CCL Industries is a leading company in specialty labeling, security and packaging solutions. The company is engaged in the manufacture of labels, print 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 sites in 40 countries on six continents. From a geographical perspective, North America is the largest market with a share of over 40% of total sales, followed by Europe (with ~ 31%) and emerging markets (~ 29%).
The company operates in the CCL (64% of 2020 sales), Avery (~ 12%), Checkpoint (~ 12%) and Innovia (~ 12%) segments. Each of its segments has dominant market shares in its field of activity.
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Sales growth and market presence
Most of the CCL Industries companies enjoy leading market positions. Avery is the world’s largest provider of labels, converted specialty media and software solutions. CCL is the world’s largest converter of pressure-sensitive and extruded specialty 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 various global markets ranging from consumer packaging to healthcare and chemicals to consumer electronics and automotive markets. This increases the diversity of its sources of income.
With 70 years of experience, CCL Industries has gained in-depth industry experience and partially integrated backwards into materials science. The company’s expertise in polymer extrusion, adhesive development and coating, surface engineering and metallurgy is unparalleled. It enjoys a reputation for high quality manufacturing, competitive price, product innovation, and financial stability.
The largest of them all, the CCL business supplies innovative labels to customers in the home and personal care, food and beverage, healthcare, and specialty sectors. CCL Secure also supplies polymer banknote substrates, pressure sensitive stamps, passport components and other security products to government institutions.
The pandemic resulted in increased demand for household consumables, which increased the demand for packaging. CCL kept its acquisition growth strategy and added four strategic goals after the pandemic broke out. The company grew organically in all segments except Avery, but expects Avery to grow strongly for the remainder of the year. CCL’s revenues have grown by ~ 16% CAGR annually for the past decade.
CCL Industries is a Canadian dividend aristocrat who has paid constant dividends every year for the past thirty years and increased them for 19 consecutive years. The company has grown its dividend growth by more than 19% over the past five years. Most recently, it increased its dividend by an impressive ~ 17% and currently has a yield of 1.24% with a payout ratio of 24%.
The company’s focus on organic growth in its 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 has good cash balance and is focused on minimizing its investment in working capital to maximize cash flow.
It supplies labels to almost all major areas of society such as home care, health, automobiles, food, etc. These labels contain important technical and regulatory information and play an important role in promoting products around the world. Global customers therefore prefer to source their requirements from an accredited provider known for their sophisticated quality control and safety guarantee.
This has resulted in CCL building long-term customer relationships that support stable cash flow. CCL Industries is highly diversified across regions, companies, customers and currencies. Additionally, CCL Industries’ strategic acquisitions will help buy companies that will have a positive impact on future profits. Major acquisitions such as Innovia and Checkpoint have expanded CCL’s offerings, particularly in the retail and apparel industries.
CCL ended the quarter with solid liquidity and is well positioned for global expansion initiatives. With nearly seven decades in the industry, the company has built longstanding relationships with suppliers, customers, and government agencies that allow it to easily secure the business.
The label market is large and highly fragmented, but it doesn’t have a single major player. CCL Industries is the clear market leader because of its huge business size and global reach. Both Avery and Checkpoint have dominant positions in North America, Europe and Australia. Checkpoint competes with global retail label companies. The Intertape Polymer Group is their standout competition. Winpak Ltd., IPL Plastics and Richards Packaging are other major competitors.
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CCL has been affected by COVID-19-induced disruptions, restrictions and inflation in commodity prices in the supply chain over the past year. Product innovations and manufacturing expertise are the strong competitive advantages of CCL Industries. Solid cash flow generation and balance sheet have been the strong pillars of CCL’s growing dividends over the years and should support growing dividends going forward. The company expects robust results in direct-to-consumer label categories and strong performance in label-centric regions.
From a Canadian perspective, CCL is a leading and dominant company in its industry with significant international exposure. The company has been attractive in many ways except for the sector in which it operates.
I’m not a huge fan of the cyclical consumer sector, but CCL is high on my watch list as a dividend ambassador. Compliance with legal requirements for product information leads to a constant demand like at a toll station.
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