CCL Industries (TSX:CCL) reported third-quarter financial results on Wednesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
CCL Industries reported a 12.9% increase in sales for Q3 2026, driven by 6.9% organic growth, 3.9% acquisition-related growth, and a 2.1% positive impact from foreign currency translation, totaling $2.22 billion.
Operating income improved by 11.3% excluding non-cash adjustments, and adjusted earnings per share rose 12.4% to $1.36 due to improved operating income and share count reduction, despite higher tax rates and finance costs.
Free cash flow decreased to $236.5 million due to increased working capital and taxes, while the company increased its share repurchase plan and raised its annual dividend by 12.5%, returning $692.1 million to shareholders year-to-date.
Net debt rose by $497.6 million to $1.76 billion due to capital expenditures, acquisitions, and share buybacks, though the balance sheet remains strong with a leverage ratio of 1.03 times.
CCL’s core segments showed varied performance, with strong growth in healthcare and food and beverage, but challenges in CCL Design due to memory chip shortages impacting automotive and electronics markets.
The company anticipates stable demand in core CCL segments but remains cautious about the impact of memory chip supply issues and tough comparisons for Avery and Checkpoint in Q4.
Management noted that M&A activity remains a focus, but multiples for acquisitions have decreased, creating potential opportunities.
Full Transcript
OPERATOR (Moderator)
Good morning and welcome to the CCL Industries 2026 third quarter investor update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Jeff Martin, President and Chief Executive Officer, and joining him is Mr. Sean Woschuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.
Sean Woschuk (Senior Vice President and Chief Financial Officer)
Thank you. Good morning, everyone. We’re dialed in today from Mexico City where we just hosted our third quarter Board of Directors meeting, and let’s get started. Moving to Slide 2, I’d like to draw everyone’s attention to our updated disclaimer regarding forward-looking statements. I’ll remind everyone that our business faces known and unknown risks and opportunities. For further details of these key risks, please take a look at our 2026 third quarter report and our 2025 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 at sedarplus.ca.
Moving to Slide 3, our financial summary for the third quarter of 2026: sales increased 12.9%, with 6.9% organic growth, 3.9% acquisition-related growth, and a 2.1% positive impact from foreign currency translation, resulting in sales of $2.22 billion compared to approximately $1.97 billion in the third quarter of 2025. Operating income was $356.3 million for Q3 2026 compared to $321.8 million for the third quarter of 2025, an improvement of approximately 8% excluding currency translation.
This, however, did include $2 million of non-cash acquisition accounting adjustments to fair value acquired inventory from the Saluba transaction. Excluding this non-cash adjustment, operating income improved 11.3%. Jeff will expand on our segmented operating results for the CCL, Avery, Checkpoint, and Innovia segments shortly. Corporate expenses were up for the 2026 third quarter compared to the prior-year third quarter due to higher variable compensation expense and general costs.
Consolidated EBITDA for the 2026 third quarter, excluding the impact of foreign currency translation, increased 8% compared to the same period in 2025. Net finance expense was $20.3 million for the third quarter of 2026, higher than the $18.2 million for the third quarter of 2025. The increase is due to higher finance costs on the company’s drawn debt and reduction of finance income on the company’s cash and cash equivalents. The overall effective tax rate for Q3 2026 was 27.7% compared to an effective tax rate of 25.5% recorded in the third quarter of 2025. This is due to an increase in taxable income in higher-tax jurisdictions and an increase in withholding tax on repatriated cash from foreign regimes compared to the third quarter of 2025.
The effective tax rate may change in future periods depending on the proportion of taxable income earned in different tax jurisdictions with different rates, or if more cash is repatriated from regimes imposing withholding tax to Canadian-domiciled corporations. Net earnings for the 2026 third quarter were $223.6 million compared to $210.8 million for the third quarter of 2025. For the nine-month period, sales, operating income, and net income increased 7%, 5%, and 2%, excluding currency translation, respectively, compared to the nine-month period in 2025. 2026 included the results from four acquisitions completed since January 1, 2025, delivering acquisition-related sales growth for the period of 2%, organic growth of 4.6%, and foreign currency translation was a tailwind of 1.7% to sales.
Moving to our next slide, Earnings Per Share: basic and adjusted basic earnings per Class B share were $1.32 and $1.36, respectively, for the 2026 third quarter compared to $1.21 basic and adjusted basic earnings per Class B share in the 2025 third quarter. Adjusted earnings per Class B share increased 12.4% compared to the third quarter of 2025. The $0.15 increase in adjusted basic earnings per share was primarily driven by improved operating income of $0.12.
Share count reduction accounted for $0.04, and there was a $0.04 positive impact from foreign currency translation. This was partially offset by a higher income tax rate, increased net finance costs, and higher corporate expenses summing to $0.05. Moving to our next slide, Free Cash Flow: from operations for the third quarter of 2026, free cash flow from operations was an inflow of $236.5 million compared to an inflow of $333.4 million posted for the third quarter of 2025. The decrease is principally due to improved earnings offset by an increase in working capital and an increase in taxes paid for the third quarter of 2026 compared to the prior-year third quarter. For the trailing 12 months, our free cash flow from operations remains very strong.
Moving to our next slide, Returns to Shareholders: during the first nine months of 2026, the company moved from a discretionary share buyback to an automatic share purchase plan that commenced March 2 of this year. Year-to-date September 30, 2026, the company repurchased 5.7 million shares for $508.1 million. In addition, during the blackout period starting October 1 to yesterday, the company also repurchased 1.3 million shares for $128.1 million.
Including the 12.5% increase in the 2026 annual dividend announced in February of this year, dividends paid year-to-date amounted to $184 million, for a total of $692.1 million returned to shareholders including the aforementioned buyback. It is the company’s expectation that more will be returned to shareholders in 2026 as the automatic share repurchase plan is active in the market daily, including blackout periods when the company was not permitted to make purchases in 2025 under its discretionary buyback plan.
I’ll remind everyone our Board of Directors has authorized us, commencing March 2, 2026, to spend up to $1.2 billion over that 12-month period on share buybacks. Moving to the next slide, Cash and Debt Summary: net debt as of September 30, 2026 was $1.76 billion, an increase of $497.6 million compared to December 31, 2025. The increase is principally a result of higher total debt outstanding due to capital expenditures, business acquisitions, and our share buyback plan. Despite the increase in the company’s net debt, the balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was 1.03 times at September 30 of this year, up from 0.78 times reported at December 31, 2025.
Early in July of this year, the company signed a delayed draw syndicated term loan for US$500 million. This term loan was accessed subsequent to the quarter end on Oct. 1 to repay the US$500 million of bonds falling due on this due date. The term loan bears interest at SOFR plus 85 basis points. CCL’s current liquidity remains strong with US$0.7 billion of undrawn debt capacity and cash on hand of $1 billion. The company’s overall average finance rate was 2.6% at September 30, 2026, up slightly from 2.5% at December 31, 2025.
This reflected an increase in our variable drawn debt in the first nine months of this year. Finance costs should increase in future quarters as the company’s new syndicated term loan bears interest currently at approximately 4.75%. The company’s balance sheet continues to be well positioned as we move through the balance of 2026 and into 2027. Jeff, over to you.
Jeff Martin (President and Chief Executive Officer)
Thank you, Sean. Good morning, everybody. I’m on Slide 8: highlights for capital spending for the year. $302 million spent so far through Q3. That’s quite a gap to the $470 million that we plan to spend this year, so I would estimate we will probably undershoot by something in the range of $30 to $50 million, and we’ll see how that pans out at the end of Q4. Slide 9 highlights the CCL. Very strong organic growth: high single digits in North America and Europe, mid single digit in Latin America, low single digit in Asia Pacific influenced by CCL Design, which I’ll talk about in a minute. Good profitability gains at healthcare and especially at food and beverage. Solid results in home and personal care for labels, but our aluminum container profitability fell on swings in metal costs.
CCL Design was impacted by unprecedented memory chip inflation, which really hurt some of our customers, and supply availability of chips for the whole electronics industry in Asia has become quite a topic du jour, and we have tough comps for an unusually strong prior year at CCL Secure. Slide 10 highlights for Avery. Strong organic growth again in the direct-to-consumer product lines, especially in the United States. A very smooth back-to-school season in North America, absent many of the issues and challenges we faced in Q3 last year. Stable quarter in horticulture even though it’s a seasonally low period.
Slide 11 highlights at Checkpoint. The MAS—merchandise availability—business had a solid quarter despite difficult comps on some large retailer rollouts last year of new technology, which gave us quite a hurdle to overcome, but we just about did it, and the apparel label business improved modestly as industry demand recovered. RFID growth continues quite nicely. Slide 12, Innovia: so 24% change in sales rate here. I can tell you about half of that is volume driven, the other half is price and mix. So it’s certainly not entirely a volume story. But we had very good results in Poland as Ecovyl and other label films growth continued. Very, very good performance in the Americas. I’m going to visit the main plant in Mexico here on Friday, and internal productivity initiatives really helped improve our profitability.
Net European results were impacted by the corrected destocking in the pressure-sensitive materials industry channel following the demand spike in Q2 caused by events in the Middle East, and we expect that to continue some in Q4, and our German startup losses narrowed modestly. Slide 13, outlook for the next quarter: core CCL segment orders in home and personal care, healthcare, and food and beverage—our core CCL label businesses—are stable, but our CCL Design business, and particularly its customers, will be further impacted by the memory chip supply crisis in what is normally a peak season for customer demand. So this is really a supply issue. It’s not about end-user market demand; it’s really about the ability of our OEM customers to build enough inventory to supply the market.
Avery and Checkpoint both face strong comps in Q4. Innovia should see similar demand patterns as Q3, albeit December is a very short month. Macro float growth is continuing. Good results in the Americas would also continue, but we will have the ongoing effect of the destocking events in Europe to deal with. FX should be a modest plus in the coming quarter. So with that, operator, we’d like to open the call for questions.
OPERATOR (Moderator)
Certainly. Everyone, at this time we will be conducting a question and answer session. If you have any questions or comments, please press star one on your phone at this time. We do ask that while posing your question, please pick up your handset if you’re listening on speakerphone to provide optimum sound quality. And once again, if you have any questions or comments, please press star one on your phone. Our first question is coming from Ahmed Abdullah from National Bank.
Your line is live.
Ahmed Abdullah (Analyst)
Yeah, hi, good morning, and thanks for taking my question. My first question is on the CCL segment. You’ve delivered solid organic growth despite, you know, a somewhat softer consumer backdrop. Can you give us a bit more color? How much of that came from volume versus pricing here, and what are you seeing early in the fourth quarter around that dynamic?
Jeff Martin (President and Chief Executive Officer)
Yeah, it’s very difficult to measure volume and price in this part of our business. There’s too many transactions, too many different natures. I can tell you the strong businesses in the quarter were healthcare and specialty. The label side of the home and personal care business was also strong. CCL Design impacted by soft automotive and electronics markets impacted by the chip problem and we had tough comparability at CCL Secure. Yeah, it’s early days. It’s only a few months since we’ve owned this company and certainly the impact on our P and L was pretty modest in the quarter because we had all the acquisition accounting effect of eliminating profit on finished goods inventory that we acquired. So marginal gains in profitability that will eventually phase out. And we’ve taken some actions to cut costs in a number of areas, but so far we’re pretty pleased. And the underlying financial performance is pretty much in line with expectations.
Sean Woschuk (Senior Vice President and Chief Financial Officer)
Handfuls of millions of dollars.
OPERATOR (Moderator)
Thank you. Our next question is coming from Hemir Patil from CIBC Capital Markets. Your line is live.
Hemir Patil (Analyst)
Hi, good morning Jeff. You’ve seen organic growth north of mid-single digits for the last two quarters. Do you see that level of organic growth being sustained in Q4 and into 2027?
Jeff Martin (President and Chief Executive Officer)
Well, we just don’t know. I mean your guess is as good as mine. The consumer environment, as we all know, is quite challenged with the affordability crisis. We see some parts of the world doing well and we see some parts of the world struggling a bit. And that’s across all the commentary in the CPG space. You hear that? So Europe gets called out by a lot of companies as being slightly weaker than other parts of the world. Developed markets are generally considered to be less good than emerging markets.
So emerging market strength has been a feature of why I think some businesses held up in the consumer space pretty well and how sustainable it is and what happens in the future given all that’s going on in the world, who knows. But for now this is what we have.
Hemir Patil (Analyst)
And just turning to CCL Design from a volume standpoint, just given the memory chip shortage, how are volumes tracking with those customers? And you referenced weakness on the auto side as well. So if you could speak to maybe how volumes are faring on that side of CCL Design.
Jeff Martin (President and Chief Executive Officer)
Yeah, it’s very difficult in the PC sector. So we hear demand reports. Well, supply, it’s not really demand. I’m sure these companies are being overwhelmed by people in their distribution channels wanting to get product. But output demand is down well into double digits, high teens, 20% in the PC space. And it’s also inflation has become a factor. So when you have inflation in memory chips, you look for cost savings in other areas. So those customers have got a lot more demanding about pricing than they have been in more recent quarters because of that.
So it’s a double-edged sword. So we know that demand will improve. We know that some chip supply products will become available in 2027. How soon they’ll be able to deal with this crisis in a meaningful way is not clear. Some of our customers say it’s likely to continue for a few quarters into next year, but this is a pretty fast-moving space and we’ll just have to wait and see what really unfolds. But it’s been quite an unpleasant surprise in that part of our business.
Hemir Patil (Analyst)
Okay. And on the auto side?
Jeff Martin (President and Chief Executive Officer)
Well, the orders are down because they all run just-in-time manufacturing. So our orders are a reflection not of their consumer demand. They’re a reflection of what we can make. And orders in that space are down.
Hemir Patil (Analyst)
Right. Okay. And just the last question I had, Sean, how are you thinking about CAPEX in 2027? Any major organic projects worth highlighting?
Sean Woschuk (Senior Vice President and Chief Financial Officer)
You know, it’ll be in the neighborhood of 470 million, give or take. We’re going through our budget process now, so it’s a good question for us at the end of Q4 if we have any major projects to take on next year.
Hemir Patil (Analyst)
Okay, fair enough. Thanks. That’s all I had. I’ll turn it over.
OPERATOR (Moderator)
Thank you. Your next question is coming from Sean Stewart from TD Cowen. Your line is live.
Sean Stewart (Analyst)
Thank you. Good morning, everyone. Couple questions with respect to the outlook. You referenced strong Q4 comps for Avery and Check Point. And Avery would seemingly make sense, but Check Point, last year, Q4 ’25 organic sales were down 8.1%. That looks like an easier comp. I’m just wondering, Jeff, if you can clarify the outlook for Check Point.
Jeff Martin (President and Chief Executive Officer)
Yeah, that’s for the fourth quarter. The problem last year was all in the apparel industry. So the current challenge for us is really more in the MAS space where we have hardware business and that’s where we face tough comps.
Sean Stewart (Analyst)
Okay, understood. And you referenced stable demand for the core CCL segment, excluding Design, and for Innovia. When you say stable, is that meant to reflect stable steady year-over-year or quarter-over-quarter trends or both? Just trying to qualify exactly what you’re referencing there.
Jeff Martin (President and Chief Executive Officer)
Stable means stable.
Sean Stewart (Analyst)
Okay. And then just lastly, with Sleever and the other acquisition fully integrated and obviously with a lot of flexibility in the balance sheet, can you give updated perspective on what the M&A pipeline looks like and your appetite for more deals?
Jeff Martin (President and Chief Executive Officer)
Well, we always have an appetite, but we’re a disciplined buyer, so we’ll have to wait and see how things unfold. So we didn’t predict we would have bought Sleever International this time last year, but strange things happen in life. So if you’re patient and disciplined, good things eventually come.
Sean Stewart (Analyst)
Understood. Okay, that’s all I have for now. Thank you.
OPERATOR (Moderator)
Thank you. Our next question is coming from David McFadjean from ATB. Your line is live.
David McFadjean (Analyst)
Oh, great. Yeah, thank you. A couple questions. So just on the RFID growth, I was wondering if you could give us a little more detail. Was it low single digit, mid-single digit, and then could you give us just an update on the size of your RFID?
Jeff Martin (President and Chief Executive Officer)
Sorry, David, your voice is very muffled. We can’t hear you. Could you repeat the question? Hello. Yeah, we can just about hear you.
David McFadjean (Analyst)
Oh, okay. Sorry, I guess I have a bad connection. Just on RFID, I was just wondering if you could clarify what the growth is. Is it low single digit, mid-single digit? And then can you just give us an update on the size of your RFID business? Like I think before it was around 250, 270 million. I was just wondering where that stands right now.
Jeff Martin (President and Chief Executive Officer)
Question about RFID.
David McFadjean (Analyst)
Yeah, exactly. Yes.
Jeff Martin (President and Chief Executive Officer)
So RFID, there hasn’t been a material change in the size of our business. It’s certainly up from last year. And I can tell you that our production of inlays, which is probably the clearest indication we can give you, production of inlays is up, low double digits, low teens.
David McFadjean (Analyst)
Okay, okay. And then just on Avery, the direct-to-consumer growth. Can you quantify that just approximately, was it mid-single digit or high single digit?
Jeff Martin (President and Chief Executive Officer)
High single digit.
David McFadjean (Analyst)
Oh, okay, okay, okay. All right, that’s it for me. Thank you.
OPERATOR (Moderator)
Okay, thank you. Your next question is coming from Nevin Yochim from BMO. Your line is live.
Nevin Yochim (Analyst)
Good morning. Nevin, filling in for Steve today. Just wanted to ask, on the CCL margins, hoping you can unpack some of the compression we saw in Q3. Was the primary driver that higher inflationary pass-throughs or some of the challenges you saw in CCL Design? And then would you expect margins to remain down year over year as we move into Q4?
Jeff Martin (President and Chief Executive Officer)
There were two impacts in the quarter that really affected margin. So one is the first part of your question, the pass-through of aluminum caustic container. So we had some challenges with that in the quarter. And the other one was the profits thing. We had a very good mixed quarter at CCL Secure last year. So if you look at CCL Secure this year, last year, quite a gap. And if you amalgamate the two together, the difference is about 110 basis points from those two issues.
Nevin Yochim (Analyst)
Okay, thank you. And are those issues continuing into Q4? Would we expect another decline year over year?
Jeff Martin (President and Chief Executive Officer)
CCL Secure has always been a business that varies quarter to quarter. So sometimes you get these comps. So it was a pretty big swing this quarter because last year’s Q3 was unusually strong. So that was really what the driver was.
Nevin Yochim (Analyst)
Okay, got it. And then on the Innovia segment, with the revenue growth in the quarter, can you quantify how much of that would have been from volumes relative to pricing? And then just
Sean Woschuk (Senior Vice President and Chief Financial Officer)
A little under half is volume and the rest is pricing and mix. So mix was quite a considerable impact, especially in the Americas. In Europe, the revenue gains we had in Europe were more driven by pricing passed on higher resin costs.
Nevin Yochim (Analyst)
Understood. And on the Innovia margins, can you unpack some of the drivers in Q3? It felt like there was a couple of factors there and then just the sustainability of the margin expansion into Q4.
Jeff Martin (President and Chief Executive Officer)
Well, Q4 is a short quarter in that business. So it’s never as good as Q3. Typically have a shutdown in the plants in the December month. So it’s always a shorter quarter than Q3. I think we’ve given you some color in the outlook. We don’t have much more to say than that really.
Nevin Yochim (Analyst)
Okay, thanks for taking the questions.
Jeff Martin (President and Chief Executive Officer)
No problem.
OPERATOR (Moderator)
Thank you. And once again everyone, if you have any questions or comments, please press Star then 1 on your phone. Our next question is coming from Carol Adubavi from Scotiabank. Your line is live.
Carol Adubavi (Analyst)
Good morning, this is Carol on for Jonathan Oldman from Scotiabank. Thanks for taking my question. Have you noticed any trade down, given the tougher consumer spending environment, and has this impacted the label business?
Jeff Martin (President and Chief Executive Officer)
We haven’t seen much impact from trading down. The one area I would say we’ve seen some significant issues is in the wine and spirits category. It’s not a particularly large business for us. We know there’s quite a bit of trade down activity happening in that space, which has become quite challenged. But beyond that, certainly in the home and personal care sector, we don’t see that. In parts of our food and beverage business, in Europe we’ve got some private label customers there supplying retailers like Aldi that they’re doing quite well.
So I wouldn’t say we’ve seen any big issues affecting us from that trend in consumer behavior.
Carol Adubavi (Analyst)
Okay, thank you for the color and just a quick follow up. I know you previously mentioned that you continue to be disciplined on M&A and such. I just wanted to get your take on, have you seen any change in seller expectations?
Jeff Martin (President and Chief Executive Officer)
Line is breaking up a little bit. I think that’s the last part of your question.
Carol Adubavi (Analyst)
Can you hear me now? Okay. So on M&A, I wanted to follow up on the previous question to ask whether you’ve seen any change in seller expectations.
Jeff Martin (President and Chief Executive Officer)
All right. Yeah, I would say the private equity world, the era of double-digit multiples in our industry space, small private equity transactions, seems to have relapsed, which is, for the industry, a good thing. So we’ve seen private equity multiples come down as interest rates have gone up. So that’s a good thing as far as we’re concerned. And those memories are long. So people who looked at selling their business in 2023, being told we could get 10, 11, 12 times EBITDA, don’t want to hear about, we now would like to pay 7.
So I think it needs a little more time to elapse before some of that materializes into, well, this is the new world we live in. If we want to sell our company, we have to do it. But on the other hand, certainly the sleeve of transaction that we executed earlier this year, if we’d have been two years prior to that, we would never have been able to buy that business for the price we paid in the market conditions of two or three years ago. No problem.
OPERATOR (Moderator)
Thank you. That concludes our Q and A session. I’ll now hand the conference back to Mr. Jeff Martin for closing remarks. Please go ahead.
Jeff Martin (President and Chief Executive Officer)
Thank you for joining us, everybody, and look forward to hearing from you early in the year.
OPERATOR (Moderator)
Thank you everyone. This concludes today’s event. You may disconnect at this time and have a wonderful day. Thank you for your participation.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.
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