TSX:CCL.A - Post Discussion
Post by
retiredcf on Aug 12, 2024 11:18am
TD Report
ORGANIC GROWTH SURPASSES EXPECTATIONS AGAIN; BROAD MOMENTUM ACROSS SEGMENTS
THE TD COWEN INSIGHT
CCL's Q2/24 results exceeded expectations for the third consecutive quarter. Accelerating organic sales and adjusted EPS growth reflected broad-based positive momentum across key segments. Year-over-year EPS growth climbed to 24% versus an average of 15% the preceding two quarters. We expect EPS growth will start to decelerate in H2/24, but, in our view, consensus estimates remain conservative.
Event
CCL reported Q2/24 results after market close on May 8. Adjusted EPS (fully diluted) of $1.12 exceeded our estimate of $1.09 and was well above the consensus estimate of $1.02. Given positive anecdotal guidance on the Q1 conference call and an easy y/y comp, we fail to understand why consensus estimates were this low.
Impact: POSITIVE
We are encouraged by accelerating top line and EPS growth momentum, led by positive underlying trends across all key segments. With balance sheet deleveraging expected to gain pace, CCL has started share buyback activity, even near an all-time share price high. We are raising our target price to $92.00/share from $90.00/share, given positive forecast revisions and commensurate adjustments to our sum-of-the-parts valuation.
Details
Q2 sales increased 12.2% y/y — the best quarterly growth since Q2/22 and outpacing our 7.8% forecast. Overall organic growth of 8.5% outpaced our 4.7% forecast and was complemented by acquisition tailwinds. Checkpoint leads segment organic revenue growth (17.2% in Q1/24), reflecting market share gains and accelerating demand growth for RFID products. CCL and Innovia segment organic sales growth also exceeded our forecast.
Overall Q2 EBITDA margins of 20.9% were just below our forecast of 21.4%. Avery margins (25.6%) were better than expected, but were offset by lower-than-expected margins at Checkpoint and Innovia (we expect improvement for the latter, as restructuring efforts accrue in H2 results).
CCL exited Q2 with robust capital structure flexibility. Trailing net debt/EBITDA of 1.2x was stable q/q despite the mid-quarter consolidation of the Pacman JV and available liquidity is more than $1.9 billion. Q2 buybacks were $40.6 million for <1% of total shares outstanding.
Management's outlook commentary on the conference call was positive, while noting the potential for slowing growth as the company laps more difficult comps, especially by Q4/24. CEO, Geoff Martin noted strong July momentum for the CCL and Checkpoint segments to start Q3. He also highlighted pockets of strength for consumer electronics, CPG, D2C (Avery), plus expanding RFID opportunities, and Innovia restructuring benefits
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