Avery Dennison(AVY) - 2025 Q2 - Quarterly Results

Executive Summary & Company Overview Avery Dennison reported solid second-quarter results with earnings above expectations, driven by high-value categories and productivity, despite trade policy changes Key Highlights Avery Dennison reported solid second-quarter results with earnings above expectations, driven by high-value categories and productivity, despite trade policy changes. The company also provided its third-quarter EPS guidance 2Q25 Key Financial Highlights | Metric | Value | | :-------------------------------- | :------ | | Reported EPS | $2.41 | | Adjusted EPS (non-GAAP) | $2.42 | | Net Sales | $2.2 billion | | Organic Sales Change (non-GAAP) | (1.0%) | | 3Q25 Guidance: | | | Reported EPS Guidance | $2.14 to $2.30 | | Adjusted EPS Guidance (non-GAAP) | $2.24 to $2.40 | - Adjusted EPS (non-GAAP) of $2.42 was up 5% sequentially and comparable to the prior year[5] - Net sales of $2.2 billion were down 0.7% year-over-year[5] CEO Commentary CEO Deon Stander highlighted a solid second quarter with earnings exceeding expectations, attributing performance to portfolio strength, growth in high-value categories, and productivity offsetting tariff impacts. He emphasized preparedness for trade policy changes and a focus on profitable growth - Delivered a solid second quarter with earnings above expectations in a dynamic environment, reflecting the strength of the overall portfolio[4] - Growth in high-value categories and productivity in the base business offset the impact from tariffs, despite lower sourcing demand for apparel and general retail due to trade policy changes[4] - The company is prepared for various scenarios regarding trade policy changes and will leverage its proven playbook to safeguard earnings and drive strong profitable growth[5] About Avery Dennison Avery Dennison Corporation is a global materials science and digital identification solutions company, providing branding and information solutions across various industries worldwide, with reported sales of $8.8 billion in 2024 - Avery Dennison Corporation is a global materials science and digital identification solutions company[16] - The company designs and develops labeling and functional materials, RFID inlays and tags, software applications, and offerings that enhance branded packaging[16] - Serves industries including home and personal care, apparel, general retail, e-commerce, logistics, food and grocery, pharmaceuticals, and automotive, employing approximately 35,000 employees in over 50 countries[16] - Reported sales in 2024 were $8.8 billion[16] Financial Performance Overview Avery Dennison's consolidated net sales decreased slightly by 0.7% to $2.2 billion in 2Q25, with organic sales down 1.0%. Reported net income increased by 6.9%, while adjusted net income saw a slight decrease. Reported EPS grew by 10.6%, and adjusted EPS remained flat year-over-year Consolidated Financial Results Avery Dennison's consolidated net sales decreased slightly by 0.7% to $2.2 billion in 2Q25, with organic sales down 1.0%. Reported net income increased by 6.9%, while adjusted net income saw a slight decrease. Reported EPS grew by 10.6%, and adjusted EPS remained flat year-over-year 2Q25 Consolidated Financial Performance (YoY) | Metric | 2Q 2025 | 2Q 2024 | % Change (Reported) | | :--------------------------------------- | :-------- | :-------- | :------------------ | | Net Sales | $2,220.5M | $2,235.3M | (0.7%) | | Organic Sales Change (non-GAAP) | (1.0%) | N/A | N/A | | Net Income (as reported) | $189.0M | $176.8M | 6.9% | | Adjusted Net Income (non-GAAP) | $189.5M | $196.0M | (3.3%) | | Reported EPS | $2.41 | $2.18 | 10.6% | | Adjusted EPS (non-GAAP) | $2.42 | $2.42 | --- | | Adjusted Operating Income (non-GAAP) | $286.7M | $288.8M | (0.7%) | | Adjusted Operating Margin (non-GAAP) | 12.9% | 12.9% | --- | | Adjusted EBITDA (non-GAAP) | $367.5M | $367.4M | --- | | Adjusted EBITDA Margin (non-GAAP) | 16.6% | 16.4% | 20 bps | Segment Performance The Materials Group saw a slight reported sales increase but an organic decline, with high-value categories growing modestly. The Solutions Group experienced a reported and organic sales decrease, primarily due to base and apparel categories, despite growth in some high-value areas Materials Group The Materials Group reported a slight sales increase but an organic decline, with high-value categories showing modest growth and adjusted EBITDA margin decreasing slightly Materials Group 2Q25 Performance (YoY) | Metric | 2Q 2025 | 2Q 2024 | % Change (Reported) | Organic Sales Change | | :--------------------------------------- | :-------- | :-------- | :------------------ | :------------------- | | Reported Sales | $1,550.2M | $1,546.8M | 0.2% | (1.0%) | | Reported Operating Margin | 16.1% | 14.4% | 1.7 pp | N/A | | Adjusted Operating Margin (non-GAAP) | 15.6% | 15.8% | (20 bps) | N/A | | Adjusted EBITDA Margin (non-GAAP) | 17.8% | 17.9% | (10 bps) | N/A | - High-value categories, including Intelligent Labels, were up low single digits in total, while base categories were down low single digits[8] - Graphics and Reflectives sales were up high single digits; Performance Tapes and Medical sales were up low single digits[8] - Adjusted EBITDA margin decreased by 10 basis points, as productivity benefits and higher volume/mix were offset by the net impact of pricing and raw material input costs[8] Solutions Group The Solutions Group experienced reported and organic sales decreases, primarily in base and apparel categories, despite growth in some high-value areas, with adjusted EBITDA margin increasing Solutions Group 2Q25 Performance (YoY) | Metric | 2Q 2025 | 2Q 2024 | % Change (Reported) | Organic Sales Change | | :--------------------------------------- | :-------- | :-------- | :------------------ | :------------------- | | Reported Sales | $670.3M | $688.5M | (2.6%) | (0.8%) | | Reported Operating Margin | 8.9% | 9.3% | (40 bps) | N/A | | Adjusted Operating Margin (non-GAAP) | 10.0% | 10.1% | (10 bps) | N/A | | Adjusted EBITDA Margin (non-GAAP) | 17.1% | 16.8% | 30 bps | N/A | - Sales in high-value categories, including Intelligent Labels, were up low single digits; excluding the estimated indirect impact of tariffs, they were up high single digits[8] - Intelligent Labels were comparable to the prior year, Vestcom was up approximately 10%, and Embelex was down high single digits[8] - Overall apparel categories were down mid-single digits, and sales in base categories were down mid-single digits[8] - Adjusted EBITDA margin increased by 30 basis points, as benefits from productivity were partially offset by lower volume in apparel and growth investments[8] Financial Position & Cash Flow Avery Dennison maintains a strong balance sheet with increased total assets and a net debt to adjusted EBITDA ratio of 2.3x, while returning $503 million to shareholders in H1 2025 Balance Sheet Highlights Avery Dennison maintains a strong balance sheet, with total assets increasing year-over-year. The net debt to adjusted EBITDA ratio stood at 2.3x at the end of the second quarter - The company's balance sheet remains strong, with net debt to adjusted EBITDA (non-GAAP) at 2.3x at the end of the second quarter[10][57] Balance Sheet Snapshot (YoY) | Metric | Jun. 28, 2025 | Jun. 29, 2024 | | :--------------------------------------- | :-------------- | :-------------- | | Total Assets | $8,568.2M | $8,298.2M | | Total Current Assets | $3,183.8M | $2,967.8M | | Total Current Liabilities | $3,062.1M | $3,300.2M | | Long-term debt and finance leases | $2,628.2M | $2,046.5M | Cash Flow & Capital Deployment In the first half of 2025, Avery Dennison returned $503 million to shareholders through share repurchases and dividends, including a 7% increase in the quarterly dividend. Operating cash flow decreased, while adjusted free cash flow for 2Q25 improved year-over-year - Returned $503 million in cash to shareholders during the first half of 2025 through share repurchases and dividends[9] - Repurchased 2.0 million shares at an aggregate cost of $360 million in the first half of the year[9] - Increased its quarterly dividend to $0.94 per share, representing an increase of approximately 7% over the previous rate[9] Cash Flow Highlights (Six Months Ended) | Metric | Jun. 28, 2025 | Jun. 29, 2024 | | :--------------------------------------- | :-------------- | :-------------- | | Net cash provided by operating activities | $192.5M | $317.5M | | Net cash used in investing activities | ($61.2M) | ($118.8M) | | Net cash used in financing activities | ($248.5M) | ($202.1M) | | Adjusted free cash flow (non-GAAP) (2Q) | $188.9M | $142.5M | Outlook & Guidance Avery Dennison has issued its earnings per share guidance for the third quarter of 2025, providing both reported and adjusted figures Third Quarter 2025 Guidance Avery Dennison has issued its earnings per share guidance for the third quarter of 2025, providing both reported and adjusted figures 3Q25 EPS Guidance | Metric | Range | | :--------------------------------------- | :------------ | | Reported EPS Guidance | $2.14 to $2.30 | | Adjusted EPS Guidance (non-GAAP) | $2.24 to $2.40 | - The adjusted EPS guidance excludes an estimated ~$0.10 per share impact of restructuring charges and other items[14] Other Financial Information This section details Avery Dennison's income tax rates, cost reduction actions, and the reconciliation of non-GAAP financial measures to GAAP results Income Taxes The company's reported and adjusted effective tax rates for the second quarter of 2025 were both 26.0% - The reported effective tax rate for the second quarter was 26.0%[11] - The adjusted tax rate (non-GAAP) for the quarter was also 26.0%[11] Cost Reduction Actions Avery Dennison realized pre-tax savings from restructuring efforts in the first half of 2025, while also incurring associated restructuring charges - Realized approximately $30 million in pre-tax savings from restructuring, net of transition costs, in the first half of 2025[12] - Incurred approximately $13 million in pre-tax restructuring charges in the first half of 2025[12] Non-GAAP Financial Measures Reconciliation Avery Dennison provides non-GAAP financial measures to supplement GAAP results, aiding investors in evaluating underlying performance and comparing results. These measures exclude specific events or activities to offer a clearer view of core operations and liquidity - Non-GAAP financial measures are used to evaluate trends in underlying performance and facilitate comparisons with competitors, supplementing GAAP results[33] - These measures exclude the impact of certain events, activities, or strategic decisions such as restructuring charges, legal matters, strategic transactions, and currency adjustments, to provide meaningful supplemental information on core operating results and liquidity[34] - Key non-GAAP measures include Sales change ex. currency, Organic sales change, Adjusted operating income/margin, Adjusted EBITDA/margin, Adjusted tax rate, Adjusted net income/EPS, Net debt to adjusted EBITDA ratio, and Adjusted free cash flow, with detailed reconciliations provided[36][37][38][39][40][41][42][43][44] Legal & Disclosures This section includes a 'Safe Harbor' statement for forward-looking statements and outlines significant risk factors impacting the company's financial performance Safe Harbor Statement & Risk Factors The document includes a 'Safe Harbor' statement for forward-looking statements, outlining significant risk factors that could materially affect the company's financial performance, such as global economic conditions, competition, raw material costs, and foreign currency fluctuations - Certain statements are 'forward-looking statements' subject to risks and uncertainties, qualifying for the safe harbor from liability[17] - Significant risk factors include the impact of global economic conditions, tariffs, geopolitical uncertainty, and changes in environmental standards on demand[18] - Other key risks involve competitors' actions, the cost and availability of raw materials, the ability to offset higher costs, foreign currency fluctuations, and the execution and integration of acquisitions[18] Financial Statements This section presents Avery Dennison's preliminary condensed consolidated statements of income, balance sheets, and cash flows for the specified periods Condensed Consolidated Statements of Income This section presents the preliminary condensed consolidated statements of income for the three and six months ended June 28, 2025, and June 29, 2024, detailing revenues, expenses, and net income Preliminary Condensed Consolidated Statements of Income (In millions, except per share amounts) | Metric | Three Months Ended Jun. 28, 2025 | Three Months Ended Jun. 29, 2024 | Six Months Ended Jun. 28, 2025 | Six Months Ended Jun. 29, 2024 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Net sales | $2,220.5 | $2,235.3 | $4,368.8 | $4,386.6 | | Cost of products sold | 1,581.4 | 1,572.6 | 3,108.2 | 3,091.7 | | Gross profit | 639.1 | 662.7 | 1,260.6 | 1,294.9 | | Marketing, general and administrative expense | 352.4 | 373.9 | 699.4 | 739.1 | | Income before taxes | 255.5 | 238.4 | 482.5 | 472.8 | | Provision for income taxes | 66.5 | 61.6 | 127.2 | 123.6 | | Net income | $189.0 | $176.8 | $355.3 | $349.2 | | Net income per common share, assuming dilution | $2.41 | $2.18 | $4.50 | $4.31 | Condensed Consolidated Balance Sheets This section provides the preliminary condensed consolidated balance sheets as of June 28, 2025, and June 29, 2024, detailing the company's assets, liabilities, and shareholders' equity Preliminary Condensed Consolidated Balance Sheets (In millions) | ASSETS | Jun. 28, 2025 | Jun. 29, 2024 | | :-------------------------------------------------- | :-------------- | :-------------- | | Cash and cash equivalents | $215.9 | $208.8 | | Trade accounts receivable, net | 1,626.5 | 1,528.6 | | Inventories | 1,026.9 | 979.9 | | Total current assets | 3,183.8 | 2,967.8 | | Property, plant and equipment, net | 1,604.2 | 1,590.0 | | Goodwill and other intangibles resulting from business acquisitions, net | 2,744.6 | 2,790.7 | | Total assets | $8,568.2 | $8,298.2 | | LIABILITIES AND SHAREHOLDERS' EQUITY | | | | Short-term borrowings and current portion of long-term debt and finance leases | $922.0 | $1,172.3 | | Accounts payable | 1,307.5 | 1,313.4 | | Total current liabilities | 3,062.1 | 3,300.2 | | Long-term debt and finance leases | 2,628.2 | 2,046.5 | | Total liabilities and shareholders' equity | $8,568.2 | $8,298.2 | Condensed Consolidated Statements of Cash Flows This section presents the preliminary condensed consolidated statements of cash flows for the six months ended June 28, 2025, and June 29, 2024, outlining cash generated from or used in operating, investing, and financing activities Preliminary Condensed Consolidated Statements of Cash Flows (In millions) | Metric | Six Months Ended Jun. 28, 2025 | Six Months Ended Jun. 29, 2024 | | :-------------------------------------------------- | :------------------------------- | :------------------------------- | | Net cash provided by operating activities | $192.5 | $317.5 | | Net cash used in investing activities | ($61.2) | ($118.8) | | Net cash used in financing activities | ($248.5) | ($202.1) | | Increase (decrease) in cash and cash equivalents | ($113.2) | ($6.2) | | Cash and cash equivalents, end of period | $215.9 | $208.8 |