CCL Industries, a provider of specialty label, security and packaging solutions for global corporations, government institutions, small businesses and consumers, has reported record fourth quarter and annual financial results for 2017.
Sales for the fourth quarter of 2017 increased 16.6% to $1,234.5 million, compared to $1,058.4 million for the fourth quarter of 2016, with 3.9% organic growth and 14.9% acquisition growth, primarily driven by the Innovia Group of Companies (“Innovia”) acquired on February 28, 2017, partially offset by 2.2% negative foreign currency translation.
Operating income(1) for the fourth quarter of 2017 was $205.1 million, an increase of 27.7% compared to $160.6 million for the comparable quarter of 2016.
Restructuring and other items increased income by $4.2 million due the reversal of a pre-acquisition $15.6 million legal accrual in the Checkpoint Segment’s fourth quarter of 2017 partially offset by $11.4 million of reorganization costs associated with the 2016 acquisition of Checkpoint Systems Inc. and the 2017 acquisition of Innovia. There was a net expense for restructuring and other items of $6.7 million in the 2016 fourth quarter.
Tax expense for the fourth quarter of 2017 was $4.8 million compared to $33.6 million in the prior year period. The TCJA legislation, effective January 1, 2018, resulted in a $40 million decrease in tax expense due to a reduction in deferred tax liabilities. Excluding the TCJA impact the effective tax rate was 25.9% compared to 25.7% for the 2016 fourth quarter. Of this $40 million TCJA reduction to deferred tax liabilities, $15 million primarily related to book and tax timing differences and other discreet items. However, $25 million related to indefinite life intangibles recognized for accounting purposes that had no corresponding tax basis and were therefore excluded from adjusted basic earnings per share.
Net earnings were $169.4 million for the 2017 fourth quarter compared to $98.3 million for the 2016 fourth quarter. Basic and adjusted basic earnings per Class B share(3) were $0.97 and $0.83, respectively, compared to basic and adjusted basic earnings per Class B share(3) of $0.56 and $0.59, respectively, in the prior year fourth quarter.
For the 2017 year, sales, operating income and net earnings improved 19.6%, 22.2% and 36.9% to $4.8 billion, $737.5 million and $474.1 million, respectively, compared to December 31, 2016. Expensed through the 2017 cost of goods sold was a $15.2 million non-cash acquisition accounting adjustment to the acquired finished goods inventory from the Innovia acquisition.
Excluding this non-cash adjustment, operating income was $752.7 million. The 2016 year included non-cash acquisition accounting adjustments related to acquired finished goods inventories of $33.9 million; therefore, comparative adjusted operating income was $637.2 million. The year ending December 31, 2017, included results from twelve acquisitions completed since January 1, 2016, delivering acquisition related sales growth for the period of 19.1%.
Organic sales growth of 2.1% provided the foundation for solid profit improvement and foreign currency translation had a negative impact of $0.04 per share. For the year ended December 31, 2017, basic and adjusted basic earnings per Class B share(3) were $2.70 and $2.69, respectively, compared to basic and adjusted basic earnings per Class B share(3) of $1.98 and $2.28, respectively, in the prior year.
CCL Industries president and CEO Geoffrey Martin said: “Strong operating performance and changes to U.S. tax rates combined to deliver record earnings performance for both the fourth quarter and 2017. CCL’s 7.7% fourth quarter organic growth on top of 6.9% in the prior year period exceeded expectations as gains in most geographies and business lines, including CCL Secure, drove exceptional profitability.”