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CCL Industries is a leading specialty label, security, and packaging solutions company. The company engages in manufacturing labels, consumer printable media products, and specialty films. CCL is the largest labeling company in the world and operates through its coordinated network of global project management systems, local supply chains, and innovative technical development resources.
CCL has 190 production facilities in 40 countries across six continents. By geography, North America is its largest market accounting for over 40% of total sales, followed by Europe (at ~31%) and emerging markets (~29%).
The company operates through CCL (64% of 2020 revenues), Avery (~12%), Checkpoint (~12%), and Innovia (~12%) segments. Each of its segments commands dominant market shares in its area of operation.
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Investment Data
Revenue Growth & Market Exposure
Most of CCL Industries’ businesses enjoy leading market positions. Avery is the world’s largest supplier of labels, specialty converted media, and software solutions and CCL is the world’s largest converter of pressure sensitive and specialty extruded film materials for a wide range of applications while Checkpoint is a leading developer of RF and RFID based technology systems.
CCL Industries serves a wide range of customers including government institutions and a large customer base in diverse global markets ranging from consumer packaging and healthcare & chemicals to consumer electronic device and automotive markets. This adds diversity to its revenue stream.
With 70 years of experience, CCL Industries has developed deep industry experience and has partly backward integrated into materials science. The company’s expertise in polymer extrusion, adhesive development and coating, surface engineering, and metallurgy is unparalleled. It enjoys a strong reputation for quality manufacturing, competitive price, product innovation, and financial stability.
The CCL business which is the largest of all, supplies innovative labels to Home & Personal Care customers, Food & Beverage companies, Healthcare & Specialty businesses. CCL Secure supplies polymer banknote substrate, pressure-sensitive stamps, passport components, and other security products to government institutions as well.
The pandemic led to increased demand for household consumables that increased the demand for packaging. CCL maintained its acquisition growth strategy and added four strategic targets after the onset of the pandemic. It witnessed organic growth across all segments except Avery but expects strong gains in Avery for the balance of the year. CCL’s revenues have grown at ~16% CAGR annually, in the last decade.
Dividends
CCL Industries is a Canadian Dividend Aristocrat having paid consistent dividends every year over the last thirty years and increasing them for 19 straight years. The company has compounded its dividend growth at the rate of 19%+ in the last five years. It last raised its dividends by an impressive ~17% and sports a yield of 1.24% currently with a 24% payout ratio.
The company’s focus on organic growth in the core business and bolt-on transactions should enable the company to grow its bottom line. A very low payout ratio further adds to the visibility of future dividend growth. The company maintains a good cash balance and focuses on minimizing its investment in working capital in order to maximize cash flow.
It supplies label to almost all crucial segments in the society such as home care, health, automobiles, food, etc. These labels carry important technical and regulatory information and play an instrumental role in the promotion of products on a global scale. As such, global customers prefer to source their requirements from one accredited vendor known for sophisticated quality control and security assurance.
This has led to CCL forming long-term customer relationships that have supported stable cash flows.CCL Industries is highly diversified by geographies, businesses, customers, and currencies. Moreover, CCL Industries’ strategic acquisitions help it to buy businesses that are accretive to its future earnings. Key acquisitions like Innovia and Checkpoint have expanded CCL’s offerings, especially in the retail and apparel industry.
CCL ended the quarter with robust liquidity and is well-positioned for global expansion initiatives. With nearly seven decades in the industry, the company has developed long-standing relationships with suppliers, clients, and authorities, which enables it to secure business easily.
Competition
The label market is large and highly fragmented but has no single large player. CCL Industries is the clear leader given its huge scale of operations and global reach. Both Avery and Checkpoint have dominant positions in North America, Europe and Australia. Checkpoint competes with global retail labeling companies. Intertape Polymer Group is its prominent competition. Winpak Ltd., IPL Plastics, Richards Packaging are other big competitors.
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Bottom Line
CCL was impacted by COVID-19-induced supply chain disruptions, restrictions, and commodity price inflation in the last year. Product innovations and manufacturing expertise are CCL Industries’ strong competitive advantages. Sound cash flow generation and a solid balance sheet have been the strong pillars behind CCL’s growing dividends over the years and should support growing dividends in the future. The company expects robust results in direct-to-consumer label categories and strong performances in label centric regions.
From a Canadian perspective, CCL is a leading and dominant company in its industry with a significant international exposure. The company has been attractive on many front except for the sector it is in.
I am not a big fan of the consumer cyclical sector but CCL is high on my watch list as a Dividend Ambassador. The regulatory compliance ensure of product information creates a consistent demand like a toll booth.
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