© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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. The moderator for today is Mr. Donald Lang, the Executive Chairman and joining him are Mr. Geoff Martin, President and Chief Executive Officer and Mr. Sean Washchuk, Senior Vice President and Chief Financial Officer. Please go ahead, gentlemen.
Well, good morning. Thank you, operator. We're starting a little earlier this morning. Our call has, the last couple of quarters, has gone on a little bit longer so we had some input back to maybe start a little bit earlier so everybody has a chance to get back to their desks and provide the information to the investors. So we're starting a little earlier so thank you for joining us. We still have a really good turnout. We're reporting a very strong first quarter. As you all know, our presentation which we'll be referring to is on our Website [firstly] this morning at CCLIND.com. So just under the Investor tab you'll see Investor Presentations and pick up the first quarter, our presentation. Same format as we've had before. So, I'll turn it over to Sean Washchuk to start us off on the presentation.
Thanks, Don. I'll draw everyone's attention to Slide 2 of our presentation deck, our 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 2017 annual report and management discussion analysis particularly under the section risks and opportunities or risks and uncertainties.Our annual and quarterly reports can be found online at the company's Website, CCLIND.com or on Sedar.com. Turning to Slide 3, the first quarter of 2018 was another solid quarter for CCL Industries. Sales growth excluding the impact of currency translation was 15% to $1.23 billion compared to $1.06 billion in the first quarter of 2017. The growth in sales can be attributed to organic growth of 3.4%, 1% positive impact from foreign currency translation and 11.2% from acquisition-related growth, primarily the Innovia acquisition.Operating income increased 26% excluding the impact of currency translation to $200.6 million for the first quarter of 2018 compared to $158.9 million for the first quarter of 2017. Geoff will expand on the segmented operating results of our CCL, Avery, Checkpoint and Innovia segments. Please note we changed our segmented reporting this first quarter. The label or the legacy CCL segment will now include the results for the container segment.The first quarter of 2018, restructuring and other items was an expense of $3.3 million primarily for severance cost associated with the Checkpoint segments restructuring plan. Restructuring and other items are $7.4 million in the 2017 first quarter were associated with the Checkpoint restructuring initiative and transaction costs associated with the Innovia acquisition.Net finance expense was $19 for the first quarter of 2018 compared to $14.6 million for 2017. The increase in net finance costs is primarily related to the increase in outstanding debt to fund the acquisition of Innovia in February of 2017. The overall effective tax rate was 26% for the 2018 first quarter compared to 29.3% rate in the 2017 first quarter. The reduction in the effective tax rate of just over 3% is largely attributable to the U.S. tax reform in the tax cuts and Jobs Act. Net earnings or the 2018 first quarter was $118.7 million compared to $87.8 million for the 2017 first quarter.Turning to Slide 4. Basic earnings per Class B share were $0.67 for the first quarter of 2018 compared to $0.50 for the first quarter of 2017. Adjusted basic earnings per Class B share were $0.69 for the 2018 first quarter compared to adjusted basic earnings per Class B share of $0.57 for the first quarter of 2017. The adjustment to the 2018 first quarter basic earnings for Class B share included a $0.02 increase from restructuring and other items.The improvement in adjusted basic earnings per share to $0.69 is primarily attributable to the improvement in operating income of $0.13, tax related items of $0.02, positive impact of $0.02 from translation, partially offset by $0.05 increase interest expense and corporate costs. Turning to Slide 5, the cash flow for the 12 months ended March 31, 2018, free cash flow was $461.9 million, an increase of almost $130 million compared to the last 12 months ended March 31, 2017. This reflects the improved operating results, improvement in net cash working capital and the timing of capital expenditures for the comparative years. That being said, net capital expenditures were $270 million for the same comparative trailing 12-month periods.Turning to Slide 6, a cash and debt summary, net debt as of March 31, 2018, was $1.86 billion, an increase of approximately $82 million compared to December 31, 2017. The change in net debt from December 31, 2017, reflects the impact of foreign exchange rates that were in effect on the respective reporting dates resulting in a translated increase in total debt. Net debt was also impacted by a reduction of cash on hand reflecting the normal seasonal pattern in our companies working capital.We ended the first quarter of 2018 with a net leverage ratio below two times, therefore our bank revolving and term facilities will continue to incur interest margins of 120 basis points. The company’s overall average finance rate was 2.8% at March 31, 2018, broadly in line with the 2.9% average finance rate at December 31, 2017. On March 30, 2018, CCL secured a new U.S. $100 million short-term bilateral term loan at favorable interest rates to aid in the financing of the Treofan acquisition. It's our expectation that this loan will be repaid by the end of the year.Finally, just after the quarter end in April, we successfully closed our initial unsecured Canadian $300 million, ten-year maturity, 3.864% interest rate bond offering. These proceeds will be used to reduce Canadian dollar drawn debt in our revolving credit facility. Geoff, over to you.
Thank you, Sean, good morning everybody. I'm on Slide 7 highlights to our capital spending so far for the year; $109 million, a little bit less than we had budgeted. We're forecasting this year $325 million in expenditures, excluding the new line of Treofan which will come into play in the second half of 2018 as the deal closes.Slide 8 highlights the CCL segment which now includes, as Sean mentioned, the results of our container operation; 3.8% organic sales growth for the quarter, somewhat impacted by the number of shipping days in Q1 to shipping days less than prior year around the calendar and the timing of [when] Good Friday and that probably accounted for a point and a bp of the organic sales growth for the quarter.Gains by region; North America and Europe up low single digits, Asia up mid-single digits, Latin America up double digits. And as we already mentioned, we had an exceptional quarter at our CCL secure business which augmented the margin for the quarter as you can see there a little above our typical run rate for this time of year.A bit more color for you on Page 9 on the various sub-segments in the business. Home and personal care sector was pretty robust for the quarter, good results across the board. Labels, tubes and aerosols from the container business. Healthcare and specialty was flat, international results offset declines in North America, much of that in the generic drugs business. Food and beverage was strong again (inaudible) experiencing closures, a little slower in labels, [glass] and [PET] bottles. CCL Design is worthy of a little bit more color. Electronics end markets were quite soft in the quarter compared to the boom period we had in Q4 last year and the weaker U.S. dollar also reduced the profit margins there. We sell to most of those customers in U.S. dollars. Automotive results improved modestly, growth rates certainly have plateaued in North America and the rate of growth is reduced somewhat internationally.As I mentioned already, CCL secured an exceptional quarter. To give you an idea of how exceptional, the reason why we use that word, we probably did close to two-thirds of the budget for the entire year so it was really a very strong result; very good operational improvement and I'll give you a bit more color in the outlook comments about Q2 2018 versus Q2 2017 where we'll face very difficult comparisons.Results of our joint ventures on Slide 10, these no longer include the results from our Chilean operation which is now in the consolidated numbers, it was in the prior year numbers here that's why those sales numbers are down. Strong quarter in Russia, actually a record quarter in Russia, despite the weaker ruble. Modest growth in the Middle East [flat really] around the introduction of [BAT] in the United Arab Emirates. CCL [Core senior] venture is still in start-up mode and Rheinfelden venture is temporarily closed as a result of the impact of the wildfire.The numbers for Avery, I think we mentioned on the quarter last year we were a bit concerned about Q4 numbers were impacted by the results of some forward [buying back] to a few of our larger customers as a result of our January 1, 2018 price increase, probably moved about $6 million in revenue from Q1 into Q4 and about $3 million in profits, something like that. But this came on top of a very softer quarter in the superstore and also channels in the U.S. offset by modest gains in mass market and strong direct to consumer growth. International results are very solid, also impacted by use of timing and our direct to consumer acquisitions continued to outperform.Page 12, very good results on the Checkpoint and really exceptional sales growth driven by two large technology rollouts at large retailers. About $20 million in revenue for the quarter impacted by those two situations so even without that there was very solid growth in the base business and despite Easter timing, Europe is the largest region for this business.(Inaudible) was also up mid-single digits, another business that was held by the transactional challenges with a weaker U.S. dollar as the number of customers in that space buying U.S. dollars in foreign currencies, in foreign jurisdictions. We spent $37.4 million of our $40 million restructuring plan on this business and we will [wrap] up the program in the coming quarter.Innovia on Page 13, solid sales [staff] and improved performance over the soft Q4 was a little bit less than our planned results, largely driven by the weaker U.S. dollar on the impact of exports out of the U.K. and we also had a supply interruption at our large U.K. plant due to a power outage there which impacted profitability particularly in the month of March and that's also continued in the month of April.Resin increases have moderated, not running at the rate they were in 2017 but they've still been escalating somewhat in the quarter and the current price of oil doesn't give us any optimism about relief during the year of 2018. Page 14, a summary of all of that. So a lot of pluses here, so a very solid quarter, very pleased with the results; pretty good all around.So outlook for the coming quarter, on the foreign exchange, I think it's pretty nominal at today's rates. Maybe a month ago we would have said it would have been a slight tailwind but at today's rates with the U.S. dollar picking up and the euro weakening a bit, it's probably pretty nominal and we'll see what happens in the months of April and May. We do face this very tough comp at CCL driven by the timing of the CCL Secure orders. Just to give you a rough idea of that, it's -- we start the quarter with about a $13 million EBIT headwind just in that business. So that's to give you a frame of reference for the difficulty of the comp. Checkpoint gains will narrow in Q2 as these technology rollouts [of key customers completely] expect that to happen in the next month or so.The startup of the Avery back to school season, we do expect the season in total to be somewhat below last year on continuing giving up share in the low margin binder business. Whether it starts late June or early July is always a guess and we wouldn't like to comment on that but just pointing it out for those of you who are modeling, it could be late June, it could be early July. We'll only know the answer to that when the quarter closes.Treofan transaction is unlikely to have any impact at Innovia. We hope to close but it will be late in the quarter so impact on the quarter Q2 will be nil to negligible. Resin challenges of course continue and we will have lower tax rates. So with that operator, we'd like to open up the call for questions.
[Operator Instructions] And our first question comes from Adam Josephson with KeyBanc.
Geoff, just one on resin, you talked last call about the Innovia business having experienced a $37 million drag last year on a full-year basis from higher polypropylene costs, right, and your expectation was you'd be able to recover some of that this year. Can you just walk us through your updated thoughts along those lines just given what you said earlier about your expectations or polypropylene?
Yeah, so we've recovered some of it and that's why the quarter was better than it was in Q4 but the problem is, if it keeps rising, you know, we're still in the jailhouse. So, we're still somewhat under water on resin, you know -- so I would say we probably caught up just to give you a rough idea, we're probably caught up with cost increases through Q3 last year at this point, so something like that. And because there's some of our customer contracts have 90-day pass-through, some of them are six-month pass-through. So I'd say what we -- the first nine months of last year we probably fully recovered at this point but Q4 increases we certainly haven't done in Q1 and then we've had further resin increases in Q1. So we're still quite a bit under water.
And just to be clear, for 2Q, do you expect a resin drag or resin benefit compared to a year ago?
A resin drag.
Okay, okay. Just a couple on the sales side. The 3.8% organic growth in CCL, how much was price versus volume?
Well, it's a label business Adam, so we don't measure the number of labels we sell because whether they're big, small or somewhere in between unit volume is pretty irrelevant in that space. But I would say there's almost no price in there. It's really all revenue -- it's really all organic growth, very little [price]. A little bit in our aluminum can business because aluminum has gone up so much but it's a relatively small part of the segment. So I'd say there's very little price in there, a little bit maybe but not much price.
And you mentioned you experienced continued stronger growth in Latin America and Asia Pacific than you did in the developed markets. Not surprisingly, we've seen the U.S. dollar pretty meaningfully strengthen in recent weeks against several emerging market currencies which can sometimes portend not so good things in those emerging markets. Can you just walk us through what you're thinking about what's happening in emerging markets these days and whether you're expecting any slower growth in emerging markets in months to come?
Yeah, well it's a mixed picture. So I would say -- China is considered by most people to be universally strong; kind of a notable exception for us in that part of the world is the electronic space. So, we saw quite a tail-off of production needs out there for consumer electronics so -- but that aside, China is still very strong for us. Southeast Asia is pretty mixed, so some countries it's okay, some countries it's not. Latin America, we've seen the beginning of some recovery in Brazil and Mexico is still very strong for us. So Eastern Europe a bit mix, Russia is -- we had a record quarter there so Eastern Europe is sort of the -- not bad, so somewhere in between.
Okay. And just on the last call, you talked a little bit about kind of where we are in the cycle and that's been a subject of increasing discussion among investors. What are your thoughts nowadays and how, if at all, is that affecting your capital allocation strategy?
Well, we invest for the longer term, not for the short-term. So, I don't think it's affecting capital allocation in terms of capital expenditures. You know, we certainly would be doing large transactions at the top of a hill at very high prices, probably not terribly interesting if you know 90% of the good [news] is already in the bucket. So, it's certainly impacting our thinking around that somewhat. But on the -- in terms of what we're investing in organically in the business we do that for the long-term anyway.
And our next question comes from Mark Neville with Scotiabank.
Just first on the security. I think you said two-thirds of the annual budget in Q1. Again, I thought this was about $200 million roughly annual business so --
Not -- EBIT, not revenue.
Okay, so you're not -- okay. So is there -- so you're not telling us if there's going to be three weak quarters is what I'm trying to get at?
I'm sorry, I didn't catch that Mark.
So you're not trying to suggest that the next three quarters would be weak, it's just that Q1 was exceptionally strong?
The next quarter -- last year we had a very large launch for a major country, you know, which will not repeat this year. So that's really the comment about Q2. So we had a huge launch period in the months of April, May and June last year for one country in particular and there's no repeat of that this year and the impact of that is $13 million of EBIT.
Okay, but that was just a Q2 event last year, right? Q3 was a bit weaker if my memory serves me.
Q3 I think will be up this year on the soft Q3 we had last year.
Okay. And just on the Innovia, the films, just to be clear, again, presumably you'll catch up on some of the resins or the rest of the resin if we get some stabilization in pricing. So we --
Yeah -- stop going up. I mean, that needs to stop going up and you need a period where it's either not going up or going down so these prices -- the price benefits to come through and we haven't had a month where it hasn't either gone, you know, flat or up a little or a lot. So, at the moment it's been drinking from a fire hose and if you look at what's going on in the markets with the price of oil, it's -- there's not much good news around.
Okay, but again, just sort of based on the math, I mean, we should see some sequential improvements in the coming quarters, again, as you're catching up.
I don't think so, no. I don't think so.
And our next question comes from Maggie MacDougall from Cormark.
So just wanted to ask if you were able to give us some information around the Easter timing and the impact that that had on your various segments with [the rest] or organic growth in Q1?
Yes, it really hasn't impacted mainly in the CCL segment, it's maybe a point and a bp of organic sales growth.
Okay.
If Good Friday had fallen into April as it normally does, I would say Q1 growth with CCL would have been 5% or thereabout.
Okay, and then just maybe a bit of a broader question. So, I mean, we've been hearing a lot about inflation of labor costs and raw material costs in a number of different industries. Wondering if you can comment on what you're seeing in your business and what kind of pricing power you believe you have to offset that over the coming months?
So, so in -- well, you're right. I mean, it's -- inflation for us has been very much focused in two areas of the business. So, it's really been around the move of aluminum upwards so in the month of April alone it jumped 15%, 20% just in a month. So, it's clearly -- there's clearly upward trajectory in a lot of these kind of commodities.So in our can business we've got very good pass-through arrangements on that through to customers now so the impact there is very short-term. We get those price recoveries pretty quickly. Probably in resin we've got about -- in the rest of our business it's pretty modest and I know there's a lot of concern in some sectors about freight costs but we're not a very freight intensive business and most of our customers, particularly in the United States pick up from us anyway. So, freight for us is not a really material item and direct labor we haven't seen any huge impacts around inflation in wage costs and things like that.
Okay, okay. That's great. And then just one final question on the Innovia division, so obviously the expectation there is for resin costs to remain elevated just given your comments around oil. I'm wondering, there was a couple of other things that impacted the margin in that division this quarter being the dollar and then also the outage. And so are you able to give us a bit of an idea of how meaningful each of those three impacts were to --
Well, like I said, the U.S. dollar -- there really -- is the most meaningful, it was about $2 million bucks for the quarter.
And our next question comes from Stephen MacLeod with BMO Capital Markets.
I just wanted to circle in around on the CCL segment, I was wondering if you could just discuss a little bit about your organic growth outlook. It sounds like most segments held in quite well in the quarter?
Yeah, well I think this -- two of them are firing on all cylinders. That's the home and personal care space. So we were -- and the food and beverage space. We were up high single digits in both of those for the quarter. So the ones that are a bit softer are CCL design which was kind of flat and the healthcare and specialty space also kind of flat and then obviously it was very good in CCL secure, that was all acquisition growth in the current quarter. As we go into Q2, the CCL secure impact will be bigger because obviously that's all organic now and we'll have the tail-off with the comparison with the last year.
Right, and just on CCL secure, can you talk a little bit about what that would have contributed in the quarter in terms of the top-line as well as what it would have done --
I don't want to get into any numbers about how much money we -- I think we've given you an indication about the headwind for the current quarter in Q2, it's about $13 million, that's about all we want to say.
Okay. Okay, that's fair. And then turning to Checkpoint which had a nice quarter in Q1 driven by these rollouts, do you have visibility into a pipeline of business for further rollouts as you head into 2018, 2019, just trying to get a sense of --
Well, we do but I wouldn't -- we're not in the promises game. I think if they happen we'll tell you about them when they happen. We gave some pretty clear indications in Q4, we've taken two large contracts and you've now seen the benefit of that. If we close anymore we'll certainly tell you about them when we close them but there's always a pipeline of these things and how many of them cross the road and when they cross the road it's just a speculation.
And our next question comes from Michael Glen with Macquarie.
Geoff, just on the European business, it's highlighted as [comping] sort of low single digit in the quarter, is that predominantly a result of CCL design [comping] lower in the period?
Really a result of -- obviously the Easter timing impact, it's much bigger in Europe than it is in the United States, so it's really around that.
So like if I look through last year, this business was [comping] --
[I've just] answered your question. So it's a point and a bp for the whole company but obviously in Europe it's a lot more than that so you've got two less shipping days in the quarter and when -- if the Good Friday week falls in March it's always a short week. So that's really the main driver.
Okay, and then just to go back on organic growth at CCL label, I guess there's been some emerging conversations around some of the growth at some of the global consumer package good companies. If you could -- like what are they communicating to you in terms of what they're seeing in their business?
I would say if you look at the underlying results of most of them, the staples business -- so sort of [need to] everyday items, you know, shampoos, conditions, fabric softeners, sort of everyday items sold in all forms of retail kind of low to slow growth. But then -- except in emerging markets. So a different picture in emerging markets but when you move into anything with a premium or luxury cachet then it changes. So (inaudible) released a 6.5% sales growth this morning but they're in the skincare category, almost exclusively and have attracted high growth. So -- and if you look at many of the results in the personal care sector, so the more the products were sort of cosmetic skincare with a premium cachet, they were growing at a pretty significantly faster [clip] than sort of everyday staples type of items. So that's kind of what we see. So, stronger growth in the emerging markets although a pretty mixed picture and brands that have a premium cachet doing better than brands that sort of [lead] to everyday type of stuff.
Okay, that's helpful. And then just Avery, if we look through the full year, I know it's tough for you to give guidance but how -- like the sequential volatility in the organic growth there I guess it's going to bounce around quite a bit?
Yeah, I expect it will be pretty similar to last year so I expect we'll have -- last year we had the same phenomena as this where we had a down first half and a better second half. I expect it will look pretty similar this year too and you know, it is what it is. So, I think we're all surprised with the EBIT [margin] we made in Q4 last year but it's pretty obvious now why that occurred and I think we'll just have to wait and see how it pans out. But -- so I would expect it to be pretty similar track to last year so I think the first half will be lower than the first half this year and chances are the second half will have some kind of bounce-back but we'll have to wait and see what happens.
And just one final one. Did you guys -- sorry I missed it, but did you update your capex outlook for the year?
Yes, so $325 million is -- it's on one of the slides, $325 million is the number for the year and plus whatever Treofan has left to spend on that new extrusion line in Mexico after we close the deal. So we won't know that number until the deal is closed. But if I were guessing I would say $25 million to $30 million on top of the $325 million, something like that.
And our next question comes from Scott Fromson with CIBC.
So on the Checkpoint, you mentioned the two large contracts coming in at around $20 million of revenues. Are you able to talk about how that business came in versus target operating margins?
Much higher.
Much higher, okay, that's great. And so you're seeing operating leverage?
Well, when you do these technology rollouts, I mean on the flat part of the business the cost is all fixed. So it's RFID people and sales and marketing people and field service and all of that. So, you know, if you get a lift of revenue to that extent when you have 16.8% organic growth rate in three months, it obviously has quite an impact.
And just a quick final question, are sales and margins for RFID and other consumables in that business coming in where you're targeting?
A little higher.
And our next question comes from Ben Jekic with GMP Securities.
I have 2 quick questions; fairly qualitative on the CCL design on the technology. It seems like there's some softness but is this not just seasonal, we just had sort of holiday season which is usually robust --
No, we don't like to think that but I think if you look at the results of the automotive industry, it is pointing to things plateauing out and that's in that space, outside of China. So, if you look at the results of all of the big global automotive groups in the U.S. you've got Ford exiting the car business and so certainly production builds in the U.S. are not a source of optimism.Europe is a little better but it certainly doesn't have the growth rates we saw in the last two or three years. So that's the picture in automotive and we're small in China which is the market that's on [fire]. So, our Chinese position is relatively small and we plan to do something about that but today we are where we are. And then the electronic space is I think a lot of the consumer device guys built a lot of inventory and have been not producing anywhere near as much as they did in the second half of last year in Q1 which is seasonally typical but the drop-off this year has been sharper than it was in 2017.
Okay, and then just longer term to the extent that you want to talk about it on Checkpoint, I think when you acquired that business you said that over the next several years you would, if I'm not mistaken, see -- you would see the margin profile or margin potential from Checkpoint sort of similar to CCL label. We're still behind that. Where do you see that spread starting to shrink over the next couple of years?
[Don't think] I'm going to comment on that but you can have a look at the Checkpoint slide for yourself and decide your own opinion but I'm not going to get into a comment about what we think is going to happen to margins there over the long-term. I think we've already -- we don't see any reason why it shouldn't look like CCL over time and you can see the gaps closing quite rapidly.
And our next question comes from Elizabeth Johnston.
In terms of the corporate spend this period, it picked up meaningfully from Q1 last year, could you comment on any -- some of the items in that category which would have accounted for the large increase year-over-year?
The majority of that increase in the corporate costs is resulting from an increase in equity based compensation. So, the rise in our share price over the last five, six years, how we expense our stock options and other equity costs has increased. So that's driving the majority of the corporate cost increase.
Okay, great. And going back to organic growth on past calls you've talked about the long-term outlook of 3% to 5% organic growth in what is formally the CCL or the label segment. Now that those are -- that's combined with container, do you see any reason to update your guidance there?
I mean, container was actually pretty -- actually above the average for the quarter we've just closed, so it didn't have a negative impact at all and I expect that will be the case in Q2 as well. So as we get into Q2, I think you'll see some -- it will be a slow quarter for sure on the CCL side because we'll have the impacts of the organic impact of a slower CCL secure Q2 than last year, that's probably going to be something like $15 million, $20 million in revenue and over [$10 million, $13 million], [$12.00] in EBIT, something of that order and so that's the headwind we face going into Q2.
Okay, great. And in terms of M&A, you've obviously highlighted the strong pipeline opportunities. Do you have any priority with respect of segments of where you see the strongest opportunity be it Innovia or some other ones for M&A going forward?
Well, I would say in Innovia having given what we've got, we've now got a position on both sides of the Atlantic Ocean. I don't think there will be anything going on there until we have better results from the combination of Innovia and Treofan and we'll see how that transpires over the next year or two before we will do anything adventurous there so it's more likely to be bolt on transactions in the CCL space and also at Avery. And over time also at Checkpoint.
And we have a follow-up question from Adam Josephson with KeyBanc.
Thanks, Geoff and Sean. Just one on Innovia and then another one. Just on Innovia, Geoff, correct me if I'm wrong. So you expect resin to be a drag year-over-year, right, in 2Q?
Right.
And you had that power outage in the U.K. that continued into April, is that right?
Yeah.
So could you give us any kind of help in terms of your expectations --
I think when Mark asked will there be any sequential improvement in the quarter I would say the answer to that is no. Could it below Q1? I think the answer to that is quite likely.
Got it and thereafter Geoff, it just -- given your resin expectations, do you have any reason to expect up in the back half?
Not today. So -- I think the problem we have Adam is we'd like to tighten the relationship between resin and the [price]. They do have mechanisms but the timing is -- are the not speedy and obviously if we tighten them now, I mean customers don't like these things changed in a rising market but also if you tighten them now, when the curve goes the other way, you give back again what you've just swallowed. So, the right time to be making adjustments to customer contracts is when you're in the down curve, not on the up curve or the bottom of the down curve would be the ideal time. So that's kind of what we're waiting to do. We've done that successfully in our [can] business, I think we'll do it successfully in this business too but you've got to pick the time to do it and it's certainly not in a rising market. It may be nearing its peak at some point by the end of this year and long-term view on the price of all of these commodities is down rather than up, so -- and we know for every rise in the price of oil rapidly followed by a decline. So, we'll need the patience to wait until that occurs before we make adjustments to commercial behavior in the market.
Sure, before I get to my other question, why is your long-term view of commodity prices down from year, just out of curiosity?
I don't know, I think just oil goes up and oil goes down, right? So, you know, the petrochemical industry is volatile. So, if you -- in a period where if you had a long period where it's been rising, it's gone from $20.00 to $75.00 in a pretty short period of time, there's probably going to be an equivalent of that at some point down the road and that will be the time we'll pick to tighten our commercial contracts, not when we're at the top of a curve and then we don't get the benefit of the down curve.
Sure, no I follow you. And just on Latin America, you had double digit growth in the quarter obviously in the CCL business and you talked about Brazil having started to recover but, again, looking at the recent currency moves in Argentina, Brazil, Mexico, I mean the currencies that we can pretty dramatically [of late], does that give you any pause about what's happening in Latin America?
Well, it's not exactly unusual to have currency volatility in Latin America, I mean if you go back over the years I've been going there, I mean, this is peanuts compared to the [past]. So, if you get worried about that in Latin America you better not show up. So to answer it, does that bother us? I think the answer is no, it doesn't.But I think if you look at most of the commentary in Brazil as -- after a number of years of being negative has turned the corner. So Unilever which is, I think, the largest consumer product company in Brazil has now had two quarters of positive growth there and you know, the numbers in the beer industry have been pretty encouraging down there. So I think there are some signals that Brazil turned the corner and Argentina is wrestling with the peso and everything, you know, again business conditions down there are much better than they have been in the last few years.So, I don't -- and Mexico for us has been on fire for a long time. So, we're relatively encouraged by the predictions down there. And if you remember in -- if you go back to Brazil in 2008 and 2009 when the rest of the world was having a problem, Brazil didn't notice it. So the problems in Brazil came -- the hangover came much later than the global financial crisis. We still had very good results down there in those years.
Sure, no. Thanks, Geoff and best of luck.
Thank you, ladies and gentlemen, that now concludes our Q&A portion of today's call. I would now like to turn the call back over to President and Chief Executive Officer, Mr. Geoff Martin for any closing remarks, sir you may begin.
Okay. So thank you to everyone for joining us and we'll look forward to talking to you again in August after Q2. Thank you very much.
Thank you, ladies and gentlemen. Thank you for attending today's conference. This does conclude the program, you may all disconnect. Everyone have a great day.