CCL Industries Inc. (TSX:CCL.B), a world leader in specialty label, security, and packaging solutions, announced its second-quarter earnings results after the market closed on Tuesday, and its stock responded by falling 4.4% in Wednesday’s trading session. Let’s take a closer look at the results and the fundamentals of its stock to determine if we should use this weakness as a long-term buying opportunity or wait for an even better entry point in the trading sessions ahead.
Breaking down CCL’s second-quarter performance
Here’s a quick breakdown of 12 of the most notable statistics from CCL’s three-month period ended on June 30, 2017, compared with the same period in 2016:
| Metric | Q2 2017 | Q2 2016 | Change |
| Sales – CCL segment | $728.8 million | $604.0 million | 20.7% |
| Sales – Avery segment | $209.1 million | $207.4 million | 0.8% |
| Sales – Checkpoint segment | $171.0 million | $92.6 million | 84.7% |
| Sales – Innovia segment | $91.7 million | – | N/A |
| Sales – Container segment | $52.3 million | $56.2 million | (6.9%) |
| Total sales | $1,252.9 million | $960.2 million | 30.5% |
| Gross profit | $378.0 million | $281.4 million | 34.3% |
| EBITDA | $248.4 million | $194.1 million | 28% |
| Operating income | $188.3 million | $143.1 million | 31.6% |
| Net earnings | $109.9 million | $72.2 million | 52.2% |
| Adjusted basic earnings per share (EPS) | $0.68 | $0.56 | 21.4% |
| Cash provided by operating activities | $177.3 million | $89.5 million | 98.1% |
Should you buy CCL’s stock on the dip?
It was a fantastic quarter overall for CCL, and it capped off a very strong first half of the year, in which its sales increased 26.7% to $2.31 billion and its adjusted EPS increased 14.7% to $1.25. However, the second-quarter results came up short of the consensus estimates of analysts polled by Thomson Reuters, which called for adjusted EPS of $0.69 on revenue of $1.29 billion, so I think that’s the reason its stock fell by 4.4% on Wednesday.
With all of this being said, I think the 4.4% decline in CCL’s stock represents an attractive entry point for long-term investors for two primary reasons.
First, it’s undervalued. CCL’s stock now trades at just 21.3 times fiscal 2017’s estimated EPS of $2.67 and only 18.7 times fiscal 2018’s estimated EPS of $3.05, both of which are inexpensive compared with its five-year average price-to-earnings multiples of 24.5. These multiples are also inexpensive given its current earnings-growth rate, including its aforementioned 14.7% growth in the first half of 2017, its projected 17.1% growth in the full year of 2017, and its projected 14.2% growth in 2018.
Second, it’s a dividend-growth superstar. CCL pays a quarterly dividend of $0.115 per share, equal to $0.46 per share annually, which gives it a yield of about 0.8%. A 0.8% yield is far from high, but what CCL lacks in yield it makes up for in growth; it has raised its annual dividend payment for 14 consecutive years, and its 15% hike in February has it on track for 2017 to mark the 15th consecutive year with an increase. It’s also important to note that the company has a dividend-payout target of 25% of its adjusted net earnings, so I think its consistently strong earnings growth will allow its streak of annual dividend increases to continue into the late 2020s.
With all of the information provided above in mind, I think all Foolish investors should strongly consider using the post-earnings weakness in CCL Industries to begin scaling in to long-term positions.
