CCL Industries, a world leader in specialty label and packaging solutions for global corporations, government institutions, small businesses and consumers, reported record fourth quarter and annual financial results for 2016.
Sales for the fourth quarter of 2016 increased 32.5% to $1,058.4 million, compared to $798.8 million for the fourth quarter of 2015, with 4.0% organic growth, 2.1% negative currency translation impact and 30.6% acquisition-related growth, primarily driven by the May 13, 2016 acquisition of Checkpoint Systems, Inc. ("Checkpoint").
Operating income for the fourth quarter of 2016 was $160.6 million, an increase of 31.0% compared to $122.6 million for the comparable quarter of 2015. Excluding the impact of currency translation operating income improved 33.8%.
Restructuring and other items of $6.7 million ($6.4 million after tax) was reported for the fourth quarter of 2016. This consisted of severance costs of $4.7 million and $2.5 million for the Checkpoint and Worldmark acquisitions, respectively, as well as other acquisition related transaction costs of $1.5 million partially offset by a reversal of the Avery Segment acquisition accrual of $2.0 million due to the repurposing of the Meridian, Mississippi facility as a distribution centre. There was a net expense for restructuring and other items of $4.2 million ($3.7 million after tax) in the 2015 fourth quarter.
Tax expense in the fourth quarter of 2016 was $33.6 million compared to $27.8 million in the prior year period. The effective tax rates for these two periods were 25.7% and 28.4%, respectively. The decrease in the effective tax rate can be attributed to the recognition of previously unrecognized deferred tax assets and other discrete tax deductions partially offset by an increase in taxable income in higher taxed jurisdictions. The net impact of these fourth quarter adjustments was an approximate $3.5 million reduction in tax expense or $0.10 per class B share.
Net earnings were $98.3 million for the 2016 fourth quarter compared to $71.9 million for the 2015 fourth quarter. Basic and adjusted basic earnings per Class B share were $2.80 and a record $2.98, respectively, compared to basic and adjusted basic earnings per Class B share of $2.05 and $2.16, respectively, in the prior year fourth quarter.
For 2016, sales, operating income and net earnings improved 30.8%, 21.5% and 17.4% to $3,974.7 million, $603.3 million and $346.3 million, respectively, compared to 2015. Included in the 2016 annual results was a $33.9 million non-cash acquisition accounting adjustment to the acquired finished goods inventory from the Checkpoint and Worldmark businesses that was expensed in the Company's cost of goods sold for the period. Excluding this non-cash adjustment, operating income was $637.2 million and improved 28.3% compared to 2015. 2016 included results from fourteen acquisitions completed since January 1, 2015, delivering acquisition-related sales growth for the period of 25.5%. Organic sales growth of 4.0% provided the foundation for solid profit improvement and foreign currency translation added $0.07 per share. For 2016, basic and adjusted basic earnings per Class B share were $9.90 and $11.41, respectively, compared to basic and adjusted basic earnings per Class B share of $8.50 and $8.61, respectively for 2015.
Geoffrey T. Martin, President and Chief Executive Officer, commented, "Record fourth quarter results were underpinned by strong performance in our core businesses and a second consecutive quarter of solid performance at Checkpoint. CCL Label posted robust 6.9% organic growth with profit gains broad based by business and geography augmented by recent acquisitions. Avery continued to expand operating margins despite tough conditions in North America driven by office superstore closures while CCL Container had a strong finish to a record year."
Mr. Martin added, "Although Checkpoint's last two quarters are the seasonally strongest of the year, results were still better than expected as cost savings kicked in faster than anticipated. The coming first quarter has traditionally been loss making for Checkpoint in the low 'sale season' for retailers. So far, $20.7 million of reorganization costs have been recorded of an expected $30.0 million total, recently reduced from $40.0 million. We expect this to yield at least $40.0 million in annualized savings, likely delivering earlier than the previously indicated 2018."
Mr. Martin continued, "Foreign currency translation reduced earnings $0.06 per share for the quarter, largely driven by the slightly lower U.S. dollar and euro and the significant devaluations of the Mexican peso and U.K. pound compared to the exchange rates in effect at the end of 2015. At today's Canadian dollar exchange rates, currency translation would remain a modest headwind for the first quarter of 2017, if sustained."
Mr. Martin concluded, "Late last year we announced the acquisition of Innovia for $1.13 billion. Closing prerequisites are in place so we expect the transaction to complete in the first quarter. Our balance sheet and liquidity positions are strong with a net leverage ratio declining in the quarter to a conservative 1.3 times EBITDA at the end of the year, cash-on-hand of $585 million, undrawn capacity of US$631.1 million on our syndicated revolving credit facility and a US$450 million term loan committed, contingent on the closing of the Innovia transaction. Given the Company's strong financial performance in 2016, outlook and expected strong free cash flow for 2017, the Board of Directors declared a 15% increase in the dividend to $0.575 per Class B non-voting share and $0.5625 per Class A voting share dividend, payable to shareholders of record at the close of business on March 17, 2017, to be paid on March 31, 2017."
Fourth Quarter 2016 Segment Highlights
CCL Label
Sales increased 14.2% to $632 million, with 6.9% organic growth, 9.4% acquisitions and 2.1% negative currency translationRegional organic sales growth: mid-single digit in North America and Europe, high single digit in Asia Pacific and strong double digit in Latin AmericaSolid 14.4% operating margin diluted 30 bps by the impact of acquisitionsLabel joint ventures added $0.05 earnings per Class B share
Avery
Sales were $181 million, 4.8% organic sales decline, 1.5% negative currency translation partially offset by a 0.7% increase from acquisitionsOffice superstore closures impacted demand in North America, International up modestlyOperating margin expanded 170 bps to 19.7%. Results improved 6.2% excluding the impact of currency translation and acquisitions.
Checkpoint
$191 million sales met expectations for the retail high seasonOperating income of $27.3 million, better than expected 14.3% operating marginAdditional $4.7 million of restructuring recorded for the quarter
