CCL Industries Inc. (TSX: CCL.B) is an outperformer. The stock has returned ~608% in the last decade, which equates to an annualized rate of return of 21.5%. This was three times that of the S&P 500, which had an annualized rate of return of ~7% in that period.
What does CCL Industries do?
CCL Industries is the largest label company in the world; it also makes and sells other packaging-related products. It has a diversified customer base, as it serves global markets of home and personal care, food and beverage, healthcare and specialty, automotive, electronics and consumer durables, and retail and apparel.
To make sure its business runs smoothly, it operates more than 150 state-of-the-art manufacturing facilities in North America, Latin America, Europe, Asia, Australia, and Africa.
Why has CCL Industries outperformed?
Rewinding a few years back, CCL Industries’s sales took off in 2013, when it acquired two business units from Avery Dennison for $500 million.
Back then, Geoffrey Martin, the CEO and president of CCL Industries stated the following:
“We are acquiring the Avery brand as part of the transaction to build on the franchise established for many decades for labels and other printable media that consumers and businesses use in digital computer printers around the world … This acquisition is the largest in CCL’s history and takes the company’s pro-forma annual revenue above $2 billion for the first time. We know both businesses well and have admired the people and the products for many years. We expect the transaction to be accretive on an earnings-per-share basis in 2014.”
Indeed, CCL Industries’s earnings per share more than doubled in 2014 and have grown at a double-digit rate since. However, the company has also made a number of acquisitions since the Avery acquisition, which should, in aggregate, help the long-term growth of the overall business.
CCL Industries has maintained a return on equity of at least 10.4% since 2011, which indicates management has made good capital-allocation decisions consistently.
In the same period, it has maintained an operating margin of at least 11%, except for one year, which shows that the acquisitions the company made did not affect its profitability.
Investor takeaway
CCL Industries has growth potential from its main business segments. Although the company offers a small yield of ~0.8%, it has increased its dividend per share for 15 consecutive years at an average rate of ~13%. Notably, most of the high growth (a rate of 32.5%) occurred in the last three years, which began with the Avery acquisition.
At ~$57.30 per share, the stock has declined +16% from its recent high and trades at a multiple of ~22.8, which isn’t cheap. However, an investment today could make sense for portfolios looking for long-term growth.
