CCL Industries Inc. reported its results for the third quarter and first nine months of 2013, ending Sept. 30, 2013.
Sales for the third quarter of 2013 increased 91.6% to a record $606.6 million, compared to $316.6 million for the third quarter of 2012, with 3.3% organic growth, 4.5% positive currency translation and the balance from the Avery Dennison and INT Autotechnik acquisitions. For the nine months ended Sept. 30, 2013, sales increased 31.7%, excluding currency translation, driven primarily by the aforementioned acquisitions and organic growth of 4.0%.
Operating income for the third quarter of 2013 was $67.8 million, an improvement of 72.5% compared to $39.3 million for the third quarter of 2012. For the nine months ended Sept. 30, 2013, operating income increased 28.7%, compared to the same nine-month period in 2012.
Earnings before net finance cost, taxes, earnings in equity accounted investments, depreciation and amortization, non-cash acquisition accounting adjustments to inventory and restructuring and other items (EBITDA) was $107.8 million for the third quarter of 2013, an increase of 83.3% compared to $58.8 million for the third quarter of 2012. For the nine-month period ended Sept. 30, 2013, EBITDA was $259.5 million, an increase of 31.8% compared to $196.9 million in the comparable 2012 nine-month period.
"We are very pleased with the performance of our newly acquired businesses, which contributed significantly to our twelfth consecutive period of year-over-year improvement in quarterly adjusted earnings per share; a record for the company,” Geoffrey T. Martin, president and CEO, said. “CCL Label legacy operations also delivered 5% organic sales growth. Foreign currency translation contributed 3 cents earnings per share in the quarter but weaker currencies in certain international markets created transactional issues that offset a significant portion of this benefit.
"CCL Label sales increased 33% driven by acquisitions, solid growth outside North America and positive currency translation,” Martin continued. “Excluding the impact of the $2.1 million accounting adjustment to finished goods inventory applicable to the Designed & Engineered Solutions (DES) portion of the Avery Dennison acquisition, operating income increased 43% and return on sales improved to 14.1%. Legacy North American sales declined low single digits on slow consumer staple markets reported by many customers, peers and suppliers but the DES business performed significantly above expectations. North American orders firmed meaningfully in the early part of the fourth quarter. Third quarter European sales were up low single digits and profitability gains were supported by particularly good results from the Food & Beverage business. Latin America and Asia Pacific posted strong double digit sales and profit improvement. CCL Design, which includes INT and the automotive portion of the DES business, posted good results overall driven by robust demand, particularly in North America. Joint ventures added solid earnings improvement as revenue more than doubled in Chile and the Santiago plant moved into profitability.
"Our new Avery segment, representing the balance from the Avery Dennison acquisition, recorded revenues of $202 million and operating income of $30.9 million excluding the non-cash acquisition accounting adjustment to inventory of $14.6 million that reduced reportable profits for the third quarter,” Martin added. “The summer period is heavily influenced by the 'back-to-school' sales season in the U.S. and delivers a significant portion of annual profits. North American sales were in line but profits were above expectations on cost savings. International operations represented approximately 20% of sales with limited exposure to the 'back-to-school' phenomenon and posted solid results in slow markets. All-in-all, Avery exceeded management's expectations. We expect to complete the implementation of our $25 million to $30 million restructuring plan in the coming quarter.
"CCL Container posted a modest drop in sales and a decline in profitability but compared to an unusually strong third quarter in 2012. Robust results from the Mexican operations were offset by a slow sun care season in the U.S. and a loss from the Canadian operations. Year-to-date cash flow remains excellent and we believe our prospects for future improvement remain good."
"Avery revenues normally moderate significantly post 'back-to-school.' However, the 2012 pre-acquisition fourth quarter benefited from an unusually large trade forward buy before the announced sale of the business and a corresponding slow first quarter of 2013, which will affect comparative results for the next two quarters,” Martin stated. “We remain committed to our previously announced target of $40 million to $50 million in annualized synergies for 2014, subsequent to the completion of our restructuring actions, but emphasize the degree of profit conversion is contingent on our success in stabilizing revenue at Avery. Order intake across the rest of CCL improved globally after a soft summer including appreciable October gains in North America. Surpassing the strong fourth quarter 2012 results on an organic basis could prove challenging but acquisitions will augment performance after adjusting for one-time events. We expect low single digit organic growth rates in developed economies with stronger demand in emerging markets and automotive. Currency translation would positively impact results at today's Canadian dollar exchange rates.
"The company ended the quarter with $260 million of cash on hand, $133 million undrawn on its revolving credit facility and net debt of $545 million,” Martin concluded. “Our net debt to annualized EBITDA ratio remains well below two times levered, giving adequate capacity to maintain our growth initiatives. We expect strong cash flow for the remainder of the year and with confidence in our 2014 outlook your Board of Directors has declared a dividend of $0.2150 per Class B non-voting share and $0.2025 per Class A voting share, payable to shareholders of record at the close of business on Dec. 12, 2013, to be paid on Dec. 20, 2013."