CCL Industries, a specialty label and packaging solutions for global corporations, small businesses and consumers, reported 2016 second quarter results.
Sales for the second quarter of 2016 increased 33.1% to $960.2 million, compared to $721.5 million for the second quarter of 2015, with 6.9% organic growth, 2.8% positive currency translation impact and 23.4% acquisition related growth, primarily driven by the May 13, 2016 acquisition of Checkpoint Systems, Inc. ("Checkpoint") and November 6, 2015 acquisition of Worldmark Ltd. ("Worldmark").
Operating income for the second quarter of 2016 was $143.1 million, an increase of 16.7% compared to $122.6 million for the comparable quarter of 2015. Included in the 2016 second quarter was a $16.6 million non-cash acquisition accounting adjustment related 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 quarter. Excluding this non-cash adjustment, operating income was $159.7 million for the three-month period ended June 30, 2016. Excluding the impact of currency translation and the non-cash accounting adjustment operating income improved 30.3%.
Restructuring and other items of $19.0 million ($13.7 million after tax) was reported for the second quarter of 2016. This consisted of $13.0 million for severance and $4.6 million of other transaction costs associated with the acquisition and re-organization of Checkpoint and $1.4 million for severance and other costs associated with the Worldmark acquisition. There were no expenses for restructuring and other items for the 2015 second quarter.
Net earnings attributable to shareholders of the Company, was $72.3 million for the 2016 second quarter compared to $73.3 million for the 2015 second quarter. Basic and adjusted basic earnings per Class B share were $2.06 and $2.80, respectively, compared to basic and adjusted basic earnings per Class B share of $2.12 in the prior year second quarter.
For the six-month period ended June 30, 2016, sales, operating income and net earnings improved 28.0%, 22.2% and 14.5% to $1,827.0 million, $293.0 million and $161.9 million, respectively, compared to the same six-month period in 2015. Included in the 2016 six-month period was a $16.6 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 $309.6 million and improved 29.2% for the comparable six month periods. 2016 included results from twelve acquisitions completed since January 1, 2015, delivering acquisition related growth for the period of 17.4%. Organic sales growth of 6.0% provided the foundation for solid profit improvement and foreign currency translation added $0.17 per share. For the six-month period ended June 30, 2016, basic and adjusted basic earnings per Class B sharewere $4.63 and $5.45, respectively, compared to basic and adjusted basic earnings per Class B share of $4.09 and $4.11, respectively, in the prior year six-month period.
Geoffrey T. Martin, President and Chief Executive Officer, commented, "Second quarter results were driven by exceptional organic growth in our CCL Label business throughout the world with performance in Europe and Latin America fueled by the timing of Easter falling in March 2016. Continued cost savings, new product initiatives and pricing delivered solid profit improvement at Avery on flat sales excluding foreign exchange translation benefits. Results for CCL Container improved meaningfully on strong volume overall and excellent profitability in Mexico. We also announced during the second quarter, and subsequently closed in early July, an important Healthcare acquisition for CCL Label in Germany."
Mr. Martin added, "In addition, with substantial majority support from its shareholders, we completed the acquisition of Checkpoint, now a new reportable operating segment of CCL. For the seven-week period post acquisition, Checkpoint posted sales of $92.6 million with an operating profit of $9.9 million before the non-cash acquisition accounting adjustment. Results were in line with our expectations. In addition, we recorded restructuring charges of $13.0 million as part of our previously announced $40 million restructuring plan and remain committed to $40 million in annualized cost reductions. Our ability to convert these savings to reportable profits is predicated on maintaining sales levels in a challenging environment for retailers."
Mr. Martin continued, "Foreign currency translation added $0.04 per share for the quarter with the comparatively stronger U.S. dollar and euro partly offset by weaker Latin American currencies and the U.K. pound. The impact of "BREXIT" on this quarter's results was moderately positive with transaction gains more than offsetting the modest negative impact of lower average translation rates. At today's Canadian dollar exchange rates, currency translation would be a modest headwind for the second half of the year, if sustained."
Mr. Martin concluded, "Despite closing six acquisitions, with aggregate purchases of approximately $623 million in the first six months of this year, CCL's leverage ratio remains a modest 1.8 times EBITDA. Our syndicated credit facility has current undrawn capacity of $119 million and we have $422 million of cash-on-hand, giving CCL ample capacity to execute future growth plans. Given the Company's outlook and strong free cash flow, the Board of Directors declared a continuation of the $0.50 per Class B non-voting share and $0.4875 per Class A voting share dividend, payable to shareholders of record at the close of business on September 16, 2016, to be paid on September 30, 2016."
2016 Second Quarter Highlights
CCL Label
Sales increased 28.8% to $604.0 million, with 10.4% organic growth, 15.8% acquisitions and 2.6% positive currency translationRegional organic sales growth: high single digit in North America and Asia Pacific, double digit in Europe and Latin America15.1% operating income margin(1) excluding non-cash acquisition accounting adjustment related to Worldmark finished goods inventoryLabel joint ventures added $0.04 earnings per Class B share
Avery
Sales increased 4.6% to $207.4 million, 1.1% from acquisitions and 4.5% positive currency translation partially offset by 1.0% organic sales declineOperating income increased 11.7% on positive currency translation, cost savings, new products and pricingModest back-to-school related profit decline expected for the coming quarter, predicting 2016 to be another year of progress overall
Checkpoint
Sales of $92.6 million, stronger international versus domestic resultsOperating income of $9.9 million excluding $14.6 million non-cash acquisition accounting adjustment related to finished goods inventoryRestructuring plan well underway, heading into the stronger second half retail season
CCL Container
Sales increased 3.3% to $56.2 million with 4.6% organic growth and 1.3% negative currency translationStrong volume overall and robust profit performance in Mexico resulted in a 46.3% increase in operating incomeStart-up losses at the Rheinfelden Americas aluminum slug joint venture reduced earnings by $0.01 per Class B share.
