, 2025, down from 1.08 times reported at the end of December 2024. Liquidity was robust, with $963 million of cash on hand and $0.8 billion of available undrawn capacity in the company's revolving bank credit facility.

Sean Washchuk: Liquidity was robust, with $963 million of cash on hand and US $0.8 billion of available undrawn credit capacity in the company's revolving bank credit facility. The company's overall average finance rate was approximately 2.7% at June 30th, 2025, compared to 2.6% at December 31st, 2024. The company's balance sheet continues to be well-positioned as we move through the balance of 2025. Geoff, over to you.

Speaker #3: The company's overall average finance rate was approximately 2.7% at June 30, 2025, compared to 2.6% at December 31, 2024. The company's balance sheet continues to be well-positioned as we move through the balance of 2025.

Speaker #3: Geoff, over to you.

Speaker #4: Thank you, Sean. Good morning, everybody. On slide eight, I'd like to discuss capital spending. We spent $211 million on our disposals year-to-date 2025, excluding expeditions and depreciation.

Geoffrey T. Martin: Thank you, Sean Washchuk. Good morning, everybody. On slide 8, highlights of capital spending. We spent $211 million on disposals, year to date, 2025, including right the ask additions and depreciation in the comparative. We expect to spend around $485 million for the year of 2025. Slide 9 highlights of the CCL Industries Inc. quarter. Good quarter, 4.7% organic growth, and that was on top of 9% that we had in the corresponding quarter this time last year. Low single-digit growth in North America and Europe, mid-single digits in Asia-Pacific, and low teens in Latin America. Profitability gains are strong in the HPC business and at CCL Design, with healthcare and specialty and CCL Secure more modestly improved and moderately down in the food and beverage space. Slide 10, numbers for our joint ventures.

Speaker #4: In the comparator, we expect to spend around $485 million for the year of 2025. Slide nine highlights of the CCL quarter: good quarter, 4.7% organic growth, and that was on top of 9% that we had in the corresponding quarter this time last year.

Speaker #4: Low single-digit growth in North America and Europe, mid-single-digits in Asia Pacific, and low teens of Latin America. Profitability gains are strong, and the HPC business and at CCL Design with healthcare and specialty and CCL Secure more modestly improved.

Speaker #4: And moderately down in the food and beverage space. Slide ten, numbers for our joint ventures, just to point out here that Black Mountain CCL is now fully consolidated. So, this is just the numbers for one of our operations.

Geoffrey T. Martin: Just to point out here that Pacman CCL is now fully consolidated, so this is just the numbers for one of our operations. Slide 11, spend a bit more time on this one. Highlights for Avery. Our U.S. business was impacted by tariffs and a slow, late start to the back-to-school season as we expected, given all the turmoil around tariffs. Part offset by growth in direct-to-consumer in North America and Europe. Down in Latin America, we were impacted by foreign exchange, especially for imported raw materials. Slide 12, Checkpoint. Our MAS business had a very strong quarter in Europe and solid elsewhere. We did have some tariff impact here on products we manufacture in China and import into the U.S., much less so than Avery, but still a factor.

Speaker #4: Slide 11. Let's spend a bit more time on this one, highlighting key points for Avery. Our U.S. business was impacted by tariffs and a slow, late start to the back-to-school season, as we expected given all the turmoil surrounding tariffs.

Speaker #4: Part offset by growth in direct-to-consumers in North America and Europe. Down in Latin America, we are impacted by foreign exchange, especially for imported raw materials.

Speaker #4: Slide 12, checkpoint. Our MAS business had a very strong quarter in Europe and solid performance elsewhere. We did have some tariff impact on products we manufacture in China and import into the U.S.

Speaker #4: Much less so than Avery, but still a factor. In the apparel label business, we experienced a modest decline as retailers reconsidered their supply chains to mitigate tariff impacts.

Geoffrey T. Martin: In the apparel label business, we had a modest decline as retailers all reconsidered the supply chain to mitigate tariff impacts, which caused quite some considerable disruption in the supply chain. Our RFID growth, although moderated, is still positive. Slide 13 highlights for Innovia. Sales declined on lower resin cost pass-through, but there was a modest volume gain. Excellent performance again in the Americas and improved results in the U.K. on the benefits of the consolidated volume from the closed plant in Belgium. Poland continued to gain share in label films. We did start up on a very low scale for plant in Germany, where we incurred a $3.8 million loss with very limited revenues. Page 14, just some comments about tariffs, which I am sure was on everybody's mind. No change in the CCL Industries Inc. segment and Innovia products made in Mexico.

Speaker #4: Which caused quite a considerable disruption in the supply chain. But RFID growth, although moderated, is still positive. Slide 13 highlights for Inovia: sales decline on lower resin cost pass-through, but there was a modest volume gain.

Speaker #4: Excellent performance again in the Americas and improved results in the UK, stemming from the benefits of the consolidated volumes from the closed plant in Belgium.

Speaker #4: Poland continued to gain share in label films. We did start up at a very low scale the plant in Germany, where we incurred a $3.8 million loss with very limited revenues.

Speaker #4: Page 14—just some comments about tariffs, which I'm sure were on everybody's mind. No change in the CCL segment, and Inovia products made in Mexico; they are still UCM USMCA compliant.

Geoffrey T. Martin: They are still with a USMCA compliant and therefore currently tariff-free for the U.S. Our Avery ring binders and certain ancillary products, which we also make in Mexico, incurred tariffs due to its high China content, approximately to under $4 million impact in Q2 net of price surcharges to customers. Checkpoint MAS products, the ones I just mentioned in the U.S., also rely on China's supply. We had with them over $1 million. It started a little higher than that in the early part of the quarter, but price increases pretty much had taken care of it by the time we reached June, but the cause of the impact was a little less than $1 million. A $1 million or so impact across the rest of the company, primarily in suppliers changing raw material prices to reflect tariff costs of imported raw materials.

Speaker #4: And therefore, currently tariff-free for the U.S. However, our Avery ring binders and certain ancillary products, which we also make in Mexico, incurred tariffs due to their high China content.

Speaker #4: Approximately under $4 million impact in Q2, net of price surcharges to customers. Checkpoint MAS products, the ones I just mentioned in the U.S., also rely on China's supply.

Speaker #4: We had a little over a million dollars, starting a little higher than that in the early part of the quarter. But price increases pretty much took care of it by the time we reached June. The course of the impact was a little less than a million bucks.

Speaker #4: And a million dollars or so of impact across the rest of the company, primarily in suppliers changing raw material prices to reflect tariff costs importing raw materials.

Speaker #4: We have a lot of mitigating actions underway in our supply chain, and we are using pricing surcharges where deemed appropriate. Page 15 outlines the outlook for the coming quarter.

Geoffrey T. Martin: We have a lot of mitigating actions underway in our supply chain, and we are using pricing surcharges where that's deemed to be appropriate. Page 15, the outlook for the coming quarter. The CCL segment order backlog is pretty solid going into Q3, and orders so far have been stable. Not great, but not bad either. Avery is expected to improve sequentially, and we have now got results in for our July month, which were pretty good. So certainly, it feels more late than slow in the back-to-school season, but replenishment volume, which we'll have to see how that unfolds in the month of August, remains a risk. Checkpoint ALS volume is expected to pick up for the typically busy August and November windfall and winter season, as customers resolve their sourcing plans to deal with the tariff regimes. Innovia should still post gains in the next quarter.

Speaker #4: The CCL segment, all the backlog is pretty solid going into Q3, with orders so far having been stable. Not great, but not bad either.

Speaker #4: Avery is expected to improve sequentially, and we have now got results in for around July month, which were pretty good. So certainly, it feels more late than slow.

Speaker #4: In the back-to-school season, replenishment volume—which we'll have to see how that unfolds in the month of August—remains a risk. Checkpoint ALS volume is expected to pick up for the typically busy August to November windfall and winter season, as customers resolve their sourcing plans to deal with the tariff regimes.

Speaker #4: Inovia should still post gains in the next quarter. German plant costs will likely continue for at least the rest of this year and into next year.

Geoffrey T. Martin: German plant costs will still continue, probably for the rest of it, for at least the balance of the rest of this year and into next. FX is a modest tailwind. It may even be neutral for the quarter ahead. With that, we'd like to open the call for questions.

Speaker #4: FX is a modest tailwind that may even be neutral for the quarter ahead. And without operating, we'd like to open the call for questions.

Speaker #2: Certainly. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press *1 on your telephone keypad.

Moderator: 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. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. 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. Your first question for today is from Ahmed Abdullah with National Bank of Canada. Ahmed, your line is live.

Speaker #2: A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #2: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we pull for questions.

Speaker #2: Your first question for today is from Ahmed Abdullah with National Bank of Canada. Ahmed, your line is live.

Speaker #5: Yes, good morning. Thank you for taking my question. Can you give us a bit more color on the home and personal care in the CCL segment?

Analyst: Yes, good morning. Thank you for taking my question. Can you give us a bit more color on the home and personal care in the CCL segment? What drove these noticeable gains, given that your customers kind of suggesting flattish to moderately higher volumes? Were you able to drive some pricing, or is this a function of pure operational efficiencies?

Speaker #5: What drove these noticeable gains, given that your customers are suggesting flattish to moderately higher volumes? Were you able to drive some pricing, or is this a function of pure operational efficiencies?

Speaker #4: It's a function of a lot of things. We had another good call through our aluminum aerosol can business, so that was a factor.

Geoffrey T. Martin: It's a function of a lot of things. We had another good call from our aluminum aerosol can business, so that was a factor. We had very good results from the Pacman CCL business in the Middle East, and they've picked up a little bit of share around the world here and there. We certainly recognize the volume environment of the CPG customers is flattish to slightly down, so we certainly feel that in parts of the business because we had a lot of compensating things that took care of that.

Speaker #4: We had very good results from the Pacman CCL business in the Middle East, and we've picked up a little bit of share around the world here and there.

Speaker #4: We certainly recognize that the volume environment of the CPG customers is flat to slightly down. So we certainly feel that in parts of the business, but you had a lot of compensation mechanisms that took care of that hands-on.

Speaker #5: Okay. And are those business wins a function of customers revisiting their supplier relationships, or is it more due to efforts from your sales department?

Analyst: Okay. And those business wins are a function of customers revisiting their supplier relationships, or is it more efforts on your sales department?

Speaker #4: I think it's just a reflection of the current state of the market.

Geoffrey T. Martin: I think it is just a reflection of the current state of the market.

Speaker #5: Okay, that's fair. And then one last one for me. Your first half positions you well for another year where EBITDA looks to grow in excess of 5%.

Analyst: Okay. That's fair. Then one last one for me. Your first half positions you well for another year where EBITDA looks to grow in excess of 5%. Do you see any operational efficiency opportunities or maybe top-line momentum opportunities that could drive a similar EBITDA growth profile to last year's growth?

Speaker #5: Do you see any operational efficiency opportunities, or maybe top-line momentum opportunities, that could drive a similar EBITDA growth profile to last year's growth?

Speaker #4: In which period are you talking about?

Geoffrey T. Martin: In which period are you talking about?

Speaker #5: In the second half of the year.

Analyst: In the second half of the year.

Speaker #4: We'll have to wait and see.

Geoffrey T. Martin: We'll have to wait and see.

Speaker #5: Okay. That's fair. That's it for me.

Analyst: Okay. That is fair. That is it for me.

Speaker #2: Your next question is from Steven McLeod with BMO Capital Markets.

Moderator: Your next question is from Stephen McLeod with BMO Capital Markets.

Speaker #6: Thank you, good morning guys.

Stephen McLeod: Thank you. Good morning, guys.

Speaker #5: Hi, Geoff.

Analyst: Hi, Geoff.

Speaker #6: Morning. Just on the CCL segment, just to follow up, you know you've had a couple of nice quarters with margins that are in the mid to high 16% range.

Stephen McLeod: Morning. Just on the CCL segment, just to follow up, you've had a couple of nice quarters with margins that are in the mid to high 16% range. I'm just curious, is there anything going on there that maybe would establish that as like a new high watermark, or is that kind of unique to the first half of this year and, I guess, the first half of last year as well?

Speaker #6: And I'm just curious, you know, is there anything going on there that maybe would establish that as like a new high watermark? Or is that kind of unique to the first half of this year and I guess the first half of last year as well?

Speaker #4: Well, we've had quite a significant change in the performance of the CCL Design electronics business. So, the profit margins in that part of the company have improved quite substantially.

Geoffrey T. Martin: We've had quite a significant change in the performance of the CCL Design electronics business. The profit margins in that part of the company have improved quite substantially, and the business has also grown. In the HPC business, we've been having a very good year in that space. Those are the two main drivers of what's going on in the CCL segment.

Speaker #4: And the business has also grown. In the HPC business, we've been having a very good year in that space. So, they are the two main drivers of what's going on in the CCL segment.

Speaker #6: Okay, okay, thank you. And then maybe just on Inovia, with respect to the German plant startup costs, understanding that that will continue for the back half of the year, can you just remind us when you're expected to generate revenues on that plant and what the total size of that revenue opportunity could be?

Stephen McLeod: Okay. Okay. Thank you. Then maybe just on Innovia with respect to the German plant startup costs, understanding that that will continue for the back half of the year. Can you just remind us when you expect to generate revenues on that plant and what the total size of that revenue opportunity could be?

Speaker #4: Well, the revenue numbers at the moment are really minuscule because we're just running trials and very, very, very small trial quantities for key customers.

Geoffrey T. Martin: The revenue numbers at the moment are really minuscule because we are just running trials and very, very, very small trial quantities for key customers. It will take some time to ramp up, and we have to go through qualifications for a brand new site with a brand new type of film. Just like with Echo Float in Poland, it will take several quarters for that to unfold until we get into the black. Then we will see where we go from there. We are certainly very encouraged by the quality of film the line is making. There is a lot of customer interest in the product, but qualifications will take some time.

Speaker #4: So, it will take some time to ramp up because we have to go through qualifications for brand new sites with a brand new type of film.

Speaker #4: So, just like with EcoFloat in Poland, it will take several quarters for that to unfold until we get into the black. And then we'll see where we go from there.

Speaker #4: But we're certainly very encouraged by the quality of film the lines are making. There is a lot of customer interest in the products, but qualifications will take some time.

Speaker #6: Okay. So would it be safe to assume that we may see some revenues from that sometime in 2026?

Stephen McLeod: Would it be safe to assume that we would maybe get some revenues on that in sometime in 2026?

Speaker #4: Yeah. We'll get some small revenues in the second half of this year. Revenues that are material, I would say, would start to appear in 2026 as the business grows.

Geoffrey T. Martin: Yeah. We'll get some small revenues in the second half of this year. Revenues for the material, I would say, would start to appear in 2026 as the business grows, if it repeats what happens with us in Poland.

Speaker #4: If it repeats, what happens with us in Poland?

Speaker #6: Okay. That's great. Okay. Thanks, Geoff. I appreciate it.

Stephen McLeod: Okay. That's great. Okay. Thanks, Geoff. Appreciate it.

Speaker #4: Okay.

Geoffrey T. Martin: Okay.

Speaker #2: Your next question for today is from Sean Stewart with TD Cowen.

Moderator: Your next question for today is from Sean Stewart with TD Cowan.

Speaker #5: Thank you. Good morning, everyone. Question on the checkpoint margins. Good momentum there. It sounds like MAS in Europe was strong. Can you speak to some of the other underlying factors that have driven margin gains there?

Analyst: Thank you. Good morning, everyone. Question on the Checkpoint margins. Good momentum there. It sounds like MAS business in Europe was strong. Can you speak to some of the other underlying factors that have driven margin gains there? Then, further to that, you did note deceleration in RFID growth. Can you give some context around that magnitude?

Speaker #5: And then further to that, you did note deceleration in RFID growth. Can you give some context around that magnitude?

Speaker #4: Yeah. So obviously, your second point first: it's really about the disruption in the apparel supply chain. As customers rethink where to source from in the U.S., and although a lot of our business is in Europe, the apparel supply chain is global. Manufacturers who are located in China are sending part of their production to Europe and part of their production to the U.S.

Geoffrey T. Martin: I will answer your second point first. It is really about the disruption in the apparel supply chain as customers rethink where to source from. In the U.S., and although a lot of our business is in Europe, the apparel supply chain is global. Manufacturers who are located in China are sending part of their production to Europe, part of their production to the U.S. But as U.S. pressure to move sources of production gets moved around, it caused quite a bit of disruption to the ordering process for the fall season, regardless of where the product is actually destined for. That is really what has caused the drop in RFID because most of our RFID business is apparel-driven. But we do expect that to change as this situation on the supply chain normalizes across the next quarter or two. MAS business had a very good quarter, as you say.

Speaker #4: But as U.S. pressure to move sources of production gets moved around, it caused quite a bit of disruption to the ordering process for the fall season, regardless of where the product is actually destined for.

Speaker #4: So that's really what's caused the drop in RFID, because most of our RFID business is apparel-driven. However, we do expect that to change as this situation on the supply chain normalizes across the next quarter or two.

Speaker #4: MAS had a very good quarter, as you say. It really was driven by Europe and some quite significant business wins. In Europe, the key driver.

Geoffrey T. Martin: It really was driven by Europe. Some quite significant business wins in Europe is the key driver.

Speaker #5: Okay, thanks for that. And then, Geoff, any broad commentary on the M&A opportunity set? Are indications that sellers' valuation parameters are moderating? Can you speak to deal flow you're seeing right now?

Analyst: Okay. Thanks for that. Then, Geoff, any broad commentary on the M&A opportunity set indications that sellers' valuation parameters are moderating? Can you speak to the deal flow you are seeing right now?

Speaker #4: Yeah, I wouldn't say we see a lot of big change in the deal flow. We've got a list of things we're working on, and we'll see how things unfold.

Geoffrey T. Martin: I wouldn't say we see a lot of big change on the deal flow with the list of things we're working on. We'll see how things unfold, but we haven't seen any huge changes on valuation metrics that time will tell.

Speaker #4: But we haven't seen any huge changes in valuation metrics, but time will tell.

Speaker #5: Okay. That's all I have for now. Thanks, guys.

Analyst: Okay. That's all I have for now. Thanks, guys.

Speaker #4: Okay.

Geoffrey T. Martin: Okay.

Speaker #2: Your next question is from Michael Glenn with Raymond James.

Moderator: Your next question is from Michael Glen with Raymond James.

Speaker #7: Hey, good morning.

Analyst: Hey, good morning. Geoffrey T. Martin, just to start, when we think about your capital investment plans, the expansions of plants and the new facilities, how are you able to give an indication about how much that we should think about that adding to your growth each year? Is it a low single digit? Is it any sort of information would be helpful?

Speaker #5: Geoff, just to start, when we think about your capital investment plans, the expansions of plants, and the new facilities, how are you able to give an indication about how much that we should think about that adding to your growth each year?

Speaker #5: Is it a low single digit? Any sort of information would be helpful.

Speaker #4: Well, it's a portion of it, but I couldn't quantify it for you. But it's a portion of it.

Geoffrey T. Martin: It's a portion of it that I couldn't quantify it for you, but it's a portion of it.

Speaker #5: Okay. And for the coming year, do you see— I know it may be a bit early— but should we expect a similar level of ongoing expansion and new facilities?

Analyst: Okay. For the coming year, do you see, I know maybe it is a bit early, but should we expect a similar level of ongoing expansion, new facility additions?

Speaker #5: Additions?

Speaker #4: Yeah. I literally haven't changed our investment plans around the current environment. We had one large project in Turkey, which we put on hold relative to the apparel supply chain issue.

Geoffrey T. Martin: Yeah. We haven't changed our investment plans around the current environment. We had one large project in Turkey, which we put on hold relative to the apparel supply chain issue. But we want to wait and see where the world settles in that regard. We may still go ahead with that next year. We'll wait and see how that unfolds. But aside from that, we're planning to invest in the same way we have in the past. No change.

Speaker #4: But that's what we wanted to wait and see, where the world settles in that regard. However, we may still go ahead with that next year.

Speaker #4: We'll wait and see how that unfolds. But aside from that, we're planning to invest in the same way we have in the past. No change.

Speaker #5: Okay. In the MD&A, in the outlook section, you do reference some new business wins for polymer banknotes. For CCL Secure, how much do you expect that significant contribution from these volumes in the back half of this year?

Analyst: Okay. In the MD&A, in the outlook section, you do reference some new business wins for polymer bank note for CCL Secure. How much do you expect a large contribution from these volumes in the back half of this year?

Speaker #4: It's not material to the company overall. It's very immaterial to the company overall.

Geoffrey T. Martin: It's not material to the company overall. It's very immaterial to the company overall.

Speaker #5: Okay. Okay. Thanks for taking the questions.

Analyst: Okay. Okay. Thanks for taking the questions.

Speaker #2: Your next question is from Amir Patel with CIBC.

Moderator: Your next question is from Amir Patel with CIBC.

Speaker #6: Hi. Good morning. Geoff, on the RFID side, I know you indicated that it moderated, but are you able to quantify the level of growth you saw across that business in Q2 and just kind of broader for the industry? What level of growth would you expect for the coming year?

Analyst: Hi. Good morning. Geoff, on the RFID side, I know you indicated that it moderated, but are you able to quantify the level of growth you saw across that business in Q2? What level of growth would you expect for the coming year?

Speaker #4: Well, we're still big believers in the technology, but you can't have the kind of disruption that we've seen caused by tariffs to the apparel supply chain.

Geoffrey T. Martin: We are still big believers in the technology, but we cannot have the kind of disruption that we have seen caused by tariffs to the apparel supply chain not having an effect on demand for RFID. So every player in the industry has been affected by this. Some of them are public, some of them are private, but everyone has been affected, including us. We all expect to see RFID continue return to growth once that settles down. Apparel is still by far the £100 gorilla in the room in the RFID space. So when that settles down, we expect to see a return to double-digit growth. I would not want to comment beyond that.

Speaker #4: Not having an effect on demand for RFID, so every player in the industry is being affected by this. Some of them are public, some of them are private, but everyone's being affected, including us.

Speaker #4: We all expect to see RFID continue to return to growth once that settles down. Apparel is still by far the 100-pound gorilla in the room in the RFID space.

Speaker #4: So when that settles down, we expect to see a return to double-digit growth in the coming quarters.

Speaker #6: Okay, fair enough. Turning to the healthcare side of the business, can you give us an update on how the GLP-1 related business is faring?

Analyst: Okay. Fair enough. Just turning to the healthcare side of the business, can you give us an update on how the GLP-1-related business is faring?

Speaker #4: Yeah, it's going okay, but it's not sub-$50 million out of the CCL segment. So, it's growing very fast, but the unit volumes of those products—the dollar revenues are very high, but the unit volumes are not as big as you might think.

Geoffrey T. Martin: Yeah. It's going okay, but it's not a sub-$50 million out of the CCL segment. So it's growing very fast, but the unit volumes of those products, the dollar revenues are very high, but the unit volumes are not as big as you might think.

Speaker #6: Okay, thanks. That's helpful. That's all I had. I'll turn it over.

Analyst: Thanks. That's helpful. That's all I had. I'll turn it over.

Speaker #2: Your next question for today is from David Midfajin with CoreMark Securities.

Moderator: Your next question for today is from David McFadgen with Cormark Securities.

Speaker #7: Oh, hi, guys. Yeah, I have a couple of questions. So first of all, just on Avery, you know, you have a late start to the back-to-school.

David McFadgen: Oh, hi, guys. A couple of questions. First of all, just on Avery, you know, you have a late start to back-to-school. Does that mean that revenues will move from Q2 to Q3, or do you think they actually may have lost some revenue?

Speaker #7: Does that mean that revenues move from Q2 to Q3, or do you think you actually may have lost some revenue?

Speaker #4: I don't think back-to-school will be as good this year as it was last year in total. So I think in the month of July, Avery was modestly ahead of July last year.

Geoffrey T. Martin: I do not think back-to-school will be as good this year as it was last year in total. I think in the month of July, Avery was modestly ahead of July last year in profitability, modestly down in revenues. It is the big back-to-school month, so we are quite pleased to see that. The acid test is what happens in the month of August when we see the replenishment orders. The first week was encouraging, but there are not many weeks left to go. When it drops off, we do not really know. But we doubt we will recover the drop in June completely. We might recover some of it in August because by the end of August, we are done. That is as we see.

Speaker #4: In profitability, modestly down in revenue. And it's the big back-to-school months, but we're quite pleased to see that. So the asset test is what happens in the month of August when we see the replenishment orders.

Speaker #4: The first week was encouraging, but there aren't many weeks left to go. So when it drops off, we don't really know. However, we doubt we'll recover the drop in June completely.

Speaker #4: We might recover some of it in August because, by the end of August, we're done. So that's as we see. If you take the three months of the season, which are June, July, and August, down in June, flat to slightly up in July, August is the question mark.

Geoffrey T. Martin: If you take the three months of the season, June, July, and August, down in June, flat to slightly up in July, August is the question mark. We think we probably will regain some of what we lost in June, but probably not all of it.

Speaker #4: We think we probably will regain some of what we lost in June, but probably not all of it.

Speaker #7: Okay, that's helpful. So just on checkpoint, you know, you talked about RFID growth moderating. In the past, you were experiencing growth of 20%, 30%, maybe sometimes 40%.

David McFadgen: That is helpful. Just on Checkpoint, you talked about RFID. The growth moderated. In the past, you used to be experiencing growth of 20%, 30%, maybe sometimes 40%. Given your comments that it is still positive, I would interpret that as the growth is single-digit, if that makes sense.

Speaker #7: So given your comments that it's still positive, I would kind of interpret that as the growth is single-digit. Does that make sense?

Speaker #4: I think I've said what I'm going to say on it.

Geoffrey T. Martin: I think I've said what I'm going to say on it.

Speaker #7: I'm sorry; I didn't understand what you said.

David McFadgen: I'm sorry. I didn't understand what you said, sir.

Speaker #4: Yeah. I think I'm not going to get into giving any more detail on RFID than I've already given.

Geoffrey T. Martin: I think I am not going to get into giving any more detail on RFID than I have already given.

Speaker #7: Okay. All right.

David McFadgen: Okay. All right.

Speaker #4: It's David, it's too heavily driven by the disruption to the apparel supply chain. That's the big driver. It's nothing to do with consumption. It's to do with ordering processes in the supply chain.

Geoffrey T. Martin: David, it is too heavily driven by the disruption to the apparel supply chain. That is the big driver. It is nothing to do with consumption. It is to do with ordering processes in the supply chain, which at some point we expect to see normalize. With the fall and winter season coming up, at some point, consumption of apparel has not really changed that much. So inventories will have to be rebuilt, and then we will see volumes return.

Speaker #4: Which at some point, we expect to see normalize. With the fall season, the fall and winter season coming up, you know at some point, consumption of apparel hasn't really changed that much.

Speaker #4: So, inventories will have to be rebuilt, and then we'll see volumes return.

Speaker #7: Okay. So on the last call on the Q1 call, you know, you were asked about tariffs and you said that you're fairly immune from tariffs just because you know you produce locally and people buy locally, so there wouldn't be much of a tariff impact.

David McFadgen: Okay. On the Q1 call, you were asked about tariffs, and you said that you are fairly immune from tariffs just because you produce locally and people buy locally, so there would not be much of an impact. It seems like your impact is just from a general cautiousness from the apparel industry. Is that the way to interpret it?

Speaker #7: But it seems like you're impacted just from a general cautiousness in the apparel industry. Is that correct? Is that the way to interpret it?

Speaker #4: Yeah. It's not cautiousness. They're just rethinking about where they source from. So the apparel industry is one of the most mobile sourcing products industries that you have in the world.

Geoffrey T. Martin: It's not cautiousness. They're just rethinking about where they source from. The apparel industry is one of the most mobile sourcing products industries that you have in the world. They can very quickly move production from one country to another. It's not difficult for them to do. You can imagine when all those tariff announcements came out, there was a lot of running for the hills and thinking about how they're going to change all that, which created some disruption in the supply chain. Until that settles down, which we will have to do because consumption isn't going to change, we would expect to see RFID return to the rates of growth that we saw before the tariff changes occurred.

Speaker #4: They can very quickly move production from one country to another. It's not difficult for them to do. And you can imagine when all those tariff announcements came out, there was a lot of running for the hills and thinking about how they're going to change all that, which created some disruption in the supply chain.

Speaker #4: So until that settles down, which we will have to do because consumption isn't going to change, then we would expect to see RFID return to the rates of growth that we saw before the tariff changes occurred.

Speaker #7: Okay. And then, just on stock buybacks, you know, you acted in a quarter. You're active in Q1. I mean, I guess you're probably going to be active in Q3 and Q4, as long as your leverage remains at this level.

David McFadgen: Okay. Then just on stock buybacks, you are active in the quarter, you are active in Q1. I mean, I guess you are probably going to be active in Q3 and Q4 as long as your leverage remains at this level. Is that a correct assumption?

Speaker #7: Is that a correct assumption?

Speaker #4: Sounds like it. Fairly accurate statement.

Geoffrey T. Martin: Sounds like a fairly accurate statement.

Speaker #7: Okay. All right. Thanks, guys.

David McFadgen: Okay. All right. Thanks, guys.

Speaker #2: Your next question for today is from Arthur Nagorni with RBC.

Moderator: Your next question for today is from Arthur Nagorni with RBC.

Speaker #6: Hey, good morning. I know you talked to good morning. I know you talked about share gains in home and personal care, but maybe looking across the broader CCL segment, is there any indication that you're gaining share over your competitors kind of across the business lines as far as you can tell?

Analyst: Hey, good morning. I know you talked about.

David McFadgen: Morning.

Analyst: I know you talked about the share gains in home and personal care, but maybe looking across the broader CCL segment, is there any indication that you are gaining share over your competitors across the business lines as far as you can tell?

Speaker #4: I I think where we've seen it most pronounced is in the HPC space. I wouldn't say the pharmaceutical industry is pretty conservative, so we don't we tend not to win or lose or win share in that way in that space because it's so regulated.

Geoffrey T. Martin: I think where we have seen it most pronounced is in the HPC space. I would not say the pharmaceutical industry is pretty conservative, so we tend not to win or lose or win share in that way in that space because it is so regulated. You tend to grow sales by new products coming out and being a supplier for those new products. The same in the CCL Design space. Most of the share gain activity, I would describe to the HPC space in particular.

Speaker #4: So, you tend to grow sales by new products coming out and being a supplier for those new products. So, and the same in the CCL Design space.

Speaker #4: So, most of the share gain activity, I would ascribe to the HPC space in particular.

Speaker #6: Okay. That's helpful. And can you give us a sense maybe of what pricing looks like in the CCL segment? Just wondering if maybe it's a bit elevated now, just given the tariff backdrop.

Analyst: Okay. That's helpful. Can you give us a sense maybe of what pricing looks like in the CCL segment? Just wondering if maybe it's a bit elevated now, just given the tariff backdrop.

Speaker #4: Well, the CCL label business is not very tariff-sensitized. So we have a little bit of that indirectly. So some of our suppliers, maybe sourcing components that go into things we buy, which may be still domestically manufactured in the United States, but some of the components they bring in may be subject to tariffs that have been a little bit of pricing going on there, but it's not material.

Geoffrey T. Martin: The CCL label business is not very tariff-sensitized. We have a little bit of that indirectly. Some of our suppliers, maybe sourcing components that go into things we buy, which may be still domestically manufactured in the United States. But some of the components they bring in may be subject to tariffs. So there has been a little bit of pricing going on there, but it is not material, less than $1 million for the quarter.

Speaker #4: Less than a million dollars. For the quarter.

Speaker #6: All right. And then on the tariff costs that you saw in Q2, would it be fair to say that this would be the high watermark, assuming no further tariff developments, just given some of the mitigating actions that are underway?

Analyst: All right. Then on the tariff cost that you saw in Q2, would it be fair to say that this would be the high watermark, assuming no further tariff developments, just given some of the mitigating actions that are underway?

Speaker #4: I think we've got a bit more to come in Q3. But we've also got a bit more pricing to come in Q3. So at Avery, we put through a bunch of price increases on July 1st.

Geoffrey T. Martin: I think we've got a bit more to come in Q3, but we've also got a bit more pricing to come in Q3. At Avery, we put through a bunch of price increases on July 1. We change our prices at Avery once a year on July 1. We've got the benefit of that coming. I wouldn't be surprised to see our tariff costs go up, but we'll also have more offsetting price activity in Q3 than we had in Q2, particularly with Avery.

Speaker #4: We changed our prices at Avery once a year on July 1st. So we've got the benefit of that coming. I wouldn't be surprised to see our tariff costs go up, but we'll also have more offsetting price activity in Q3 than we had in Q2.

Speaker #4: Particularly with Avery.

Speaker #6: Right. Okay. That's helpful. And then last one for me. Just on the base innovia business, just excluding the German plant, could we expect the current revenue level to be a good run rate given where resin prices are currently?

Analyst: Right. Okay. That's helpful. And then last one for me. Just on the base Innovia business, just excluding the German plant, could we expect the current revenue level to be a good run rate given where resin prices are currently?

Speaker #4: Well, yeah, just at the very moment, the resin pass-through element. So revenue is always a function of where the resin price is. So we have we had low single-digit volume growth in Q2 and I would expect that to continue in about half of a year.

Sean Washchuk: You just have to bear in mind the resin cost pass-through element. Revenue is all of the function of where the resin price is. We had low single-digit volume growth in Q2, and I would expect that to continue in that half of the year.

Speaker #6: Perfect. Thank you.

Operator: Perfect. Thank you.

Speaker #2: Your next question is from Jonathan Goldman with Scotiabank.

Geoffrey T. Martin: Your next question is from Jonathan Goldman with Scotiabank.

Speaker #7: Hi. Good morning. Thanks for taking my questions. Just a question on the outlook for the CCL segment. You know that orders stable. Is that year-on-year or sequentially?

Moderator: Hi, good morning, and thanks for taking my questions. Just a question on the outlook for the CCL segment. You know that order is stable. Is that year-on-year or sequentially?

Speaker #4: Year-on-year.

Sean Washchuk: Year-on-year.

Moderator: Perfect. My second one about the Avery business. Geoffrey T. Martin, do you have a sense if retailers had any excess inventory from last year heading into this back-to-school season?

Sean Washchuk: No, no, no. What tends to happen to inventory, most of these people also sell our products for the rest of the year for commercial purposes. Any excess inventory from back-to-school typically gets repurposed for that. The inventory situation is not really a factor. These are by and large made-for-order products with a 10 to 12-week selling season. We start production of them late in the year and the first four or five months of the current year, and then we sell them all in the months of June, July, and August. That is how the business works.

Moderator: Okay, that's good color. Then just lastly, on the RFID business, you mentioned it's mostly apparel. Is there any traction or progress potentially on moving into new verticals? I think maybe potentially grocery in Europe or any other sort of verticals?

Sean Washchuk: Yes, we have other activities. Apparel is still the 100-pound gorilla in the room for the whole industry, not just ours.

Moderator: Okay, perfect. Thanks for taking my questions.

Sean Washchuk: You too.

Geoffrey T. Martin: Your next question is from Daryl Young with Stifel.

Analyst: Good morning, everyone. I just wanted to ask one around capital allocation and free cash flow specifically. You have seen a pretty meaningful step up in your free cash flow conversion rate across 2024 and thus far in 2025. I am just wondering about your thinking about your dividend, your payout ratio, and your ability to allocate this magnitude of free cash flow that you seem to be. Cruising altitude now seems to be much higher than it was across 2022 and 2023.

Sean Washchuk: is the nice problem to have. We have a board meeting coming up where I am sure it will be discussed, then we will see what happens in the second half of the year.

Analyst: Is there anything specific to call out on the significant step up in how much cash you are generating as a percent of EBITDA?

Sean Washchuk: I think it's to do with that German films plant. It was pretty, with a lot of capital, the largest single capital project in the history of the company, $90-odd million, $90-odd million. So that obviously was pretty big numbers going out in the last two years. So that's gone away. I think there's not so much, we're not under a lot of capacity pressure in most parts of the business. Probably the one exception to that is our aluminum aerosol and can business, which we put a lot of capital into. So it's really been the pressure coming off on the capital spending that's the big driver, as well as earnings performance. The earnings performance has been pretty good now for the last couple of years, and that also translates into cash flow.

Analyst: Okay, that's helpful. Thanks very much.

Geoffrey T. Martin: Your next question is a follow-up question from Stephen McLeod. Your line is live.

Analyst: Thank you. I just had one follow-up, Geoff, just around the CCL segment going into Q3. I was just curious if you could just give a little bit of color, if you have it, by subsegment, HPC, design, healthcare, just kind of what you are seeing, or maybe it is easy enough to say it is similar to Q2, and just wanted to get some color there.

Sean Washchuk: Yeah, similar to Q2. We've seen some slight improvement in the food and beverage business in the last six to eight weeks. We had a very slow start to the summer season, so the summer season obviously for the beverage business is big, and the start was pretty slow. That's, we've seen that pick up in the last six to eight weeks or so. But the other trends may change in Q2.

Analyst: Okay, that is great. Thanks, Geoff.

Sean Washchuk: The other thing to think about is the comps. The comps in the second half of the year are not easy.

Analyst: Okay, okay, that's great. Thanks, Geoff.

Sean Washchuk: Yeah.

Geoffrey T. Martin: Once again, if you would like to ask a question, please press star one. We have reached the end of the question and answer session, and I will now turn the call over to Geoffrey T. Martin for closing remarks.

Sean Washchuk: Okay, everybody, thank you for joining our call. Wherever you are in the world, stay out of the sun, and we'll talk to you again in November for our Q3 numbers. Thank you very much.

Geoffrey T. Martin: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.