Initial take – Neutral. Q3 results were in line with consensus expectations, with CCL delivering another quarter of strong organic growth (+6.9% YoY; Checkpoint and Innovia stood out with organic growth of +14.5% and +18.0%, respectively). Results in the CCL segment were lower than our expectations on lower revenue (organic growth was still strong at +4.9% YoY) and margin (profitability gains in H&PC and CCL Design were more than offset by F&B, H&S, and CCL Secure), with management noting that the consumer is "somewhat stressed". Further, CCL was active with buybacks in Q3, repurchasing ~1.28MM shares for ~ $100MM, which we continue to see as prudent given the company's clean balance sheet (leverage was 1.14x exiting Q3).
Q3 results recap – CCL reported revenue of $1,850MM (+9.4% YoY, organic growth was +6.9% YoY vs. RBCe of +6.2%), in line with RBC/consensus forecasts of $1,848MM/$1,842MM. Relative to our estimates, sales were better-than-expected in the Checkpoint (ALS delivered >30% organic growth, aided by RFID) and Innovia segments (industry continues to recover, with share gains also noted), which was offset by modestly lower-than-expected results in the CCL segment (all end-markets grew except CCL Secure, as expected), while Avery was in line (early end to back-to-school season was offset by growth in DTC).
Adjusted EBITDA of $380.7MM was largely in line with consensus of $383.1MM (RBCe: $386.8MM). Relative to our estimates, Operating Income was better-than-expected in Checkpoint and Innovia, while CCL was lower-than-expected (new plant start-up costs were noted as a margin drag, while the company also incurred severance charges related to restructuring; Avery was in line). Adjusted Basic earnings per Class B share were $1.09 vs. RBC/consensus forecasts of $1.12/$1.10.
Active on the NCIB – CCL repurchased ~1.28MM shares during the quarter for ~$100MM, with the company's leverage exiting Q3 standing at 1.14x (we expect CCL to remain active on buybacks, particularly when leverage drops below 1.0x).
Q4 outlook commentary mixed – Similar to commentary at Q2 reporting, management's outlook for Checkpoint (particularly as it relates to RFID) and Innovia remain "encouraging", while the outlook for Avery remains stable. In comparison, the CCL segment faces tougher comps in Q4 (recall that H&PC and F&B were called out at Q2 reporting within CCL Label; CCL Secure is expected to improve sequentially, while CCL Design is facing tougher comps/a slowing automotive industry) amidst an uncertain geopolitical and weaker consumer backdrop.
Our focus on the 8am ET call tomorrow will be on: 1) puts/takes on the Q4 outlook for the CCL segment, as well as any initial commentary on the 2025 outlook (particularly as it relates to the overall operating backdrop); 2) commentary on the drivers behind the strong organic growth (+14.5% YoY) in the Checkpoint segment (particularly as it relates to RFID, noting ALS delivered >30% organic growth in the quarter); 3) updates on the recovery within the Innovia segment (+18.0% organic growth, with share gains noted in the quarter), as well as any commentary on the Belgian plant closure/transition and launch of EcoFloat; and, 4) how the Pacman acquisition has been progressing to-date.