Avery Dennison (AVY) Q3 2025 Earnings Transcript

Core Insights - The company reported a solid third quarter with earnings up 2% year over year, driven by productivity and higher volume mix despite ongoing trade policy changes [3][12][21] - The apparel segment showed divergent trends, with high-value category apparel sales growing in the high single digits, while base apparel volumes remained down low single digits due to soft retail demand [4][5][17] - The Solutions Group achieved organic sales growth of 4%, supported by strong performance in high-value categories, particularly VESCOM and Embellix, both exceeding 10% growth [1][16][17] Financial Performance - Adjusted earnings per share reached $2.37, up 2% compared to the prior year, with reported sales increasing by 1.5% [12][21] - The adjusted EBITDA margin was strong at 16.5%, reflecting a 10 basis point increase year over year [12] - The company generated strong adjusted free cash flow of nearly $270 million in the quarter, maintaining a robust balance sheet with a net debt to adjusted EBITDA ratio of 2.2 [13] Segment Performance - The Materials Group experienced a slight revenue decline of 2% on an organic basis, primarily due to low single-digit deflation-related price reductions [14][15] - Specialty durable labels and adhesives continued to show strong growth, partially offsetting declines in graphics and performance tapes [2][15] - Intelligent Labels sales grew approximately 3% year over year, driven by key segments such as apparel, food, logistics, and industrial [4][17] Strategic Developments - The company announced a major partnership with Walmart to leverage RFID innovations in fresh grocery categories, marking a significant industry milestone [5][30] - The strategic focus on high-value categories is evident, with these categories now representing 45% of total business year to date [8][9] - The company is committed to disciplined capital allocation, having repurchased approximately $454 million in stock and grown dividends by 7% [10][13] Outlook - For the fourth quarter, the company anticipates reported sales growth of 5% to 7%, with organic growth expected to be between 0% to 2% [18][19] - The company expects to see high-value categories return to growth in the fourth quarter, despite current trade policy uncertainties [2][7] - The outlook incorporates seasonality and incremental productivity, with adjusted earnings per share projected to be in the range of $2.35 to $2.45 [19][21]