CCL Industries Inc
TSX:CCL.B
| US |
|
Fubotv Inc
NYSE:FUBO
|
Media
|
| US |
|
Bank of America Corp
NYSE:BAC
|
Banking
|
| US |
|
Palantir Technologies Inc
NYSE:PLTR
|
Technology
|
| US |
C
|
C3.ai Inc
NYSE:AI
|
Technology
|
| US |
|
Uber Technologies Inc
NYSE:UBER
|
Road & Rail
|
| CN |
|
NIO Inc
NYSE:NIO
|
Automobiles
|
| US |
|
Fluor Corp
NYSE:FLR
|
Construction
|
| US |
|
Jacobs Engineering Group Inc
NYSE:J
|
Professional Services
|
| US |
|
TopBuild Corp
NYSE:BLD
|
Consumer products
|
| US |
|
Abbott Laboratories
NYSE:ABT
|
Health Care
|
| US |
|
Chevron Corp
NYSE:CVX
|
Energy
|
| US |
|
Occidental Petroleum Corp
NYSE:OXY
|
Energy
|
| US |
|
Matrix Service Co
NASDAQ:MTRX
|
Construction
|
| US |
|
Automatic Data Processing Inc
NASDAQ:ADP
|
Technology
|
| US |
|
Qualcomm Inc
NASDAQ:QCOM
|
Semiconductors
|
| US |
|
Ambarella Inc
NASDAQ:AMBA
|
Semiconductors
|
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
55.92
84.2
|
| Price Target |
|
We'll email you a reminder when the closing price reaches CAD.
Choose the stock you wish to monitor with a price alert.
|
|
Fubotv Inc
NYSE:FUBO
|
US |
|
|
Bank of America Corp
NYSE:BAC
|
US |
|
|
Palantir Technologies Inc
NYSE:PLTR
|
US |
|
C
|
C3.ai Inc
NYSE:AI
|
US |
|
|
Uber Technologies Inc
NYSE:UBER
|
US |
|
|
NIO Inc
NYSE:NIO
|
CN |
|
|
Fluor Corp
NYSE:FLR
|
US |
|
|
Jacobs Engineering Group Inc
NYSE:J
|
US |
|
|
TopBuild Corp
NYSE:BLD
|
US |
|
|
Abbott Laboratories
NYSE:ABT
|
US |
|
|
Chevron Corp
NYSE:CVX
|
US |
|
|
Occidental Petroleum Corp
NYSE:OXY
|
US |
|
|
Matrix Service Co
NASDAQ:MTRX
|
US |
|
|
Automatic Data Processing Inc
NASDAQ:ADP
|
US |
|
|
Qualcomm Inc
NASDAQ:QCOM
|
US |
|
|
Ambarella Inc
NASDAQ:AMBA
|
US |
This alert will be permanently deleted.
You don't have any saved screeners yet
Good morning, ladies and gentlemen, and welcome to CCL Industries' first quarter investor update. [Operator Instructions] 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, everyone. This is Sean Washchuk. Welcome to our first quarter call. I'd like to draw everyone's attention to Page 2 of our slide 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 2020 annual MD&A under the section Risks and Uncertainties. Our annual and quarterly reports can be found online at the company's website cclind.com or on sedar.com. Geoff, would you like to have some opening remarks?
Thank you, Sean, and good morning, everybody. Welcome to our call. We've had a strong start to the year of 2021, as you've all seen now by the numbers. And in the developed world, we're seeing a market recovery based on consumer activity with the vaccines doing their job for making life better for many of the citizens in the developed world. In the emerging world, with the exception of China, it's quite a different story in Latin America, Indian subcontinent and parts of the ASEAN region. So it's not clear yet whether 2021, we'll see the end of this pandemic or not and only time is going to tell. But for sure, we're going to see a much stronger first half of '21 than we saw in the pandemic effect of first half of 2020. So with that, I'm going to hand the call back to Sean who's going to take you through the numbers.
Thank you, Geoff. If everyone could turn to Page 3 of our slide deck. The first quarter of 2021, sales increased, including the negative impact of currency translation by 4.1%, aided by organic sales growth of 4.2% and acquisition-related sales growth of 2.5%, resulting in sales of $1.35 billion compared to $1.3 billion in the first quarter of 2020. Operating income was $223.1 million for the 2021 first quarter compared to $200.3 million for the first quarter of 2020, a 14.2% increase, excluding the negative impact of foreign currency translation. Geoff will expand on our segmented operating results for the CCL, Avery, Checkpoint and Innovia segments momentarily. Included in the first quarter results was a $5.4 million increase in corporate expenses due to an increase in short-term and long-term variable compensation expenses for the comparative periods. Consolidated EBITDA for the 2021 first quarter, excluding the impact of foreign currency translation, increased 9.5% compared to the same period in 2020. Net finance expense was $14.7 million for the first quarter of 2021 compared to $17.1 million for the 2020 first quarter. The decrease in net finance costs is attributable to a reduction in total debt for the first 3 months of 2021 compared to the same period in 2020. The overall effective income tax rate was 24.2% for the 3 months period ended March 31, 2021 compared to 26.7% for the same period a year ago. The decrease in the effective tax rate is attributable to a higher portion of taxable income earned in lower tax jurisdictions and some one-off tax items. The effective tax rate may change in future periods, depending on the proportion of our taxable income earned in higher tax jurisdictions. Net earnings for the 2021 first quarter was $147.8 million, up 19.5%, excluding foreign currency translation compared to $126.6 million for the 2020 first quarter. Moving to Slide 4. Basic earnings per Class B share were $0.82 for the first quarter of 2021 compared to $0.71 for the first quarter of 2020. Adjusted basic earnings per Class B share were $0.82 in the 2021 first quarter compared to adjusted earnings per Class B share of $0.72 for the first quarter of 2020. The increase in adjusted basic earnings per share to $0.82 is primarily attributable to higher operating income contributing $0.11 to the EPS improvement, with the reduction in net interest expense and tax rate adding a further $0.01 and $0.02, respectively, partially offset by a $0.02 increase in corporate costs and $0.02 from negative foreign currency translation. Moving to Slide 5. For the first quarter of 2021, free cash flow from operation improved to $87.6 million compared to an outflow of $15 million in the 2020 first quarter. The improvement can be primarily attributable to an increase in operating income and a positive change in working capital for the company. For the 12 months ended March 31, 2021, free cash flow from operations was $718.9 million compared to the 12 months ended March 31, 2020 at $518.8 million. This comparative improvement is attributable to improved income for the company, the change in working capital and reduced net capital spending for the comparative years. Moving to Slide 6, our cash and debt summary. Net debt as at March 31, 2021 was $1.33 billion, a decrease of $61.1 million compared to December 31, 2020. The decrease is principally a result of debt repayments during the first quarter, partially offset by a decrease in cash on hand at March 31, 2021 compared to December 31, 2020. The company's balance sheet closed the quarter in a strong position. Our balance sheet leverage ratio was approximately 1.16x, declining from 1.24x at the end of December 31, 2020. Liquidity was robust, $662.7 million of cash on hand and USD 1.2 billion of available undrawn credit capacity in our revolving credit facilities. It is all likely that any portion of our current debt will be paid from free cash flow over the course of the year. The company's overall average finance rate was largely unchanged at approximately 2.3% on March 31, 2021 compared to December 31, 2020. The company's balance sheet continues to be well positioned as we move through 2021. Geoff?
Thank you, Sean. I'm on Slide 7 now, the highlights of capital spending so far for the year. Low start to the year, which explains some of the free cash flow performance that Sean talked about, only $53 million spend net of disposals, excluding the right-of-use assets additions and depreciation. So the CapEx will go up for the next 3 quarters as we're planning to spend around $330 million to $340 million for the year. Page 8, slides on the CCL segment and how it's performed, a very strong start, 5.4% organic sales increase. Growth was strong in the Americas, up mid-single digits in both Latin America and North America, slower in Europe, up low single digits and very strong in the Asia Pacific region, up in the high teens. Strong results in our Healthcare & Specialty business, Food & Beverage and CCL Design, solid in CCL Secure, but down in the Home & Personal Care business as the sanitize and cleansing boom came to an end and travel-related businesses remain somewhat impaired. Page 9, highlights of our 2 joint ventures, one in Russia and the Middle East, very strong start again for the year, somewhat impacted by the Russian currency, down 25% against the Canadian dollar quarter-on-quarter. Slide 10, results from Avery. This business really had a very strong start in Q1 2020, really unimpeded completely by the pandemic in North America and only slightly in Europe. So this year, we had tough comps to compare with, especially in the U.S. We were down high teens, mainly in the badges and organization products business affected by office closures and low workplace presence. Europe and Asia Pacific, which is more label-centric, was up high single digits, much easier comps to a softer Q1 2020, also driven by the pandemic. We do expect growth in sales and profitability for all the remaining course of this year and 2021 in total for Avery. Slide 11, results for Checkpoint, an outstanding quarter here. But of course, compared to the weak start we had last year when the apparel industry closed down, and Asia and China had a pretty rough time at the beginning of the year with the pandemic unrolling there in Q1 last year. So this year, we saw very strong comparative growth in our MAS business gains in all regions, including the U.S. where we had a big rollout last year. So we even had gains in the U.S., but Europe and Asia, especially strong with the easier comps. Record quarter in apparel labels compared to a weak prior year period, very strong growth in RFID and our price labeling business in Europe recovered. Innovia, the organic volume was up in North America, down in Europe and Asia Pacific. The sales gains really all came from resin pricing pass-through and the Polish acquisition. Profitability increased on continuing strong productivity gains, especially in the Mexican operation, and we're now preparing our Polish plant for the EcoFloat investment, which will incur over the balance of 2021. Outlook summary. We -- as I said earlier on, Avery will post strong gains, particularly in Q2, and we should make progress in the second half of 2021 in total. We do expect Checkpoint's recent progress to continue in part fueled by RFID, and we still have easy Q2 comps. CCL Design will continue to remain the strongest arm in the CCL segment with automotive recovery and demand variety peripheral is still strong. Food & Beverage will improve as the on-premise channels open up, but our Healthcare & Specialty business faces the pantry loading, DIY boom period that we had in 2020, which won't repeat in 2021. In the HPC business, we should see skincare and travel-related demand improve as the vacation season opens up. And hopefully, mobility and travel improves, but the cleansing and sanitizing boom is largely coming to an end. CCL Secure looks very solid for Q2 and has tough comps in the second half on the cash run the banks had in 2020, which won't repeat in 2021. Innovia still needs to navigate the resin volatility, which we'll still see and manage its way through EcoFLoat transition in Poland. And there are no more easy comps in the second half of the year. So with that, operator, we'd like to open up the call for questions.
[Operator Instructions] Your first question comes from the line of Adam Josephson with KeyBanc.
Geoff, would you mind, in CCL, can you just talk about your expectations by region? Obviously, Asia Pac was up high teens as China shut down a year ago. I would think Americas would remain pretty strong for a while, the U.S. and Brazilian economies are going gangbusters with all the stimulus, et cetera. But how do you expect the comp? So just remind us how the comp will evolve over the course of the year, such that we can have appropriate expectations by region.
Yes. I think that the Q1 trend will probably continue. And I think we do expect to see Q2 to be strong, just driven by the prior year situation. So the business in North America is reasonably robust. And we've got some -- we have some waxing and waning. We've got some businesses like Healthcare & Specialty, where we had the over-the-counter medicines boom last year, which we won't have this year. And we rather expect that the do-it-yourself boom that we've seen in the U.S. while everyone's been at home would recede if travel opens up. So you've kind of got -- you get it one way or the other. So -- but overall, I would expect the U.S. to stay relatively strong. And the situation in Asia with IT peripherals and cell phones and all the like, that's not waning at all. We've got the chip shortage to deal with. So that's a bit of an unknown factor, which we don't know how much difficulty that will present to some of our customers. We seem to be working our way through it, but it's an ever-changing daily situation we're having to monitor. So it's very hard to say much more than that, Adam, really.
And just on Europe specifically, Geoff.
Yes. We'd expect Europe to still be lagging the rest of the world through the summer unless something changes. I mean I'm in Switzerland as we speak here. So last week, I went and flew down to visit our operations in Mexico and flew through Dallas Airport, which was completely mobbed with people. And I landed in Zurich yesterday morning to an empty airport. So as you can see, you see those situations changing, it's hard to imagine the use of our products are going to change.
Yes. No, understood, Geoff. On resin, can you just help us with precisely how much your costs went up through 1Q? And to what extent those costs have receded and what your expectations are along those lines? And when you expect to have fully caught up?
Yes. Well, it's -- the resin spike, as you know, was pretty extreme in the U.S. So North America was by far worse than it was in Europe, and it happened very suddenly. So we did manage to get most of our price through -- put through, but not fast enough to catch it all, but we also had the benefit of some inventory in the system with lower cost. And now we're going to have the reverse situation of that in Q2 where resins fall, so we've got inventory and higher-priced resins. So I think you'll have to wait to see until we get through Q2 how successful we've been. So I think Q2 might be more of a struggle than Q1. We thought we'd have a tougher time in Q1 than we did, as you probably might imagine, but I think Q2 might be slightly more difficult than Q1 was. So we'll have to wait and see how things unfold. And a lot depends on what happens to the pricing.
Yes. No -- and yes. No, understood, Geoff. In Checkpoint, can you just quantify how big RFID is for you right now? And where you're seeing that very strong growth? And the extent to which you expect similar -- that rate of growth to persist for the next few quarters?
Well, it's all in apparel. So we're up 25%, 30% in apparel [ for the term ]. But just for perspective, I mean, apparel labeling is $200 million -- less than $200 million for us and RFID is a portion of that. I'm not going to get into how big a portion it is because it's difficult to measure, but it's a portion of it. So it's not terribly material for us as a company, but it's growing very nicely. Most of our business is with European retailers, and we're involved in a few good-sized rollouts there. But it definitely underpins the performance in the business in the current quarter. And the -- but you do have to remember, it was against a very difficult backdrop in 2020.
Yes. No, understood, Geoff. And last one for me on M&A. Can you just talk about what you're seeing price-wise, opportunity-wise? And just give us a sense of what label multiples are in the private market these days compared to where you and the others are trading?
Well, it's not really any different from the public markets, frankly. It's private equity businesses are chasing some of these things, the multiples that reflect our stock price. So we're not really participating in things like that. So we're trying to find value opportunities for the bolt-ons. But it's still a difficult market for larger transactions and we still have the problem of how you do due diligence when getting around the world is so difficult. So I haven't really anything -- new comments to add on the situation. We've addressed that in the last several quarters.
Your next question comes from the line of Mark Neville with Scotiabank.
Geoff, I'm just curious if you could maybe speak to, just in general, your reopening experience. I'm just thinking certain geographies that have opened and certain markets or certain businesses that were more impacted such as Food & Beverage, is there typically a lag sort of in the sales recoveries or a surge sort of inventories are built?
It really varies dramatically on which part of the world we're talking about. So the region of the world that I would say is still extremely tough is the ASEAN countries in Asia, so countries like Malaysia, Singapore, Indonesia, it's very difficult to get in and out and move in between these countries, Vietnam. So very, very tough out there. India, I'm sure you read about in the newspapers. So the degree to which we've seen it open up is really in Latin America and the U.S., we've seen some encouraging signs. China is pretty much as normal, but -- domestic China. So it's kind of like a bubble around it. And Europe is still more difficult because the lockdown, it's not done yet. It's better than it was. But there's still restrictions here that you don't see when you're sitting and living and working in North America.
Right. But I guess when they do reopen, has the experience been that there's been sort of a lag in your sales? Or is there an initial surge as inventories are restocking?
It varies by -- because customers are having to get the prediction right. So they're having to build inventory on the assumption of what might happen. I mean everyone's assuming that in North America this year, the summer season will be strong. And therefore, people are making plans according to that and probably the reverse of that in some other parts of the world. So I don't think we really know yet, but we've seen encouraging signs in the beverage space of a bit more normality than there was certainly this time last year. So you get too far away from the end-use point to really comment beyond that. So we're -- because we're driven by the behaviors of our customers, not by the consumers.
Great. Again, it seems like the semi shortages, you're managing that well. You've obviously managed the resin situation pretty well. I guess I'm just curious, just, I guess, broader, I hear a lot about sort of supply chain issues, logistic issues from other companies. And just -- I appreciate your business is a little more localized, but just curious if you're sort of feeling any supply chain challenges or logistical challenges here that we should...
Well we're local, everywhere we operate around the world, that's a big advantage we have. But I can tell you, just to give you a frame of reference of how the world has changed. We put a new tube line into our plants in Los Angeles last year that sat on a boat in trying to get into the Long Beach port for 8 weeks, trying to get into the port. So that's the sort of challenges we're having. And coast-to-coast freight from L.A. to -- from the West Coast to the East Coast, if you needed to move something in an emergency, around $2,000 for a 45-foot shipping container, the price this year is $8,000. So you've got a lot of situations like that, which we're having to pass along to customers, which we're doing, obviously. But there's definitely some sizable pockets of inflation out there that we're having to work our way through. But so far, we've managed to keep people supplied, not let people down. And done our job, but not without a lot of hustling around and moving around.
Sure. Got that. And I guess just on the lower CapEx spend in Q1, is it just a timing thing? Or is it some of these challenges?
It's just a hangover from the CapEx we made last year.
Your next question comes from the line of Stephen Macleod with BMO Capital Markets.
Sorry about that. I was on mute. Just wanted to follow-up on the CapEx question there. Can you talk a little bit about what's embedded in your accelerated CapEx plans for this year versus last year? Or is it more than just a catch up?
It's just -- it's around the budget number we had for the year. It's just the timing of it because we -- when you order equipment, a lot of it's on long lead times. So with the CapEx we made last year, we created a vacuum, and you've seen that in the fourth quarter and the first quarter this year, something of a vacuum, but it will correct itself in the next 3 quarters because we've got some businesses where we've got pretty significant capacity constraints that were needing to fill. So the areas that's going into the Shrink Sleeves business around the world is an area of strength, CCL Design, Checkpoint. I mean it's broad-based across the company, really. But I think the CapEx vacuum is really driven by what happened in 2020.
Okay. That makes sense. And then maybe turning to the Avery business, you reminded us that Avery had a strong start to last year before getting impacted heavily by the pandemic and you have a positive outlook for the rest of the year given, I guess, partially driven by easy comps. Can you talk a little bit about like when would you see the Avery business returning to where it was before? Is that sort of a 2022 timing?
Yes. Well, April sales, I can tell you were almost double last year. So that's one point of information I can give you. But we still see challenges in the badge business. So that's really driven by large-scale events. We are beginning to see orders coming in now, but it dropped off pretty rapidly. And I don't think it will come back full-scale until 2022. And assuming that the world returns to normal in 2022, that remains to be seen whether that happens. The 2 product lines that are really affected are organization products and badges. So the label business is in pretty good shape. And those are the 2 things that need to return. And the drivers are return to offices and return to attended events. And until those normalize, it's difficult for that to get back to where it was in 2019. But it's been getting better and better really every month since June last year. So each month, it's been getting -- it's been improving. And I'm pretty confident -- I'm very confident we'll see the next 3 quarters of gains and a gain for the year of '21 over 2020, for sure.
Okay. That's great. And then on Innovia, obviously, with the resin pricing issues, and you gave some color around Q2 which is great. Will those price increases filter into the back half of the year as well? Or is it too soon to tell? Is that more driven by what's happening across...
The resin price is dropping in the U.S. now, Steve. So resin went up to over $2,500 a ton and is now down in the $2,100. So it's actually been dropping in the U.S. because that was really the Texas storm phenomenon. So we're adjusting prices down now in the U.S. to reflect what's going on with the current level of index. So that's what we're worried about in Q2. So that we put prices up, but we had low-priced inventory sales to compensate for that. In Q2, we got a reverse. We've got prices dropping and high-priced inventory. So that's why we're worried about the impact in Q2.
Right. Okay. And then maybe just finally, are there any areas when you're sort of -- in this recovery that's a bit spotty globally, but are there any areas that have recovered faster than expected or slower than expected?
Well, the one that's been very strong all the way through has been the -- what's going on in tech. The demand for computers, printers, servers, cell phones, headphones, you name it, it just seems to be steamrolling, and I'm sure that's not helping the chip situation for the guys in automotive. So we just don't see any slowdown there. I think it's more driven by the chip supply situation, which seems to be impacted by demand. So that's the area of most notable strength we see today. So CCL Design in the first quarter was up in the mid-teens. So it's pretty strong organically, a pretty strong number, given they weren't that badly affected this time last year.
Your next question comes from the line of Walter Spracklin with RBC Capital Markets.
So first question is on pricing, but ex resin pricing. So obviously, a robust demand in many of your end markets. If you exclude the changes in your pricing due to resin, would you say that your kind of same-store pricing is up? And if resin goes down, is there a way to kind of keep that price a little sticky and keep it higher based on higher demand in some of those higher growth segments?
This is a question about only Innovia, right?
That's right. Yes.
Yes. Yes, I think the -- it's a resin story, Walter. I mean we've indexed our customers. So you can't have your cake and eat it. So if you put the price up based on an index, the price comes down on the other side of the curve.
Okay. Fair enough. And then pricing outside of Innovia, would you say that overall healthy...
Fairly limited impact from inflation in the rest of the business. In Q2, we'll see more of it because in Q1 we had people raising prices, but they haven't really been implemented really until Q2 unrolls, so we didn't have much inflation in the other parts of CCL outside of Innovia and outside of our aluminum can business, where we have inflation from [ the mess that's ] going on. But in the core label business, we didn't see much inflation in Q1.
Got it. Okay. And moving to your core CCL and CCL Secure, in particular. I know, Geoff, you've cautioned us about the margin impact that the cash hoarding has had on that business and that we should bring it back down. Is that still the case? Or are you seeing higher-margin ex Secure in other areas of CCL?
Well, we've seen some good new business wins in CCL Secure, but we did have those windfalls last year, which we know are not going to repeat. So it's very hard to predict how the second half -- we know the first half is going to be okay. Second half, there's a big a mountain to climb. And until we get closer to it, I couldn't really give you any more color on that.
Got it, got it. Last question here, again, on the CCL core division. I remember before the pandemic, you had been experiencing a little bit of weakness in that division and it accumulated in the fourth quarter of 2019, I guess, with some weakness and some forecast prepandemic that you had were a bit soft. Has the pandemic -- what investors are asking now is, what is the risk we go back to a soft environment, even if we go back to normal? Or has the pandemic completely reshuffled the deck now and anything that existed before pandemic, those trends are ancient history, and we're in a new dynamic here. What's the risk we go back to kind of a weaker environment in your core division as we emerge from the pandemic?
Well, we'll have to wait and see about that. I mean -- getting into calling out what may or may not happen. But I think the world has changed pretty dramatically. And we're going to have to wait and see how things unfold, I'm afraid, before I can answer that question.
Your next question comes from the line of Michael Glen with Raymond James.
Geoff, just to start, when we look at label sales in Q1 and we look at what might be expected in Q2, is there any real reason to think that the overall level of sales in the segment would change into Q1 versus Q1 -- into Q2 versus Q1?
Well, the unknowns of what happens with the things that are waning. So we know some things are coming back. So skincare, higher beauty sales are improving, travel-related sales will improve. Sanitizers, a dead duck at the moment. So all the customers have got big inventories of finished products. So the orders have slowed to a real trickle with anything to do with sanitizers and cleansers. So that's the thing we're wrestling with. We've got so many moving parts and pieces. It's very difficult to predict how things will unfold. But in the month of April, carried on pretty much the trend we saw in Q1.
Okay. So there's typically no real seasonal -- in a normal year, there's really no seasonal [ variance ] between Q2 and Q1?
Q1 and Q2, not a big difference, but there's a lot of things going on at the moment. So I'll just call those out. We had that over-the-counter medicines boom last year, gone. Sanitizers and cleansers, gone. But now we've got beauty care coming back. We've got on-premise beverage coming back and how that mix will play out, we'll just have to wait and see.
Okay. And then I know it's probably early on this, but any thoughts on how back-to-school might play out this year? Any thoughts on the inventory levels with your customers?
Well, the retailers are planning, assuming it's normal but with some level of caution because they all got caught last year with inventory that they couldn't sell. Because if you remember, we had a very good June last year in back-to-school. And then the replenishment orders, which usually come in late July and early August didn't happen. And they had some inventory at the end of the cycle with all the mess around school returns unfolded. So they're assuming this year, back-to-school would be normal, but with some caution in view of what happened last year. So I expect the initial selling will go well like it did last year. And then what will actually happen in July and August will depend on what's going on with the pandemic and what's going on with school returns and we don't know...
Okay. And then just maybe a last one on overall -- if you can characterize the overall pipeline of customer activity in CCL Secure. How is that trending?
Pipeline is very good.
Your next question comes from the line of David McFadgen with Cormark.
A couple of questions. Maybe just on the resin front with Innovia. It seems like the timing on your ability to pass through price increases and price decreases is fairly short. I think on the Q4 call, you had some caution with respect to that. So maybe a comment on the exact timing. And also, if you're dealing with higher-priced inventory or higher-priced resin inventory in Q2, could that really have an impact on the margins?
Well, that's the point I was making. What we don't know yet is the impact that will have. So we've got price declines going on in the U.S. at the moment because resins have dropped. And we've got high-priced inventory that we bought in the month of March and sales we made in the month of March with resins at a much higher price point and what the impact of that will be remains to be seen. We had the benefit in Q1. Maybe there will be a drag in Q2. But we don't know. We just have to wait and see because it's mix-driven. There's lots of other factors that can sway it. So we'll have to just wait and see how it unfolds. We're just calling out the risks, really, but it's difficult to quantify.
What's your timing on your ability to pass-through resin? It seems like it's quite short. Can you comment on that?
Well, yes, remember, the spike is very big. So the resin hike in the first quarter is the highest we recorded in history.
Okay. And then just on badges business with Avery, is that really improving much? I mean there are some returns off it?
So far, we're seeing some improvement in the month of in March and April. We've seen some slow signs of some events are now being planned, some social events. But it's -- if I compared it to -- if you went back to 2019 and you called out $100 million we've moved from $10 million to $15 million. We're not -- we haven't moved from $10 million to $15 million to $50 million. So it's improved, but slowly. And I think until we've got baseball stadiums filled, sports stadiums full, Vegas conventions back where they were, it's hard to see where event badges would be and have the demand we had in 2019. And it's a little over $100 million of Avery's business, so it's not a small number.
[Operator Instructions] Your next question comes from the line of Ben Jekic with PI Financial.
I have a question on Avery. Then if the badges haven't rebounded that much just yet, what is the source of the very positive expectations for the remainder of the year in Avery?
Well, everything else is doing well, Ben. So the badges and binders and dividers, these are the 3 product lines that had difficulty during the pandemic. And we're seeing some improvement in badges -- in binders and indexes, badges is still difficult. But the label -- the core label business is still doing pretty well. And internationally, so the international business, which focuses almost exclusively on label, we've seen that return to 2019 levels. So -- because they don't have anywhere near that portion of those products in their mix because they're almost entirely labels-driven.
Okay. Okay. Great. And then my second question, just with regards to the CCL core segment, fairly strong operating margin jump. And I'm assuming part of that is CCL Secure, but you're mentioning Healthcare & Specialty, Food & Beverage and CCL Design...
No, it's was not -- it was not really CCL Secure-driven. It was more driven by the 3 businesses that really performed were Healthcare & Specialty, Food & Beverage and CCL Design. They were the 3 main drivers.
And your last question comes from the line of Adam Josephson with KeyBanc.
Forgive me if I missed this, did you quantify the EcoFloat investment? I mean it was obviously sizable enough to have called it out in the slides. So just figured I'd ask.
$35 million.
And that will be over what period, Geoff?
Most of the money will be spent in the second half of this year.
Got it. Okay.
We spent some of it already, but the lion's share of it will get to freight in the second half of the year.
And that will flow through the segment results?
Correct. The bigger impact more than capital is just the start-up costs. So when you start-up and you spent the line, there's always some level of start-up costs. So it's more about that than the capital, really.
Okay. And the start-up costs will be in the range of -- can you give us a...
We don't know yet. We can give you some more color on that when we see when it's going to be because you got to build the line first. We don't know when the line is going to be finished. And so when we get near the time, it would either be the back end of this year or early part of next, we'll give you some color on that.
Perfect. Okay. One more on capital allocation, Geoff. So you raised the dividend by 17% in March. Your leverage is down to almost 1.1x. I mean you mentioned big M&A is probably unlikely in the foreseeable future, just given where prices are and the difficulties in doing due diligence, et cetera. Are you considering anything else? Or are you okay with letting leverage go sub 1x and just letting the chips fall where they may?
Well, we don't like leverage below 1x for obvious reasons. So we'll be having some debates about that with our Board over the next quarter or 2 about what we're going to do. So we haven't -- I don't want to give the impression we're throwing in the towel on acquisitions because we're not. It's still the #1 priority for where we want to invest our excess free cash flow. And you know we've always been a strong dividend player and buying back stock as we haven't done that for some years yet. But as Sean mentioned earlier on in the call, we're definitely going to pay down the rest of our variable debt this year in the absence of a large-scale deal. So it's something that's on the agenda as we speak.
Yes. No, understood, Geoff. And last one on sustainability. Are you hearing anything new or different from your customers in terms of substrate preferences, recycled resin availability, pricing, any change in tone whatsoever from your customers, just given the targets they've put out? Yes.
The hysteria on the subject is probably the best way to characterize it. A lot of it not necessarily logical. So the preferences for substrate today are paper and metal, which is also the highest carbon footprint substrates the packaging industry uses. And the lowest carbon footprint substrate in packaging industry is plastics, out of public consumer perception is the devil incarnate. So that's the world we're all existing in, our customers and the producing side. And I think it will take a few years for reality to unfold. And I do think plastic recycling will be one of the solutions to the problem. And we're sort of doing a lot of work in that arena. But it's -- sustainability is the topic du jour amongst everyone in the consumer products industry today, driven by how the public perceives what the problem is. But it's a moving target. So I think if you have asked this question second half of last year before the Netflix movie about what's happening in the oceans came out, everyone would have said plastics is the a problem. Now everybody says fishing is the problem. So it's such in public purview and it's so sensitive and sometimes that sort of gets in the way of the reality of the signs of the subject, and we're working our way through that along as everybody else.
And does it seem like your customers are making long-term decisions based on current sentiment? And as you said, public perceptions can and do change pretty quickly. So how are they dealing with that issue?
Well, they're under pressure. Everyone in the consumer products industry is under pressure. So they're trying to come up with solutions that make sense. Some of the solutions are -- well, appears to make sense. It may actually not, but if it has the perception of being better, that's probably a good thing right now if you're a CPG company. But solving the issues of the world today in the longer term, there's a lot of work still to be done. And that's the more serious subject, which we have to address, I think, more holistically than we're doing right now. We, along with all of them, are just doing our best to [ mend my ] way through it.
And presenters, we have no further questions.
Well, thank you, operator, and thank you for everybody attending the call, and we look forward to talking to you next quarter.
This concludes today's conference call. You may now disconnect.