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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. Geoff 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, Kristen. This is Sean Washchuk. I'll draw everyone's attention to Slide #2, our disclaimer regarding forward-looking statements. This disclaimer has been updated for the first quarter of 2020. 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 Q1 2020 MD&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. Geoff?
Thank you, Sean, and good morning, everybody. I just want to make a couple of introductory remarks about the situation around COVID-19. If you've been born in 1900, by the time you got to 1950, there would have been 2 world wars that killed 125 million people, and the 50 million that were killed in the 1918 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 it 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 lockdown period that's been going on since late -- well, mid-March, really in Europe, late March in the U.S. and all of April pretty much globally, the vast majority of our plants have been operating normally. We have had some interruptions in the Indian subcontinent due to the lockdown there and a couple of our smaller operations dotted around the world. But nothing that I would describe is particularly material. Many people have been working from home at CCL, particularly in our SG&A office functions. Vast majority of those have been working home globally, but some offices that are connected to manufacturers have been operating with skeleton staff. All plants are now operating with strict hygiene and social distancing protocols. Out of our 21,000 employee base, I'm pleased to say only about 20 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 in 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'll take you through the numbers.
Thank you, Geoff. So moving to Slide 3, our summary of financial results for the period ended March 31. In first quarter of 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 $1.3 billion compared to $1.33 billion in the first quarter of 2019. Operating income was $200.3 million for the 2020 first quarter compared to $204.8 million for the first quarter of 2019, a 1.2% decline, excluding the negative impact of foreign currency translation. Geoff will expand on the segmented operating results of our CCL, Avery, Checkpoint and Innovia segments momentarily. Included in the first quarter results was a $3.8 million 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 2020 first quarter, excluding the impact of foreign currency translation, increased 2.6% compared to the same period in 2019. Net finance expense was $17.1 million for the first quarter of 2020 compared to $22 million for the 2019 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 2020 first quarter, unchanged from the 3-month period ended March 31, 2019. 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 2020 first quarter was $126.6 million, up 3.7%, excluding foreign currency translation, compared to $123.6 million for the 2019 first quarter. Moving to Slide 4. Basic earnings per Class B share were $0.71 for the first quarter of 2020 compared to $0.70 for the first quarter of 2019. Adjusted basic earnings per Class B share were $0.72 for the 2020 first quarter compared to adjusted basic earnings per Class B share of $0.71 for the first quarter of 2019. 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 $0.02 of improvement, partially offset by $0.02 for reduced operating income and $0.01 from foreign currency translation. Moving to Slide 5. The first quarter of 2020, free cash flow from operations improved to an outflow of $15 million compared to an outflow of $90.2 million in the 2019 first quarter. This improvement can be attributable to strong noncash working capital and a decline in tax and interest payments for the comparative quarters. Moving to Slide 6, our cash and debt summary. Net debt as at March 31, 2020, was $2 billion, an increase of approximately $323 million compared to December 31, 2019. This increase primarily reflects the impact of foreign currency exchange rates on foreign currency-denominated debt as at December 31, 2019 to March 31, 2020 increasing total Canadian dollar reported debt on the balance sheet. Cash and cash equivalents declined $158.1 million as the funds were used largely to finance the company's investing activities in the quarter, which included 6 business acquisitions. The company's balance sheet closed the quarter in a strong position. Our bank leverage ratio was approximately 1.9x, reflecting an increase in net debt and an increased EBITDA. Liquidity was robust with $545 million of cash on hand and USD 607 million 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 March 31, 2020, lower than the 2.3% average finance rate at December 31, 2019. 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. Geoff, over to you.
Thank you, Sean. So I'm on Slide 7, highlights of our capital spending in the first quarter, $95 million. It's usually our highest quarter of the year for capital projects, and it's the same this year as well. We are planning to reduce our 2020 forecast about 30% to approximately $250 million, which will be $50 million below annual depreciation and amortization. Slide 8, results for the CCL segment. Basically flat for the quarter. Small organic sales decline, 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, very 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 digits. In the business segments, CCL Design Electronics, CCL Secure and our Healthcare & Specialty businesses all had strong quarters. We had modest declines in HPC and Food & Beverage and a significant drop, as you might expect, at CCL Design Automotive. Page 9, results of our joint ventures. They're basically 2 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, beginning of March and will be a full quarter in Q2. But we had good results in the 2 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 were -- they started to decline in March, and our direct-to-consumer sales declined more rapidly in name badges, wristbands and kits 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 closedowns in China, which impacted profitability, and then retailer closures 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 METO price labeling business in Europe was also down high single digit, most of it in March. Page 12, results for Innovia. A 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 have 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 U.K. 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, Healthcare & specialty, focused on over-the-counter medicines, prescription medicines so not surprising there. Having a very good time of it right now, strong Q1. We'll have an even stronger Q2. 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 Q1. 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 & Personal Care, it's about a $1 billion 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, hair salons or cosmetics, not doing so well. So some of our large customers in that space are companies like Bath & Body Works in the U.S., The Body Shop in the U.K., Yves Rocher in France, the Aveda salon chain in the United States and so on. So that's about around 25% of our Home & 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 & Beverage business, we had very tough comps in Q1. So Q1 2019, Food & Beverage is up 16%. So we found that very difficult to overcome given the challenges of COVID. We'll have much easier Q2 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 cafés and bars and so on. CCL Design is another mixed story. Our electronics demand was very strong in Q1 and continues to be so in April. And as you might suspect, automotive is the complete reverse, 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-19 lockdown procedures, so that may well impact demand in Q2. I'll turn now to Avery and Checkpoint, which are the 2 business -- the 2 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 you might suspect, and the kits labels programs are down pretty significantly. Distributed products for printable media, binders and indexes that we sell to distributors in the United States are down significantly. To give you a reference point to 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 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 is very unclear so retailer focus is not 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. Checkpoint, 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 Innovia 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? Only time will tell. So summarizing all that, we would estimate, at this point, our Q2 sales to be down something in the 15% to 20% zone. We hope near the lower end of that range and the higher, but time will tell. I was just trying to give you a rough indication of how we think time -- how we think it'll eventually unfold, 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. We'll be doing that. There'll be a press release about that mid-May, and the event will be held in the first week in June. So we'll go 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 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 in 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. Tone at the top, our Board has agreed to forgo its fees for our May and June meetings. And both Don Lang and myself, we're working for 0 cash compensation during the same period. We're 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 million for 2020, $50 million 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 2007 to 2010. And as you can see, we went -- started to see a problem in 2008, had negative growth in 2009, and then bounced back in 2010. We're a very different company today. 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 $5.3 billion, $5.4 billion in sales, not $1.2 billion. So a very different situation. We are focused on delivering approximately $450 million 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. But at this juncture, we think it'll 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.
[Operator Instructions] Our first question comes from the line of Stephen MacLeod with BMO Capital Markets.
Thanks for all that incremental color on the COVID-19 impact. 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 & Personal Care business. Was that -- has that continued into April? Like -- or was that a pull forward of demand as people were sort of pantry loading and storing up for supplies?
Yes. I think what we saw, Steve, was in the branded goods stuff that goes into Walmart and Targets and the normal retail CVS stores, drug stores, things like that. So hand sanitizers, hand cleansers, things like that, we saw pretty robust demand. What we also saw, though, was a significant change in the higher-end stuff. So cosmetic type products, skin care type products, sun care type products, things that might sell in travel retail. So Victoria's Secret beauty store, a Bath & Body Works store, an Yves Rocher store in France, hair-dressing salons, this part of the business has gone into a very more or less a lockdown. So it's a bit of a mixed story in HPC.
Okay. I understand. And then maybe just turning to Innovia. Off to -- certainly a solid quarter and also 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 in the month of March, you had some of these CPG retailers reporting CPG sales up 40%, 50%. So a definite COVID-19 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. And then maybe just in terms of Checkpoint. 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 followed through or something?
Not really. Not yet. I think what's closed is largely still closed. So my office here overlooks Natick Mall, which is one of the first malls in the United States. It's shut. Closed totally. So the Walmart store has been opened, which is right outside my window here. That's been over all the way through the crisis. So I think things that were open have been open all the way through, and things that are shut, are by and large, still shut. So I think that will be a long, slow grind before that comes back. Apparel manufacturing is running in China, and it's beginning to start back up in -- on the Indian subcontinent. It's never stopped in Europe. Late source from North Africa and Turkey, but it was at a very, very low edge. So 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 us 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 Furaz Ahmad with Laurentian Bank.
Sean, could you maybe -- Sean and Geoff, could you maybe speak to what you're seeing from a demand perspective in China as they start to open up their economy?
Yes. I think in China, we're -- all of our plants are operating normally and did so for the month of March, really. I would say you have to understand what our operations do there. So the 2 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 and people working at home. The business we have in China that's domestic focus is CCL Label, which is the smallest arm of our business in China. So that's also running quite well, but at levels still below what we saw in Q4 2019. 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 looked pretty similar. You have to bear in mind, our label business in China is focused on soaps and hand cleansers. We have a Food & Beverage business there as well that suffered more than our soap and cleansing business, but -- so -- but I would say -- the same thing I mentioned to Stephen, the higher-end products, people are buying hand sanitizers, but they're not buying cosmetics -- anything cosmetic.
Okay. Got it. And I just wanted to turn to Innovia. I know in the 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 curious, what percentage of the business now has pass-throughs in place?
Well, we put in quite a lot of changes. So a significant portion of the business now has price pass-through. And that's why you see the revenue dropping because the volume went up. So you can see there roughly what happened. So a significant portion of the business has priced through passing.
Okay. And some of that is probably...
It's a lag, though. So when you're in a declining market, there's always a lag. So we're benefiting from the lag and you suffer when you -- when it's going the other way.
Yes. So I guess in Q2, you would see probably some sort of 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 could give 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&A front, I 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? Are there any...
Not a priority right now. Not a priority right now.
Your next question comes from the line of Mark Neville with Scotiabank.
If I could just start with the Q2 sort of revenue guide. The Q1 was, all things considered, I think, pretty strong. I sort of read through the qualitative outlook. It sounds -- obviously, there's pockets of weakness, but the core business sounds like it's doing fairly well. Maybe I'm just underappreciating the weakness in Checkpoint and Avery. But can you maybe sort of, in loose numbers, maybe talk about what you're expecting out of the core label or...
Well, Mark, we never gave guidance for the coming quarter in the normal world, so I'm certainly not going to do it now. But I can say that they're materially impacted. Avery, Checkpoint and CCL Design Automotive, those 3 businesses between them are about $1.8 billion 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 Checkpoint's core business. So you can imagine what kind of impact that's having. And do I need to say anything about Automotive?
I cover the space, so I understand. Okay. I guess that as makes a little more sense when I sort of size it up and think about what those businesses are doing. But again...
You need to think there, $1.8 billion out of $5 billion, they're down significantly. That's where the revenue decline comes from. It's all in those businesses. And if you look at companies like 3M and ITW, other industrial companies that sell into the broad economy, you're 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 million. I'm just curious, first, what exactly is adjusted free cash flow? Is there anything in there that...
No. There wouldn't be anything there material. Nothing material.
Okay. Okay. And I sort of hate to try to put you in a spot here, but if I work backwards from $450 million, probably EBITDA in and around $1 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, we're guiding 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 million. That's having an impact. So you have to factor that into your math.
Okay. Okay. Yes. No, it still sounds like a pretty robust number.
Yes. I -- that's what we're focused on. At the moment, we're focused on. As you would expect, 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, Geoff, if I can just ask one more for you. I think last time we were together, last time we spoke, you're probably a bit more conservative than I think most people were. But, obviously, rightfully so. Just curious, as we sit here 2 months later, just generally how you're feeling. Obviously, it's been a tough couple of months, but just sort of general idea of how you're thinking about the outlook?
Yes. Well, I mean, we're -- I mean, I think that we are pleased about, Mark, is 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 our broad tentacles all over the world. So we're very glad that we have done that and broadened the focus of the company. So -- and we're confident about the future, but we know the short term is not going to be easy. And I don't think 2021 will be easier either. I think we're in for 6 to 8 quarters of the kind of things that hopefully won't be as bad as April and May are currently looking, but I expect the recovery will take some time. And I think that the world will dawn on the rest of the world over time. And we're very pleased to see the automotive industry restarting now. So our customers are opening up their plants in Germany and the U.S., and they're already opened in China. But at this point, nobody knows how many cars they're going to sell. So 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 say past and -- but are we confident about the future? Absolutely. And will it -- will this eventually come to an end? Absolutely. Will the world recover? Absolutely. We just want to be there when it does.
Your next question comes from the line of Adam Josephson with KeyBanc.
Geoff, a 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 million number? So was that a tuck down...
Yes. Last year, we spent $350 million, Adam, or thereabout. We did have the big project in Mexico at the Treofan plant that was a pretty big number. So if you pull that out, sort of normal business running around $300 million, we went in with a budget this year of $350 million. And we're being prudent. So I think in the next couple of quarters, I think the prudent thing to do is to lock -- not stop anything that's important for the longer term but just press the pause button. That's really all we're doing. If the world suddenly starts to recover in this magic V-shape recovery that some people are talking about that actually happens, we'll open this figure. But I suspect that probably won't happen and a bit of caution around that. $250 million is still, I think, 5% of sales or 5.5% of sales. It's not a small number. So I think it's certainly 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 -- how you're thinking about those issues?
So we've been asked a lot about it, Adam. Yes. A lot of investors have asked us about that. People, 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 2009. How did you do? How did you fare in the last recession? So 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 tend to be first into these things and first out, and I think that slide demonstrates that. 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 I would expect the same here. So when things begin to recover, we'll be one of the first companies to feel it. And that's why we put that slide in. I think the forward view is really to demonstrate -- we think this difficulty will last, I don't know, 6 quarters, 8 quarters, maybe even longer. But it's not a -- I don't -- we're not believers in a V-shape recovery. I mean that's not what we're -- that's not on our planning horizon. It's a U shape, and we don't know how deep the U is. But that's our best guess at the moment, pretty unlikely, but we'll get back to where we were in 2019 before 2022.
Yes. Totally 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 a little less than 1%. Can you just talk about how sales trends progressed during the quarter and then into April as well...
The big impact was all in March. The big impact was all in March, largely China-driven. Yes. So in -- really, as COVID happened in China in February, the plants got shut down, so we had pretty much a month off in China in the month of February. And then in the second half of March, most of Europe went into the same predicament. So that's really where it all came from.
I guess just 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 million or so. But I'm just wondering what -- was it -- was there pantry loading that -- and electronics buying and all that stuff?
Yes. We had 2 good businesses that did really well. Healthcare & Specialty did well. CCL Design Electronics recovered very well in March, much better than we thought, driven by demand for IT peripherals. 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've seen it again in April.
Yes. And just one last one, Geoff. I know you were asked earlier about China, but I want to ask again. So China was the first into this, and they were the first out -- well, kind of the first out. I know Wuhan is at 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 come out of this?
Well, what we see in -- well, first of all, all of our plants are running. We have no supply chain interruptions in any shape, way or form in China today. Everything is operating normally. So that's the first comment I'd make. Our CCL Design Electronics business that operates there sells -- our customers, they 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. The domestic business we really have is our Home & Personal Care and Food & Beverage label businesses, and they are still both running below where they were in the second half of last year. So it's recovered, but it hasn't recovered to where it was. And it's particularly at the premium end. So of course, people are still buying shampoo. Of course, they're still buying deodorants. But sales of luxury skin care products, not what they were. So if you look at the results of LVMH and Estée Lauder and these kinds of companies and you think about the products at L'oréal and P&G, which they call masstige product lines that compete with those, those -- sales in those areas are not doing too well.
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 things reacting like an elastic band. And most of them are saying this is going to go on for quite a while. Is it improving? Yes. How quickly is it improving? Very slowly is the answer.
Your next question comes from the line of Michael Glen with Raymond James.
Geoff, 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, I don't think it has a lot of impact, to be frank. It's -- I think what the world has realized is how important retail stores are. Yes, buying online is something that you can do. Yes, there will be more of it. Yes, there's more of it in the crisis. Of course, there is. Does it replace the need to have retail stores? No, it doesn't. 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 brick-and-mortar world to the online world. I haven't seen any of them able to replace the volumes they had in the online world from their brick-and-mortar stores. 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 huge impact from that, to be honest with you. Some on the margin, but nothing strategic.
And any specific commentaries related to that large HP, Home & Personal Care business, that are worth highlighting?
In what respect?
Well, some of those -- you talked about some of the soap or shampoo-type products. Is there any...
Yes. People aren't getting their shampoo from Amazon, Michael. They go into a store and buy it, and that's what we're seeing. So what we're seeing in Home & 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 tube business, which is around 40% of the segment. And that 25% of it that's 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 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 million. 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?
Yes. Headwind in Q1, tailwind in Q2.
Tailwind in Q2. And do you guys have any sort of...
It's immaterial. It's $0.01. I mean you saw what it was in Q1. It's not material.
And do you have any sort of currency sensitivity to U.S. dollar?
It's not material. It's not material. $0.01 in the first quarter, and I don't think it'll be much different. In the quarter coming ahead, it's going to be on the margin. It's not material. It's just moved slightly the other way. So we are in so many currencies, difficult to see it move one way or another. So the U.S. dollar is -- so there was a collapse in the U.S. dollar. That would have a material impact on us because we are -- I think we're -- over half our revenues in the company worldwide are in U.S. dollars. So that's the currency that has -- that changes the needle.
Your next question comes from the line of Scott Fromson from CIBC.
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'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 COVID happened, 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 want to deal with us turning up and saying, well, with COVID happening now, I guess, what's happened with the valuation and so on? So I think 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 think people 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'd be very surprised if anything would move the needle in the coming quarters.
Your next question comes from the line of Walter Spracklin with RBC Capital Markets.
This is Ryall Stroud calling in for Walter. Just had a 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?
Well, I'm not going to give you any indication about decremental margins. We don't do that. But we certainly are taking cost-cutting measures at the moment to improve the P&L short-term. We've got a few thousand people affected in furloughs and short-time working programs. They are generating short-term savings in the $5 million, $6 million, $7 million a month range, something like that. The decremental impact on the mix of -- I mean, 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 & Beverage this quarter. Is this because the initial surge in grocery purchases has 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 press -- the investor releases from Heineken and Coca-Cola and companies like that. They're all complaining about double-digit drops in their volumes -- I mean, significant double-digit drops in their volumes due to the on-premise demand disappearing. So bars, cafés, restaurants, so if you're selling beer or soft drinks into that environment, demand there is 0. And the increased demand that happens at the grocery chains is nowhere near enough to make that up.
Your next question comes from the line of David McFadgen with Cormark Securities.
A couple of questions. I was just looking at your Q2 sort of guide on revenue. And to get to that number, I'm just kind of doing back of the envelope calculations here. It would seem to me that -- obviously, you're going to have a big decline at Checkpoint and Avery, but it would seem to me that CCL is probably also going to be down a little bit as well. I was wondering if you could comment on that?
No comment.
No comment. Okay. And then when you talk about a U-shaped recovery, 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 probably indicate to you? Or is there some other factors that you're thinking about that would lead you to believe that?
Read the newspapers.
I am showing no further questions at this time. I would now like to turn the conference back to Mr. Geoff 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 at 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 at 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.