Good morning, ladies and gentlemen. Welcome to the CCL Industries Second Quarter Investor Update. Please note that there will be a question and answer session after the call. The moderator for today is Mr. Jeff Martin, President and Chief Executive Officer, and joining him is Mr.
Sean Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.
Thanks, Jake. Good morning, everyone, and welcome to the CCL second quarter call. This is Sean speaking. I'd like to turn everyone's attention to Page two of this presentation and draw everyone's attention to our updated disclaimer regarding forward looking statements. I'll remind everyone that our business faces known and unknown risks and opportunities.
For further details of these key risks, please take a look at our 2019 annual report and second quarter quarterly report in the MD and A sections, particularly this section under risks and uncertainties. Our annual and quarterly reports can be found online at the company's website, cclind.com or on sedar.com. Jeff?
Thank you, Sean. Good morning, everybody. Just before we start the call with the numbers, which we'll get to in a minute, just a couple of words about the impact of COVID on our operations. All of our plants now globally are working. We have some employees still working from home in locations where we have offices, but all of our plant operations are running.
We have twenty nine confirmed case positive cases currently as of the June. We probably have another one hundred or so more than that of people who've had it and since recovered. And I'd like to thank all the employees of CCL globally for their monumental efforts in getting us through this crisis. So with that, I'll hand it back to Sean, and he'll take you through the numbers.
Thank you, Jeff. So turning to Slide number three, our summary of the second quarter results and six months results. For the second quarter of twenty twenty, sales declined, including the positive impact of currency translation, by 9.8%, partially offset by acquisition related sales growth of 2.2%, resulting in sales of $1,220,000,000 compared to $1,350,000,000 in the second quarter of twenty nineteen. Operating income was $163,600,000 for the twenty twenty second quarter compared to $198,700,000 for the second quarter of twenty nineteen, an 18% decline including the positive impact of foreign currency translation. Jeff will expand on the segmented operating results of our CCL, Avery, Checkpoint and Innovia segments momentarily.
Included
in
the second quarter results was a $7,300,000 reduction in corporate expenses due to a decrease in short term and long term variable compensation for the comparative periods. Consolidated EBITDA for the twenty twenty second quarter, excluding the impact of foreign currency translation, decreased approximately nine percent compared to the same period in 2019. Net finance expense was $15,900,000 for the 2020 compared to $20,600,000 for the second twenty nineteen second quarter. The decrease in net finance costs is attributed to lower average interest rates and lower average debt outstanding for the comparative quarterly periods. The overall effective tax rate was 25.1% for the twenty twenty second quarter, slightly less than the 25.6% effective tax rate recorded for the second quarter of twenty nineteen.
The effective tax rate may change in future periods depending on the proportion of taxable income earned in different tax jurisdictions with different rates. Net earnings for the twenty twenty second quarter were $103,900,000 down 15% excluding foreign currency translation compared to 121,300,000 for the twenty nineteen second quarter. For the six month period, sales declined 6%, operating income declined approximately 10% and net earnings dropped 5% compared to the six month period in 2019. 2020 included results from 12 acquisitions completed since 01/01/2019, delivering acquisition related sales growth for the period of 1.7%, organic sales decline of 7.7% and foreign currency translation headwind of $03 on sales. Moving to Slide four.
Basic earnings per Class B share was $0.58 for the 2020 compared to $0.68 for the second quarter of twenty nineteen. Adjusted basic earnings per Class B share were $0.59 for the twenty twenty second quarter compared to adjusted basic earnings per Class B share of $0.69 for the second quarter of twenty nineteen. The decrease in adjusted basic EPS to $0.59 is primarily attributable to a decrease in operating income of $0.15 offset by $05 of improvement from finance costs and corporate expenses. For the twenty twenty six month period, the $09 decline in adjusted basic earnings per Class B share was due to a decrease in operating income and a slight negative impact from foreign currency translation amounting to $0.18 partially offset by a decrease in net interest expense and corporate expenses accounting for $09 per share. This resulted in adjusted basic earnings per share of $1.31 for the twenty twenty six month period compared to $1.4 for the twenty nineteen six month period.
Moving to Slide five. For the second quarter of twenty twenty, free cash flow from operations improved $39,400,000 compared to the twenty nineteen second quarter. The improvement can be primarily attributed to a decline in capital spending for the comparative quarters. For the twelve months ended 06/30/2020, free cash flow from operations improved $177,000,000 compared to the last twelve months ended June 3039. This comparative improvement is attributable to the change in working capital and reduced capital spending for the comparative twelve month periods.
Moving to Slide six, the cash and debt summary. Net debt as of 06/30/2020, was $1,900,000,000 an increase of approximately $151,000,000 compared to December 3139. The increase primarily reflects the impact of foreign currency exchange rates on foreign currency denominated debt as at December 3139 to 06/30/2020, increasing total Canadian dollar reported debt on the balance sheet. Cash and cash equivalents declined $84,200,000 as the funds were used largely to finance the company's investing activities in the six months period, which included six business acquisitions. The company's balance sheet closed the quarter in a strong position.
Our bank leverage ratio was approximately 1.78 times, declining from 1.9 times at the end of the first quarter of twenty twenty. Liquidity was robust with $619,400,000 of cash on hand and $1,200,000,000 of available undrawn credit capacity on the company's revolving bank credit facility. The company does not have any significant debt maturities until its term loan comes due in 2022. The company's overall finance rate was 2.1% at 06/30/2020, lower than the 2.3% average at December 3139, due to a decrease in interest rates on the company's variable drawn debt. In absence of any significant acquisitions, management expects to continue delevering the company's balance sheet through 2020.
Geoff, over to you.
Thank you, Sean, and good morning, everybody. I'm on Slide seven, highlights of capital spending, which we pulled down at the end of Q1 to around €250,000,000 and we've increased it to a range of $275,000,000 to $290,000,000 really as a reflection of business not declining as much as we thought it might do as we went into the quarter. And a couple of our businesses, particularly in the CCL segment, are firing on all cylinders, and we need to support them. So but we're still expecting to come in 20% to 25% below our original budget of €60,000,000 in the $275,000,000 to €290,000,000 range. That's below annual depreciation and amortization.
Slide eight highlights of CCL. We had a 6.1% organic sales decline, little contribution from acquisitions and more or less offset by negative FX. Regionally, North America was down mid single digits. Asia Pacific and Europe were down low double digit. I'll just clarify, the Asia Pacific number was a combination of a low single digit growth in the Asian countries, offset by double digit growth in Australia and South Africa.
Latin America was up mid single digit. We had strong sales gains in our electronics, CCL Design Electronics business and our Healthcare and Specialty business, modest decline in Home and Personal Care, I'll give you some color on that in a minute, a moderate decline in Food and Beverage and significant decline in CCL Secure, which we'll talk about shortly, and a severe decline in the automotive industry. Slide nine, just the numbers of our joint ventures. We've now moved out of Rheinfelden Slug Plant, which is now part of CCL container. So now the results just include our label operations in The Middle East and in Russia, and they both had quite good quarters.
We're pleased with that. Avery, this is the business that's been one of the businesses most impacted by the changes in the pandemic. We had a very slow April when the when the pandemic first hit and the lockdowns came in. We had a moderate sequential gain in May, but June really bounced back much stronger than we anticipated and was actually above prior year. But on a calendar workday basis, there are two additional workdays for for in the month of June.
So if you adjust for that, we were probably down mid single digits in the month of June at at Avery. The back to school sell in was strong, but significant uncertainty of consumer pull through around school reopening in The U. S. Remains. And we'll answer some questions around that in the Q and A.
Direct to consumer was mixed. The We Print label segment was very strong. Kids labels was so so not too bad in Europe, but pretty down in North America. And our event badge demand has more or less halted, as you wouldn't be surprised to hear. Moving on to Checkpoint.
Our MAS, the merchandise availability business, was down moderately in Asia Pacific. So we had good results in China and not too bad in Japan. So the downturn there, again, was mainly in Australia. We're down significantly in Europe and even more so in The Americas. April was weak.
May was slightly better, and June was much better, but same comment again with two additional workdays. June was almost sales in June almost reached prior year levels, but again, you have to factor in the workday adjustment. Apparel label sales were down significantly in April, less so in May and also bounced back in June and above were quite a bit above prior year aided by record monthly RFID sales. Moving on to Slide 12, Innovia. This business performed extremely strongly in the quarter.
Volume was up significantly organically, well into double digits, partly aided by pantry loading impact in April and May. And particularly in the month of April, it eased off in May and eased off again in June. Profitability increased on volume in the main product and asset utilization, and we did have some positive FX gains on the impact of strong U. S. Dollar on locations where we export film from.
The lower Q1 resin costs were largely passed through in Q2, so there was very little resin benefit in the second quarter. Better than expected contribution from the Polis acquisition has made a solid profit in the first full quarter. So just a few comments here on our outlook. Home and Personal Care in the CCL space, we still saw some downturn in the specialty retail salmon and cosmetic brands in Q2. And we've seen some pickup of that in some parts of the business in July, but it's still in certain product lines that are still impacted, particularly in hair care salons.
Health care and specialty demand looks stable. Over the counter pantry loading has definitely come to an end. The food and beverage on premise issue, which has been a big problem for many of our carbonated soft drinks, mineral waters and beer customers. So we've we've kind of lost the high season, which normally is in the spring and summer months just just due to the the lockdowns that have been present globally. Electronics demand continues to be solid, and we've begun to see a slow recovery in automotive.
We made a pretty solid profit in that part of the business in the month of July. CCL Secure second half looks good. Cash, unbelievably counterintuitive, is in high demand. And the government plants, which we mentioned at the end of Q1 that were closed, have since been reopened. Today, very indirect to consumer, we don't really see much change.
Distributed products demand did improve particularly in the July and for all of July internationally. But we did see in the last two weeks of July a slowing in North America as the Sunbelt states continue to have many challenges. And we're certainly seeing that in in in back to school demand in July, and we we think that will go on in August unless there's a a sudden change of heart in and state governments about return to school. Checkpoint, this is a high season for our MAS business. That depends on retail opening.
We had a good July in ALS and the summary is typically a seasonally slow period. So the good July, I think, was some catching up of demand that had been in place that would have otherwise been fulfilled earlier in the quarter. The winter season really depends on what happens with retail opening and how retailers feel about merchandising efforts for the holiday and winter season, and that's a big unknown. A small metal business improved in Germany on retail there opening. Innovia, well, the volume is still stable, but pantry loading is clearly over.
So we have seen the backlogs come down. Raw material indices have turned up, particularly in The United States. But we do expect our Polish business to continue to exceed expectations when we first bought the business. A few comments on the outlook. July results were solid, pretty good at particularly at CCL and Innovia, but we're also decent at both AV and Checkpoint.
But we do expect both of those businesses still to be down until nonessential retail normalizes. CCL and Innovia, stable overall, but with many puts and takes, giving you some color on that. We do expect to incur some restructuring costs in the second half of the year, largely in the affected businesses of Checkpoint, Avery and to some extent, at CCL Design Automotive. All derived commodities have begun to rise. FX looks pretty neutral to us at today's rates, and we're retaining a target of trying to make $450,000,000 of free cash flow in fiscal twenty twenty.
So with that, operator, we'd like to open the call up for questions.
Thank you. We have a question from Walter Spracklin.
Yes. Thanks very much. Good morning, everyone.
Good morning, Walter.
So starting on your sales, you'd indicated, obviously, that you provided some guidance, and your actual results came in better than what you had previously targeted. Jeff, can you talk a bit about what where were the areas of the biggest surprise? What areas came in better than expected versus the down 15% to 20% that you've been guiding to after the first quarter?
Well, I think the best way to answer that is the monthly cadence overall, Walter. It was April was at the low end of that 15% to 20% range. May was at the high end of the 15% to 20% range. And then everything came back strong in the month of June with the exception of automotive. So automotive was still a drag in June, but Checkpoint improved very significantly.
Avery improved very significantly. And the CCL businesses were pretty steady all the way through the quarter.
So you'd indicated ABR and Checkpoint likely to be down, but July results, solid. That would indicate you're seeing growth then in your in CCL?
No, no. I think we said we said there's still we did see yes, we did see growth in CCL in the month of July.
Okay. Okay. And but still down in Avery and Checkpoint. Got it.
Correct. Correct.
Okay. And then my last question here is really on your positioning coming out of COVID-nineteen and operating leverage. That's a big focus for a lot of the companies we cover. I'll ask it this way, Jeff. If you have the same volumes, whatever period in the future, do you expect based on how you'll bring resources back on to be at similar margin levels?
Or is there an opportunity to, in fact, because of what you've learned from COVID and because you're bringing resources on rather than taking them off now, could you run better margins on the same volume going forward?
I don't think that's a factor for our company, Walter. It's we're a job shop. You know, our our average order size for our transactions is quite a low number. So so I I where we've where we've made variable cost cuts, know, business comes back, they'll come back with us. We haven't had material benefit from financially from the changes of COVID.
We've we've laid off some labor in businesses where demand evaporated. But the the impact of volume in in in the way you're talking about it, it'll have to be slim to none.
Okay. Understood. Appreciate the time, Jeff, as always. Thank you. We
have a question from Mark Neville.
First, congratulations on the quarter. Obviously, you guys managed through the this very well, so good job on that.
Thank you.
First, maybe just just on the outlook, Jeff. Lots of good color, so really appreciate that. You know, just, you know, Avery Checkpoints, do you care to sort of take a status sort of order of magnitude what that may be down in Q3?
Very difficult. Avery is more difficult than Checkpoints because it's a back to school quarter. So, typically, the way that works is you have the the preplanned orders go out to the June and the July, and then you get replenishments in the July and all the sudden. And and it's a US driven business, really. So so I think what we're concerned about is what the what the back to school impact is going to be.
And, you know, what's you know, we take populations of California, Florida, and Texas. That's, you know, I think, you know, a 100,000,000 people or more. So if schools aren't gonna go back there, then, demand for some of the back to school items that we have in these stores is going to is going to be impacted, and we won't get the replenishment business. But it's very hard to say because it's, it's day by day and week by week. But, that's our biggest concern for the quarter at Avery is, you know, how that will impact us.
But in July, we were down we were certainly down double digits at Avery in revenue. Not far off profit wise because we had some better mix and better margin products in the programs this year. Checkpoint was better than that, but and was slightly above slightly better profits this year than we had last year. So that's looking a little better. But but I think both businesses, until you can go into a shopping mall in a store on normal basis, it'd be hard for either of those businesses to sort of get back to the place they were.
And then you have to remember at Avery, we've got that badge business that's driven by conventions, sports events, rock concerts. So there, it's close to $100,000,000 and the demand there is it's not zero, but it's not far from it.
Okay. Maybe just on M and A. Jeff, again, you guys had a better Q2 raised CapEx budget. Again, you're feeling a little better. I'm just sort of curious your thoughts around M and A now sort of being as you're working through this each year and a little more confident.
Again, I know diligence may be heard with travel restrictions, but the high level excuse me. Say anything about that.
Yeah. Well, I I don't think we're going to buy a billion dollar company using Zoom as a due diligence method. So so I'll I'll just I'll just say that. But we we were pretty active in the in the in the in the bolt on space. And and and valuations in that area, you know, have normalized, I would say, because the private equity firms are not shut out of the credit markets, but they're very different from the way they were.
So we're pretty active in that space. Until we can travel again, I think doing a large transaction wouldn't be a sensible thing for us to do.
Sure. And are there other other large opportunities out there? Again, I know you can't do the diligence, but just curious if there's
We think there's things out there for us to look at, but so it's, you know, when when we do these things, we do it properly, and I I don't think we can really really do it that way. And Sure. We're doing we're doing what we can and we can with the constraints we have. And travel, it's still even even in Europe, it's still very, very constrained. And and, you know, when we I think one of reasons we've been successful with M and A is we like to see the color of people's eyes when we make transactions, and that's an important factor in the decisions we make.
And that's difficult to do in today's world.
Okay. And if I could maybe just sneak one last one in. Just on the free cash flow guide, again, just on the I'm just trying to do the moving parts. I'm gonna get the CapEx. And just trying to we can come up our own assumptions for sort of profitability.
But just on working capital Yes. Is there gonna be if it's an investment sort of source of cash for the year just and try to help us sort of
Roland, do want to answer that one?
Yeah. I think, you know, you just have to kinda look at our seasonal cash flow trends, Mark, and we've had some improvement this year. And if sales do remain lower on a whole mathematically, there'll just be some culling of working capital year over year. So just keep all that in mind in your model. Got it.
All right. Thanks clarifying, guys. And again, good job on the quarter.
Thank you, Mark.
Thank you. We have a question from Stephen McElroy.
Thank you. Good morning, guys.
Good morning, Steve. Good morning. Just a
couple of segment specific questions. You talked about Innovia. It really got the benefit from pantry loading, but that's eased. Has Innovia is it are you still up year over year in July? And would you expect there's a possibility it could be down in Q3?
Or is it not that Yes.
I think the pantry loading impact in April was pretty significant. I do think we've I think volumes will be pretty volatile in the third quarter because they were very strong from really March, April, a good chunk of May because the orders were coming in, we hadn't shipped them. June, we saw some tail off. In July, we've seen some tail off. So but but the the business is operating at a much, much better tick than it was.
So internally, we've made significant progress in the management of the plants. So that's going really well. We had some resin benefit in Q1, not a lot in Q2 because of the pass through to the customers. And so second half is very difficult to predict because there's so many moving parts and some of it affected by what's going on with the pandemic. It's all hard to say.
Be astonished if we didn't do better profitability wise in the second half than we did in the second half of last year. The top line, I think, is difficult to say. I think the other thing to bear in mind, Steve, in Ovia, we had a sort of a low Q2 in the security films, which are very profitable films, and we'll have a better second half in security films because the volume is coming back.
Okay. That's helpful. And then maybe just turning to the Checkpoint business. You talked about RFID driving some growth in the late part of the quarter. What's the driver of that, do you think?
Well, I think what happened was in the apparel industry, it kind of shut down sort of really, you know, if you could include what happened in the first quarter in China. I mean, it was kinda closed for a good ten to twelve weeks, you know, in the large apparel hubs around the world, you know, initially China and then the Indian Subcontinent and Indonesia and places like that. So it's been pretty materially impacted. And, so I think there was a pent some pent up demand to get merchandise into into distribution centers that drove volume in June and July. And then retailers who have begun to do RFID, we saw the RFID impact of that.
So that's really what drove it. A little bit of share gain in a couple of customers in Europe, but that's the main driver.
Okay. Okay. That's helpful. And then on the last call, you mentioned that you would expect earnings to get back to 2019 levels. You were sort of suggesting it'd be 2022.
Does the quicker step back in demand kind of change that outlook?
I'm not sure, Steve. It's so uncertain. I mean, if we hadn't had the sunbelt lockdowns in The U. S, I might have given you a more definitive answer, but we the fact is we've had them. And and there are also bothersome indications from second waves coming in Europe.
So it's very hard for us to say, you know, when this is gonna be over because, you know, we've two of our larger larger and more profitable businesses, you know, are clearly affected by workplace interruptions and nonessential retailing being locked down. And and although it's better than it was, it's still I'm sure if you know that by driving around the city of Toronto, the impact is pretty visible. And until we see that normalizing, it's very difficult to predict the longer the longer haul. In China, where things are more or less back to business as usual, we're seeing things a lot better there, but it's only one part of the world.
Right. Okay. Okay. Well, that's great. I'll get back in the queue, and congrats on a great quarter.
Thank you.
Thank you.
We have a question from Adam Josephson.
Thanks. Jeff and Sean, good morning.
Good morning.
Adam, how are you?
Fine. Yourself, Jeff? Congrats on a really nice quarter. Yes.
Thank you.
Can you talk so total organic sales were down 12.4%. Can you give us a cadence by month, Jeff, just to give us some sense of how good April was, how bad May was and how good June was? And then just talk about what June you thought June was exactly? Was it inventory restocking? Or was it just the natural opening of all these economies and there wasn't necessarily an inventory rebuilding component to it?
In other words, what do you think is sustainable or not sustainable about what you saw in June and for that matter in July?
Yeah. Well, as I said to Walter, April, we were down low end of that 15% to 20% guidance. May, we were down the high end of that guidance number. But May workdays were we run a calendar month here. So May workdays were low compared to May.
So that had an impact. And then in June, we were above prior year total company. So we had actually some low single digit organic growth in the month of June. But you have to remember, we had two workdays, so two extra workdays. So if you adjust for that, we were down, like I said, probably mid single digits in the month of June for the total company.
And the sales impact is really predominantly in those three businesses I mentioned. So Avery, you've got the numbers there for it. Checkpoint, you have the numbers. And then our CCL Design Automotive business is down around 45%. So that's a $300,000,000 slug of the CCL segment.
So if you if you if you took the if you had a normal automotive season, we would have been up in the CCL space in both revenue and profits. So, you know, I think it's just a you know, those are the three businesses where we saw the main main impact. I mean
Right.
In food and beverage, we definitely have seen impact from this on premise issues. So carbonated soft drinks companies, mineral water companies, beer companies, you've seen all their numbers. They're all down 15% to 20% in in volume. And, some of that, you pick they pick back up in at home consumption. But, you know, a bottle of water you pick up at a travel store, that's that's gone into the tank.
Coca Cola, if you're you get your glass bottle and sitting at the you know, Saint Mark's Square in Venice with a cup of coffee, that's gone. So, you know, I think that's that hasn't really changed very much as we go into July. Mean, we're still seeing it's better than it was, but not but it's still down compared to anything anything like normal in the in the summer season driven by tourism and all the rest of it.
Right. And I assume total company sales in July were still down even though CCL was up a bit and Innovia was stable ish. Yes, forgive me for having missed some of the regional commentary. But as you go into July and August, you mentioned seeing some slowdown in the latter part of July, if I heard you correctly, at Sunbelt Yes.
That's just at Just at Avery. So that's the back to school phenomena at Avery that we we we're just waiting to see how it unfolds. So because I think it's not only will will schools reopen, but when will they reopen and what will we behave to be when they when they do. So the the challenge for the mass market retailer is, so if you're a merchandiser at a mass market store, how long do you keep those shelves stocked, you know, with back to school products when there's uncertainty about what what date these schools return? I mean, that's the that's the big unknown.
And are there particular regions about which you're most comfortable? I mean, talked about potential for a second wave in Europe. The U. Has not handled the situation well at all. Asia has been much better, obviously.
What are your thoughts just regionally regarding the third quarter and perhaps beyond for that matter?
Well, I think the same as most of our customers say. I think in the consumer products business, the packaged goods business, I think The U. S. Has been reasonably strong. And we've seen that also in the second quarter and into the third quarter, stronger than it is in Europe.
So not quite sure what that would be, but maybe it's to do with the very generous, spy times mister Trump's been handing out. But but, you know, it's it's it's been stronger in in The US than it has been in Europe. China, things are normalizing relatively quickly. So China is it's not quite normal, but it's close to normal. And Latin America is you know, had been had been okay in q two.
It's still okay for us in July, but, obviously, the impact down there of the pandemic is pretty, pretty horrific. And, you know, it's uncertain about what that'll what what will happen there. And and then there's a devaluation. So, Latin America is challenging more around that than COVID. It's just the impact of the currencies dropping and having to deal with that with the customers has not been very easy.
Last question for me, Jeff.
How yes, sorry, go ahead.
Just in terms of how you're thinking about CapEx and M and A longer term based on how these various regions have handled this pandemic, Is your thinking different than what it might have been pre COVID based on how problematic this has been for Latin America and The U. S? Or are you not really thinking about your businesses or geographies any differently than you were before?
Well, mean, it's a difficult world we live in at the moment, but I still think the emerging world has opportunities to catch up with the rest of the world in the way that, consumers live and live their lives. And, I think that's gonna be remains a a very good long term opportunity for us. The short term interruptions around the pandemic and the the China tensions and all the rest of it, there's nothing we can really do about that other than work our way through it. But we're not we're not we're still investing in China. We're still investing in Latin America.
We're still investing in Eastern Europe. So we're marching ahead. Long term, we're doing things to change very much.
Thanks a lot, Jeff.
No problem. Thank you. We have a question from Michael Glenn.
Hey, good morning. Hey, Jeff. When you reported Q1, you were signing up to give the go sales guidance of down 15 to 20% for Q2. Are you able to provide some sort of guidance like that for Q3? Any thoughts or expectations of that?
Well, think it will be down. It's very difficult to say how much. I think it it I wouldn't like to give you a number on it, Michael. It's it's and the reason I'm being conservative around that, it's it's it really will depend on how things pan out with Avery and back to school. That's gonna be a big driver.
And and then what happens with Checkpoint. So it'll be the we have seen some recovery in the CCL Design Automotive business. So I would expect the CCL segment to be to be up in the quarter, so that's if that's helpful. And I probably would expect to see Checkpoint and Avery down, but I wouldn't like to say by how much.
Okay. And then if we're looking at in in CCL, the home and personal care and the and the food and beverage, if we're thinking of what could represent inflection point, is that really you know, we're watching the market. We're seeing retail reopen again, and we're thinking about Yeah. Volume going back into those.
Yeah. The soft spot in in home and personal care at the moment is is sun care aerosols and and salon aerosols. So the label business is in pretty good shape because the the specialty retail stores have a lot of our products and have reopened. So that's had a pretty strong July. So so the sun care aerosols and the hair care aerosols, that's the the soft points in HPC.
And and then the you know, it depends how Coke and Pepsi and Heineken and ABIB and then on and Evian and Perrier and all it depends how all those brands recover, as we go through the summer months. I expect they'll still be reporting some level of difficulty by the end of Q3, probably not as bad as it was in Q2.
Okay. And then just finally on Checkpoint, if, for the apparel labeling, portion of that business, how does, online transition impact that part?
No. It's all because the the the merchandise is not determined whether it's gonna sell online or online or in store. So the in apparel, it's on the omnichannel retailing. So the merchandise is ticketed and tagged in exactly the same way for an online sale as it is for an in store sale.
And are there any offsets to on the, electronic article surveillance side? No. See transition. No? Okay.
No.
Okay. Okay. That's it for me. Thanks.
Thank you. We have a question from Scott Fromson.
Good morning, gentlemen. Just a question on demand in labels. Have you seen any requests from large CPG customers asking you to replace secondary or tertiary suppliers? In other words, are you taking market share from more marginal players?
It was a little bit of that in the second and third quarters, a little bit of it, but not much.
Okay. And on the same lines, are you seeing geographic expansion requests?
Nothing in particular.
Okay. And the final question, most of my questions have been asked. What are you seeing for the outlook in electronics? Is this going to the strength going to maintain?
I think it will. The IT industry has obviously been a winner in this you know, the tech companies in the IT industry have been a winner in this, period of time. And, we've all seen the results of, you know, the big, firms in that space have all been good. And we're seeing lots of opportunities for new applications. So we're very optimistic about our presence in that space and continue to be so.
Do you see yourselves taking market share in that space?
I think it's more about innovating our way into new applications than it is about taking share.
Okay. Great. Thanks. Excellent quarter.
Thank you.
Thank you. Our next question comes from Veraz Ahmad.
Hey, good morning, guys.
Good morning, Veraz. Just had a quick question.
Well, on CPL, CCL segment, the design, auto and secure business really weighed down a quarter. Would you be able to kind of guide us on what margins would
have been excluding those businesses? Couldn't do that. But I can tell you, CCL Secure business had a tough volume quarter, but it had very good mix. So the profit impact was not so big. In Q2, the big impact of CCL Design was all in automotive.
So so the electronics business was up.
Okay. And I guess that's the the the coverage of two, three somewhat margin should benefit as well.
I think you'll see we would expect to see CCL Design overall in total, automotive and electronics combined, have a better Q3 than it had in Q2.
Okay. That's great. And just the last one for me, have you seen any issues with labor as you look to come back in various regions?
You mean in terms of being able to get it?
Yeah.
Well, I think in The US, there's been some, you know, stuff around the edges around around being able to hire, you know, low end labor with the with unemployment benefit being so generous, but it hasn't really caused us any issues. Okay. That's great. Thank you. Okay.
Thank you. We have a question from David McFadden.
Oh, good morning. A couple of questions. First of all, just on Innovia, you talked about how you benefited from pantry loading in Q2. And I was just wondering if that was really just pulling forward demand from, say, Q3, Q4? Or are you still seeing, on an overall basis, the demand would still be up if it wasn't for that pantry loading?
Well, I think the pantry loading impact in Q2 really happened in April and May. We didn't see much of it in June. We didn't see any of it in July. So, you know, I I I we won't see the, you know, the the volume gains we we saw in q two for the in the second half because, you know, it's a onetime phenomena, and it also, you know, happened when we we did pass on almost all of the resin benefit we had in Q1 and Q2. And resins have begun to rise in the second half of the year.
So we'll be ready to we may get some price benefit in the second half around that, which will impact the top line. But I think it will be the cadence of the difference between how we look versus prior year will look a lot more normal in the second half than it looks in Q2.
Okay. And then, you know, you talked about Avery being, being hit by back to school if the schools don't, if the kids don't go back to school, if it's online only, if if the schools resume, say, back to school in January, do you think the demand would just shift in into the December quarter and people prepare for a more normal school environment?
Well, we don't really know the answer to that. I don't think anyone does, so not gonna comment on Okay.
And then I don't know if you can, but could you quantify the the impact to you if that school stay online only in September?
No.
No? Okay. Alright. Thank you.
Thank you. There are no questions currently in the queue.
Okay. Well, with that, operator, we'll close the call. Thank you for everybody attending. Thanks for all your questions and your interest, and we look forward to talking to you again in early November. Thank you.
Thank you, sir. That does conclude the presentation. You may now disconnect.