Good morning, ladies and gentlemen. Welcome to CCL Industries First Quarter Investor Update. Please note that there will be a question and answer session after the call. 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.
Good morning, and thank you, Crystal. This is Sean Washchuk. I'll draw everyone's attention to Slide two, our disclaimer regarding forward looking statements. This disclaimer has been updated for the first quarter of twenty twenty. I will remind everyone that if you're looking for our risks and uncertainties as they relate to the business, they can be found in our 2019 management discussion and analysis.
We also have an updated risk for the coronavirus in our q one twenty twenty MD and A. So please check these out. Our annual and quarterly reports can be found online on the company's website at cclind.com or on sedar.com. Jeff?
Thank you, Sean, and good morning, everybody. Just want to make a couple of introductory remarks about the situation around COVID nineteen. If you'd been born in 1900, by the time you got to 1950, there would have been two world wars that killed a hundred and twenty five million people, and the fifty million that were killed in the nineteen eighteen Spanish flu epidemic would almost have passed unnoticed. I do not think, anyone born in the year 2000 will ever forget the year of 2020 and the impact of COVID when they reach 50 years old in 2050. It's really a momentous event.
We first saw the interruption like everybody else in China, and we have 3,500 employees in China out of an employee base of 21,000, so had some impact on our first quarter operations. But all of our plants were back working in full operation by the month of March. The vast majority of our operations during the the lockdown period that's been going on since late well, mid March really in Europe, late March in The US, and all of April pretty much globally. Vast majority of our plants have been operating normally. We have had some interruptions in in the Indian Subcontinent due to the lockdown there, and a couple of our smaller operations dotted around the world, but nothing that that I would describe as particularly material.
Many people have been working from home at CCL, particularly in our s g and a office functions. Vast majority of those have been working home globally, but some offices that are connected to our factories have been operating with skeleton staff. All plants are now operating with strict hygiene and and social distancing protocols. Out of our 21,000 employee base, I'm pleased to say only about twenty confirmed positive tests have occurred. No fatalities so far due to the virus.
We did have one close call, but I'm very pleased to say everyone is healthy and well. And it is our top priority for the business to make sure that our people are safe. And I'd like to take the opportunity on the call to thank everyone at CCL, particularly the employees and our plants who've been turning up tirelessly every day, being looked after and being protected, but still doing their jobs and making sure our position in the essential world supply chain is conducted with safety and with good operations. So with that, I'd like to hand the call back to Sean, who will take you through the numbers.
Thank you, Jeff. So moving to Slide three, our summary of financial results for the period ended March 31. The 2020 sales declined, including the negative impact of currency translation by 3.8 or 2% excluding currency translation, partially offset by acquisition related sales growth of 1.1%, resulting in sales of $1,300,000,000 compared to $1,330,000,000 in the first quarter of twenty nineteen. Operating income was $200,300,000 for the twenty twenty first quarter compared to $204,800,000 for the first quarter of twenty nineteen, a 1.2% decline excluding the negative 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 first quarter results was a $3,800,000 reduction in corporate expenses due to a decrease in short term and long term variable compensation expenses for the comparable periods. Consolidated EBITDA for the twenty twenty first quarter, excluding the impact of foreign currency translation, increased 2.6% compared to the same period in 2019. Net finance expense was $17,100,000 for the 2020 compared to $22,000,000 for the twenty nineteen first quarter. The decrease in net finance costs is attributable to lower average interest rates in the quarter. The overall effective tax rate was 26.7% for the twenty twenty first quarter, unchanged from the three month period ended March 3139.
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 first quarter was $126,600,000 up 3.7% excluding foreign currency translation compared to January for the twenty nineteen first quarter. Moving to Slide four. Basic earnings per Class B share were $0.71 for the 2020 compared to $0.70 for the first quarter of twenty nineteen. Adjusted basic earnings per Class B share were $0.72 for the twenty twenty first quarter compared to adjusted basic earnings per Class B share of $0.71 for the first quarter of twenty nineteen.
The increase in adjusted basic earnings per share to $0.72 is primarily attributable to a decrease in finance costs and corporate expense, which each was attributable to $02 of improvement, partially offset by $02 for reduced operating income and $01 from foreign currency translation. Moving to Slide five. The 2020 free cash flow from operations improved to an outflow of $15,000,000 compared to an outflow of $90,200,000 into the twenty nineteen first quarter. This improvement can be attributable to strong non cash working capital and a decline in tax and interest payments for the comparative quarters. Moving to Slide six, our cash and debt summary.
Net debt as at March 2020 was $2,000,000,000 an increase of approximately $323,000,000 compared to December 3139. This increase primarily reflects the impact of foreign currency exchange rates on foreign currency denominated debt as at December 3139 to 03/31/2020, increasing total Canadian dollar reported debt on the balance sheet.
Cash and cash equivalents declined $158,100,000
as the funds were used largely to finance the company's investing activities in the quarter, which included six business acquisitions. The company's balance sheet closed the quarter in a strong position. Our bank leverage ratio was approximately 1.9 times, reflecting an increase in net debt and an increased EBITDA. Liquidity was robust with five forty five million dollars of cash on hand and US607 million dollars of undrawn available credit capacity in our revolving bank facilities. Furthermore, the company does not have any significant debt maturities until its prepayable term loan comes due in 2022.
The company's overall finance rate was 1.96 at 03/31/2020, lower than the 2.3% average finance rate at December 3139. This was due to a decrease in interest rates on the company's variable drawn debt. In the absence of significant acquisitions, management still expects to continue deleveraging the company's balance sheet through 2020. Jeff, over to you.
Thank you, Sean. So I'm on Slide seven, highlights of our capital spending in the first quarter. 95,000,000 is usually our highest quarter of the year for capital projects and is the same this year as well. We are planning to reduce our 2020 forecast about 30% to approximately $250,000,000 which will be $50,000,000 below annual depreciation and amortization. Slide eight, results for the CCL segment, basically flat for the quarter.
Small organic sales declined, a little bit of acquisition growth, a little bit of negative FX, but
basically
flat. In Europe and North America, we were also basically flat, small decline, less than 1%. Asia Pacific was down mid single digit driven by the changes in China in February, and Latin America was up high single digit. In the business segment, CCL Design Electronics, CCL Secure and our Health Care and Specialty businesses all had strong quarters. We had modest declines in HPC and Food and Beverage and a significant drop, as you might expect, at CCL Design Automotive.
Page nine, results of our joint ventures. They're basically two now, one in the Russia and one in Middle East, both label businesses. We acquired our Rheinfelden Slug plant from our partner in March, so that's fully consolidated with effect from the beginning well, March and will be a full quarter in Q2. But we had good results in the two label businesses in the first quarter. Page 10, the results of Avery.
Very good quarter, very strong start in January and February in The United States. Slower start in Canada, Australia and Europe. March sales were down in distributed products. So those are the products that we sell through distributors, mass market retailers and office supply superstores. They started to decline in March.
And our direct to consumer sales declined more rapidly in name badges, wristbands and kids' labels. That impacted growth about 50 basis points for the quarter. Checkpoint, we had strong growth on Page 11 now, strong growth in The Americas in our MAS business on technology rollouts. But Europe and Asia were both down, especially in March. We had the February plant close downs in China, which impacted profitability, and then retailer closes happened first in Europe and then in The U.
S, and that began to impact profitability. Apparel label sales dropped low double digit on plant shutdowns in China and retail closedowns in Europe in March. And our small metal price labeling business in Europe was also down high single digit, most of it in March. Page 12, results for Innovia. Very good quarter, one of the best we've had.
Volume was up low single digit. Revenue was down largely on mix and pass through pricing of lower material costs, especially in The U. S, where resin had dropped quite a bit and the weaker peso in Mexico and its impact on dollar pricing in that part of the world. Profitability increased on productivity, asset utilization, lower input costs and the strong U. S.
Dollar impact on exports from Europe out of our Innovia plant in The UK. We had a modest contribution to both sales and profitability from the Polish acquisitions, which closed mid March, so we'll get a full quarter from Q2 onwards. So very pleased to see the progress at Innovia. A few comments on Page 13 about our outlook. These red, orange and green dots are really to give you an indication of where we're seeing strength and where we're seeing difficulties in our business.
I'll start with the strong areas, the green dots, health care and specialty, you know, focused on over the counter medicines, prescription medicines. So not surprising they're having a very good time of it right now. Strong q one. We'll have an even stronger q two, so that business is operating on full barrels. Innovia has also continued to be very strong in the month of April.
Volume has increased above the levels we saw in q one. The plants are now solidly booked into June. Raw material cost environment continues to be benign. And in the coming quarter, we'll have the full impact of the quarter in Poland. I'll deal with the orange dots next.
Home and personal care, it's about a billion dollar business. The parts of the business that are doing well are things that you would expect. So cleansing soaps, shampoos, anything to do with personal cleansing, those product lines are doing well. Anything to do with specialty retail, salon salon hair salons or cosmetics, not doing so well. So some of our large customers in that space are companies like Bath and Body Works in The US, The Body Shop in The UK, Yves Roche in France, the Aveda salon chain in The United States, and and so on.
So that's about around 25% of our home and care home and personal care business that's clearly in a pretty difficult situation. But the remaining 75% is doing slightly better than it otherwise would, so it's a bit of a mixed story. In the food and beverage business, we had very tough comps in q one. So q one twenty nineteen, food and beverage was up 16%. So we found that very difficult to overcome given the challenges of COVID.
We'll have much easier q two comps. But in the current quarter, we're seeing quite a difficult situation with the decline of on premise volume, which is affecting many of the large global companies that sell beverage brands into restaurants and cafes and bars and so on. CCL Design, it's another mixed story. Our electronics demand was very strong in q one and continues to be so in April. And as you might suspect, automotive is the complete reserve, extremely weak, and sales down very significantly in the month of April.
CCL Secure had a very strong first quarter, had a decent April, but we know a couple of our customers have closed their currency printing operations temporarily as part of COVID-nineteen lockdown procedures. That may well impact demand in Q2. Turn now to Avery and Checkpoint, which are the two segments of the company that are most affected. So Avery certainly began to see a decline in its direct to consumer product lines outside of WePrint. Those are the labels that we sell directly to small businesses for product labeling.
That business has continued to grow quite significantly. But event and name badge demand has more or less collapsed, as might suspect, and the kids labels programs are down pretty significantly. Distributed products with printable media, binders, and indexes that we sell to distributors in the in The United States are down significantly. To give you a reference point for that, the cut sheet office paper market is down 40% in the month of April. So we're kind of in there with them.
Pretty much same story. Turning to Checkpoint. Well, let me just just mention briefly about back to school before I do that. The back to school business, we've got a good order backlog for back to school. When it happens, it's very unclear.
So retailer focus is not on on that subject right now. They're more focused on disinfectants and sanitizers and toilet rolls than they are ring binders and indexes. So timing is really unclear. We do have a good order book, but when it will occur relative to June and July and how successful it will be given the constraints on retailers with social distancing and what have you remains to be seen. But we are planning to see a back to school this year that hopefully is at least in line with the one we had last year, but time will tell.
Checkpoints, as you might imagine, with nonessential retailing completely closed down, has been significantly impacted. It was especially weak in Europe in the month of April, but its sales are down pretty significantly in our MAS business. It's much worse in the apparel segment because apparel manufacturing in the Indian Subcontinent, which is the second most important region of the world outside of China, was completely shut in the month of April. Nothing happening at all. And of course, on top of that, you've got retail stores globally.
So that part of the company is pretty significantly affected. So that's a colorful view of our outlook. And on Page 14, I've tried to summarize that. Avery Checkpoint and CCL Design Automotive, all soft in April. Rest of CCL and Ovia are pretty solid.
We do expect to see some recovery from April and May and June in some of these businesses, but the quarter will be impacted really depending on the subject of when back to school actually starts and will it be in June or will it be in July this year. Any time will tell. So summarizing all that, we would we would estimate at this point Q2 sales to be down something in the 15% to 20% zone. We hope near the lower end of that range than the higher, but time will tell. We're just trying to give you a rough indication of how we think time how it'll we eventually unfold, but time will tell.
FX has moved to a modest headwind based on the strong U. S. Dollar, and we will be providing you an update in early June. We're planning to have a hosted investor event to update how the quarter is going in June, and we'll be doing that. There'll be a press release about that of May, and the event will be held in first week in June.
So we'll be back to that in due course. What are we doing about all of that? Page 15. A lot of focus on working capital, especially receivables at Avery and Checkpoint. We have made no variable compensation accruals for annual incentive plans suspended which are suspended for corporate employees.
We are making accruals in divisions that have merited the incentive plans incentive payments being accrued for, but at the corporate level, we haven't made any. And we suspended accruals for our long term incentive plan because at the current time, it's too difficult to say whether any further accruals are merited. We are advancing vacation time for employees and businesses that are impacted. We have furloughed employees in some locations and short time working at others, and we're using all the government support programs that are available. Turn at the top, our board has agreed to forego its fees for our May and June meetings, and both Don Lang and myself will be working for zero cash compensation during this same period.
We are renegotiating rental contracts on major facilities at Avery and Checkpoint where we can, and we're taking advantage of all cash tax payment deferral programs offered by governments in all businesses globally. Our capital expenditures, as I already mentioned, will be down by over $100,000,000 for 2020, dollars 50,000,000 below depreciation and amortization. On page 16, I know many of you have asked about, well, what happened to you in the last crisis? So on page 16, I've shown you the numbers, the reported numbers in sales, organic growth, and EBITDA from two seven to two ten. And as you can see, we went started to see a problem in 02/2008, had negative growth in 02/2009, and then bounced back in 02/2010.
We're a very different company today. You know, we have CCL Design, which we didn't have back then. We have Innovia, which we didn't have back then. CCL Secure, we didn't have back then. Avery and Checkpoint, which we didn't have back then.
And the company is now point 3,000,000,005,400,000,000 in sales, not 1,200,000,000.0 so a very different situation. We are focused on delivering approximately $450,000,000 adjusted free cash flow for the year. The 2021 hangover is unknown, but we are assuming we will be able to plan solid earning improvements over 2020. At this juncture, we think it will be 2022 before our performance is likely to get back to where we were in 2019. So with that, operator, I'd like to open the call for questions.
Your first question comes from the line of Stephen MacLeod with BMO Capital Markets.
You. Good morning, guys.
Good morning, Stephen.
Good morning. Thanks for all that incremental color on the COVID-nineteen impacts. I think it's very helpful. I just wanted to circle around very quickly on the CCL segment. Just curious, you saw strength in the home and personal care business.
Was that has that continued into April? Or was that a pull forward of demand as people were sort of pantry loading and shoring up their supplies? I
think what we saw, Steve, was in the in the branded goods stuff that goes into Walmart and Target and, you know, the normal retail CVS stores, drugstores, things like that. So hand hand sanitizers, hand cleansers, things like that, we saw pretty robust demand. What we also saw, though, was was a significant change in the higher end stuff. So cosmetic type products, skincare type products, sun care type products, things that might sell in travel retail. So Victoria's Secrets beauty store, a Bath and Body Works store, an Yves Rachet store in France, a hairdressing salon.
This part of the business has gone into a very well, more or less a lockdown. So it's a bit of a mixed story in HPC.
Okay. I understand. Thank you. And then maybe just turning to Innovia. Off to certainly a solid quarter and off to a very good start.
Can you talk a little bit about what's driving the demand into Q2?
Well, the customers there are basically in the label industry, prime label business, so and in the flexible packaging industry. So the demand for consumer packaged goods is what's driving that. So, you know, in the month of March, you had some some of these CPG retail retailers reporting CPG sales up 50%. So so there's a definite one you know, COVID nineteen effect in the month of March. Not in January and February, but in the month of March, we certainly saw that and we certainly saw it even more in the month of April.
So that's what's driving it.
Okay. Okay. Thank you. And then maybe just in terms of Check Point, when you think about, obviously, some near term pressure, are you beginning to see order levels improve a little bit as retailers begin to open back up, or is that not falling through
the supply
chain? Really. Not yet. I I I think what's closed is largely still closed. So I my office here overlooks Natick Mall, which is one of the first malls in The United States.
It's shut totally. So the Walmart store has been open, which is right outside my window here. That's been open all the way through the crisis. So I think things that were open have have been opened all the way through, and things that are shut, by and large, still shut. So I think that will be a a long slow grind before that comes back.
Apparel manufacturing is is is running in China, and it's beginning to start back up in in on the Indian Subcontinent. It's it's never stopped in Europe with the late source in North Africa and Turkey, but it was at a very, very low edge. So the I think the apparel industry is probably down 60%, 70%, something like that.
Okay. Okay. And then maybe just finally for Sean. Could you just give a little bit of color around what you expect corporate costs to be for the year given some of the cost savings moves that you made?
I think the corporate costs will be quite similar to what you saw in Q1 in the subsequent quarters.
Your next question comes from the line of Firaz Ahmad with Laurentian Bank.
Good morning.
And Mr. Ahmad, your line is open. Please go ahead with your question.
Hi, good morning. Sorry about that.
Good morning.
Sean, could you maybe Sean and Jeff, could you maybe speak to what you're seeing from a demand perspective in China as they, you know, start to open up their economy?
Yeah. I think in in China, we where all of our plants are operating normally and did so for the month of March, really. I would say the you have to understand what our operations do there. So the the two biggest arms of our business in China is Checkpoint Manufacturing, which is sold globally. So that's still in a fairly depressed state.
And CCL Design Electronics, which has had record months and quarters in recent times driven by the demand for IT peripherals of people working at home. The the business we have in China that's domestic focus is CCL Label, which is smallest arm of our business in China. So that's also running quite well, but at levels still below what we saw in q four twenty nineteen. So we would still say consumer spending in China is not where it was in the fourth quarter of last year.
Okay. But I guess it's picked up April versus March, I guess?
I wouldn't say so. No. I would say March and April look pretty similar.
Okay.
You have to bear in mind. You see, our our label business in China is focused on soaps and hand hand cleansers, and we have a we have a food and beverage business there as well. That that suffered more than our soap and cleansing business. But so but I I would say, you know, it's the same thing I'd mentioned to Steven, you know, the the higher end products. People are are buying hand sanitizers, but they're not buying cosmetics, anything cosmetic.
Okay. I got it. And then just I just wanted to turn to Innovia. I know in in in in past with the resin price fluctuations, you enacted some changes to the contract to put in tighter resin pass throughs. And given the recent decline in prices, just just curious, what percentage of business now has pass throughs in place?
Well, we, you know, we put in quite a a lot of changes. So so the significant portion of the business now has has price pass through. And that's why you see the revenue dropping because the volume went up. So you can see there, you know, roughly what happened. So there's a significant portion of the business has price through passing.
Okay. And some of that is price through passing.
A lag, though. So, you know, you the you know, when you're in a declining market, you there's always a lag. So we're benefiting from the lag, and you and you and you suffer when you when it's going the other way.
Yeah. So I guess in q two, you would see probably some sort of a a decline in revenue because of that?
Well, volume in Q2 has so far been strong, and then you'll also see the impact of the plant in Poland. So we'd expect to have higher revenues in the coming quarter.
Okay. And then just with regards to the new plant in Mexico, just wondering if you can an update on how that's come along, the base loading and
It's going well. It's going well. That's where most of the growth came from in Q1.
Okay. And just lastly, if I may. On the M and A front, know you have a fair bit of capital available. Are there any areas where you're looking to focus on? And what have you seen in terms of multiples?
There any
Not a priority right now. Not a priority right now.
Got it. Thank you.
Thank you.
Your next question comes from the line of Mark Neville with Scotiabank.
Hey, good morning guys.
Good morning, Mark. Can you hear me?
Okay. If I could just start with the Q2 sort of revenue guide. The Q1 was, all things considered, I think, pretty strong. When I sort of read through the qualitative outlook, you know, it sounds, you know, obviously, there's pockets of weakness, but, you know, the core business sounds like it's doing fairly well. Maybe I'm just underappreciating the the weakness in Checkpoint and Nabry, but can you maybe sort of sort of in lose numbers, maybe talk about what you're expecting out of the core label or
Well, the we never gave guidance for the coming quarter when we were in the normal world, so I'm certainly not going to do it now. But I can say I can say that that they're materially impacted, Avery Avery Checkpoint and CCR Design Automotive. Those three businesses between them are about 1,800,000,000.0 in revenue, and they are severely impacted. So cut sheet paper in The United States that's sold into the office environment down 40%. So draw your own conclusion from that.
And all nonessential retailing is by and large worldwide still shut, and that's Check Point's core business. So you can imagine what's the kind of impact that's having on them. And do I need to say anything about automotive?
I cover the space, so I understand.
Yeah.
No. I can't even know that.
I guess that math makes a little more sense when I sort of size it up and think about what those businesses are doing. But, again, the
It means just to think that they're they're, you know, the, you know, 1,800,000,000.0 out of 5,000,000,000, if they're down if they're down significantly, that's where that's where the revenue decline comes from. It's all in those businesses. And if you look at companies like three m and ITW, you know, other industrial companies that sell into the broad economy, getting the same kind of commentary from companies who have the same diversity that we do.
Okay. Maybe just on the free cash, the $450,000,000 I'm just curious first, what exactly is adjusted free cash flow? Is there anything in there that I need to
know about? Anything there material. Okay. Nothing material. Yeah.
Okay. I sort of hate to try to put you on the spot here, but if I work backwards from $4.50, I mean, probably at EBITDA in around a billion plus or minus. Again, I hate to try to put you on the spot with a number, but would anything be wrong with my math?
Well, regarding to free cash flow, I think what you have to bear in mind, I think we will have some working capital benefit this year from in free cash flow. So that's having an impact. We're also cutting capital expenditure by $100,000,000 That's having an impact. So you have to factor that into your math.
Okay. Okay. Yeah. No. It still sounds like a pretty robust number.
Yeah. Well, I I that's what we're focused on at the moment. We're focused on as you would expect, you know, we're responsible corporate citizens, and we're trying to protect the company's position for the future. That's what counts in situations like this. And we're protecting the company's balance sheet and focusing on free cash flow.
So that's management's main focus right now for the remainder of the year.
Okay. And maybe, Jeff, I can just ask one more for you. I think last time we were together, last time we spoke, you were probably a bit more conservative than most people were, but obviously rightfully so. I'm just kind of curious as we sit here two months later, just generally how you're feeling. Obviously, it's been a a tough couple months, but just sort of generally how you're feeling about the outlook
for past I mean, we're I mean, I think what we are pleased about, Mark, is having a having a diverse company with multiple end markets protects you in situations like this. So we're not overexposed to any one part of the economy. We've got broad tentacles all over the world. So we're very glad that we have done that and broadened broadened the focus of the company. So and we're we're we're confident about the future, but we know the short term is not gonna be easy, and and I don't think 2021 will be easier either.
I think we're in for six to eight quarters of of the kind of things that hopefully won't be as bad as, you know, April and May are are currently looking. But but, you know, I expect the recovery will take some time, and I think that the the world will that will dawn on the rest of the world over time. And we're very pleased to see the the the automotive industry restarting now. So our customers are opening up their plants in Germany and The US, and and they're already opened in China. But at this point, nobody knows how many cars they're gonna sell.
So that's the that's the big unknown. And so we're just being prudent about that. And I think we called this right early on and took actions early on, and we're doing actions now to save cost. And but I are we confident about the future? Absolutely.
And will it will it eventually come to an end? Absolutely. Will the world recover? Absolutely. We just wanna be there when it does.
All right. Sure. Appreciate that, Jeff. Thanks for thanks guys for taking my questions.
Next question comes from the line of Adam Josephson with KeyBanc.
Jeff and Sean, good morning.
Good morning, Adam.
Morning. Morning. Jeff, couple starting with CapEx, can you just I mean, obviously, many companies are reducing their CapEx plans for the year. I'm just wondering from your perspective how you arrived at this number, the $250 ish number. Was it a
top down? Yeah. Last year, we spent three we spent $350,000,000, Adam, or thereabouts. We did have the the big project in Mexico at at at the Triophan plant that Yep. Was a pretty big number.
So if you pull that out, you know, sort of, you know, normal business running around 300,000,000. We went in with a budget this year of 350. And, you know, we're just being prudent. So I think in the next couple of quarters, I think the prudent thing to do is to lock you know, not stop anything that's important for the longer term, but just just press the pause button. That's really all we're doing.
If the world suddenly starts to recover in this magic v shaped recovery, some people are talking about actually happens, we'll open this figure. But I suspect it prob that probably won't happen and a bit of caution around that. $250,000,000 is still five, six I think 5% of sales or 5.5% of sales. It's not a small number. So I think it's we're certainly not not disinvesting in the business or not proceeding with projects, but we're just being more cautious than we otherwise might have been.
Sure. And you're a company that generally refrains from giving guidance of any sort. So I was struck by your comments on Slide 16 about 2021 is unknown, but you expect it will be better than this year and then you expect your 2022 earnings to exceed your 2019 earnings. Can you just talk to me a little bit about why you included that in your presentation and what Well, we've been asked a lot about it, Adam.
A lot of investors have asked us about that. People in particularly our Canadian investors who've known the company a long time, a lot of them have compared the situation back in 2009 and asked us questions about what happened back in 02/2009, how did you do, how did you fare in the last recession. We just we just put in the facts as we see them. So this that's actually what happened and so everybody could see it. And I think we've always said we're we tend to be first into these things and first out, and I think that that slide demonstrates that.
You know, we had 9% growth rate organic growth rate in the year of 2010. Not many companies were able to do that, but we did. And, you know, I would expect the same here. You know? So when when things begin to recover, we'll be one of the first companies to to feel it, and that's why we we put that slide in.
I I I think the forward view is really to demonstrate we think this difficulty will last, I don't know, six quarters, eight quarters, maybe maybe even a lot longer. But it's not a I don't we're not believers in a v shaped recovery. I mean, that's not what we're that's not that's not on our planning horizon. It's it's a u shape, and we don't know how deep the u is. So that's our best guess at the moment.
Pretty unlikely we'll get back to where we were in 2019 before 2022.
Yes. Understood on all accounts. In terms of the sales progression in the quarter, I'm just organic sales were down 2.8%. CCL was down little less than 1%. Can you just talk about how sales trends progressed during the quarter and then into April
The as big well impact as was all in March. The big impact was all in March, largely China driven.
So we had I'm sorry. Go ahead, Jeff.
Yeah. So in in in in in really is COVID happened in in in China in in February, and the plants got shut down. So we had pretty much a month off in China in the month of February. And then in the March, most of Europe went into the same predicament. So that's really where it where it all came from.
I guess the gist of my question was, on the last call, you thought earnings would be down year over year in the quarter, and they were actually up. And I know incentive comp came down by $3,000,000 or so. But I'm just wondering what was it CC? Was there a pantry loading that know, electronics buying and all that stuff? Yeah.
Yeah. We had two good businesses that did really well. Health care and specialty did well. CCL Design Electronics recovered very well in March, much better than we thought, driven by demand for IT peripherals. So so we had to close down in February, but in March, because of demand around the world for laptops, printers, all kinds of computer peripherals, We saw a pretty heavy demand in March, and I have seen it again in April.
Yep. And just one last one, Jeff. I know you asked earlier about China, but I wanna ask again. So China was the first into this, and they were the first out, well, kind of the first out. Know Wuhan has had a reoccurrence.
But what are you seeing in China that informs you about what you expect to happen elsewhere with respect to how quickly or slowly you would expect these other regions to Well, come out of
what we see in well, first of all, all of our plants are running. You know, we have no we have no supply chain interruptions of any shape, way, or form in China today. Everything is operating normally. So that's the first comment I'd make. CCL Design Electronics business that operates there sells you know, our customers there sell a portion of their product in China.
80 to 90% of what they make there gets exported around the world. So you have to sort of think about that. Right. So the the domestic business we really have is home and personal care and food and beverage label businesses. They are still both running below where they were in the in the in the second half of last year.
So it's recovered, but it hasn't recovered to to where it was. And and and it's particularly at the premium end. So so, of course, people are still buying shampoos. Of course, they're still buying deodorants, but sales of luxury skincare products, you know, not what they were. So if you look at the results of LVMH and Estee Lauder and these kinds of companies and you think about the products at L'Oreal and P and G, which they call Mastige, product lines that compete with those, and those sales in those areas are not doing too well.
Thanks. And last, do you expect that to change anytime soon just based on whatever it is you're hearing from your customers seeing in terms of traffic patterns? Anything along those lines?
I don't hear any many of our customers wildly optimistic about, you know, things, you know, reacting like an elastic band. And most of them are saying this is gonna go on for quite a while. Is it improving? Yes. How quickly is it improving?
Very slowly is the answer.
Thanks so much, Jeff.
Yeah. No problem.
Your next question comes from the line of Michael Glynn with Raymond James.
Morning. Jeff, just in terms of reading about a lot of the shift in consumer business to online, can you talk about how that may impact the various segments and your selling?
Well, don't think it has a lot of impact, to be to be frank. It's I think what the world has realized is how important retail stores are. Yeah. Yes. Buying online is something that you can do.
Yes. There will be more of it. Yes. There's been more of it in the crisis. Of course, there is.
Does it replace the need to have retail stores? No. It doesn't. I I think what we've seen by this crisis, it reinforces the concept of omnichannel retailing. And we have seen some companies attempt to recover their business by moving from the the brick and mortar world to the online world.
I haven't seen any of them able to replace the volumes they had in the in in the online world from from their brick and mortar stores. But, yes, they're selling more online than they did before, but the brick and mortar stores are still very important. So we haven't seen a a huge impact from that, to be to be honest with you. Some on the margin, but nothing strategic.
And and any any specific commentaries related to that large HP home and personal care business that that are worth highlighting?
In what in what respect?
Well, some of those you talked about some of those soap or shampoo type products. Is there any
Yeah. There there people aren't getting their their shampoo from Amazon, Michael. They go into a store and buy it, and that's what we're seeing. So, you know, the what we're seeing in home and personal care that's changing is about 25% of our business is sold in travel retail stores, mall stores, hair salons, stuff like that. You have to remember our HPC business includes our aerosol can business and our shoe business, which is around 40% of the segment.
And that 25 of it is focused on those sort of retailer specialty retail channels is materially impacted. So the other 75%, we're seeing some growth from more hand sanitizers, more more hand hand cleansing soaps and things of that. I think sales of shampoos and deodorants are just sort of steady Eddie.
Okay. And then can you remind us back to school within Avery, how much that represents of the actual business?
We don't ever disclose that, but the Avery business is 750,000,000. If you look at the last few years, it should be pretty obvious how much back to school is.
Okay. And then just one clarification. In the presentation, you described FX as a headwind. In the press release, it was described as a tailwind. Just wanted to get a clarification there.
Yeah. Headwind in Q1, tailwind in Q2.
Tailwind in Q2. And do you guys have any sort
of currency? It's It's a cent. I mean, you saw what it was in Q1. It's not material.
And and do you have any sort of currency sensitivity to US dollars?
Material. It's not material.
Okay.
One one second in the first quarter, and I I don't think it'd be much different. In in the quarter coming ahead, it's gonna be on the margin. It's not material. It's just moved slightly the other way. So we're in so many currencies.
Difficult to see it move one way or another. So the US dollar is so there was a collapse in the US dollar. That would have a material impact on us because we I think we're over half our revenues in in the company worldwide are in U. S. Dollars.
So that's the currency that has that changes the needle.
Got it. Thanks for taking my questions.
Thank you.
Your next question comes from the line of Scott Fromson from CIBC.
Morning. Most of the ground has been covered, so I'll just ask a couple of questions on acquisitions. Are you going to look for bargains?
And do you have your eye on any particular targets?
Well, I think you have to bear in mind, if you if you're a company like us who's already always talking to people who want to sell their companies and some of those discussions were at an advanced stage in, say, December or January, and then and then the COVID happens, you could imagine what then happens to that process. It tends to the pause button tends to get hit. And we've certainly seen most of the projects we were working on hit the pause button because if you're the seller, why would you why would you want to deal with us turning up and saying, well, if COVID's happened now, so I guess what's happened to the valuation and so on. So I think, you know, things that were in process are difficult to continue due to that factor. Are we now a more active buyer than we otherwise would have been?
Absolutely. But I I you know, I think people set are also very conscious in the current environment, and it's also a difficult time to sell. But are we looking at things? Do we have a couple of things on the go right now? Yes.
We do. But I don't I don't I don't I I'd be very surprised if anything would move the needle in the, you know, in the coming quarters. Okay. Thanks. I'll leave it at that.
Yep.
Your next question comes from the line of Walter Spracklin with RBC Capital Markets.
Hi, good morning. This is Ryall Stroud calling in for Walter. Thanks for taking my questions today. Just had quick question on decremental margins. I was wondering maybe you can provide some color on what those look like for Checkpoint and Avery and maybe how flexible is the cost structure in those segments?
We're not gonna give you any indication about decremental margins. We don't do that. But but we we certainly are taking cost cutting measures at the moment to improve the p and l short term. You know, we've got we've got, you know, a few thousand people affected in furloughs and short time working programs. They are generating short term savings in the $5.06, $7,000,000 a month range, something like that.
Okay. So
there's That's a detrimental impact on the mix of we're in too many businesses to be able to do that quantify that in any meaningful way for you.
Okay. Yes. No, that's helpful. And one last quick one for me. I noticed a slightly more negative tone in food and beverage this quarter.
Is this because the initial surge in grocery purchases started to fall away and now maybe you're feeling a little bit more of the restaurant closure impact more intensely or Yes.
I think you might want to have a look at the investor releases from Heineken and Coca Cola and companies like that are all complaining about double digit drops in their volumes. I mean I mean, significant double drops in their volumes due to the on premise demand disappearing. So bars, cafes, restaurants. So if you're selling beer or soft drinks into that environment, demand there is zero. And the the the the the increased demand that happens at the grocery chains is nowhere near enough to make that up.
Okay. That's great. Thanks. I'll pass the line.
No problem.
Your next question comes from the line of David Medfagan with Cormark Securities.
Hi. A couple of questions. I I was just looking at your q two sort of guide on revenue. And to get to that number, I'm just kinda doing back of the envelope calculations here. It would seem to me that, you obviously, you're gonna have a big decline at Checkpoint and Avery, but it would seem to me that CCL is probably also gonna be down a little bit as well.
I was wondering if you could comment on that.
No comment.
Okay.
And then when you when you talk about a u shaped recovery, I guess I guess I don't know what's guiding your thinking, but I would imagine that probably just your outlook on Checkpoint and Avery would would probably indicate to you, or is there some other factors that I'm that that you're thinking about that would lead you to to believe that?
Read the newspapers.
Okay.
Alright. That's it for me. Thanks.
K. Thank you.
I am showing no further questions at this time. I would now like to turn the conference back to Mr. Jeff Martin, President and Chief Executive Officer.
Okay, everybody. Thank you very much for joining the call today. It's a momentous one for sure, and we'll look forward to updating you in June of that investor event I mentioned. You'll get a press release on that in due course, and we'll talk to you again in August of our Q2 review. Thank you very much.
Bye bye.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day. You may all disconnect.