Avery Dennison(US:AVY)2022-02-03 00:30Financial Data and Key Metrics Changes - The company reported an EPS of $8.91 for 2021, up 25% from 2020 and 35% from 2019 levels [11] - Revenue grew by approximately 19% on a constant currency basis and 16% organically [11][12] - Adjusted EBITDA margin for Q4 was 14.9%, down compared to the prior year but up 40 basis points compared to 2019 [23] Business Line Data and Key Metrics Changes - Labeling and Graphic Materials (LGM) sales increased by 12% ex. currency and 11% on an organic basis, driven by high single-digit price impacts and higher volume [24] - Retail Branding and Information Solutions (RBIS) sales rose 39% ex. currency and 20% on an organic basis, with Intelligent Label sales up more than 20% organically [26] - Industrial and Healthcare Materials (IHM) sales increased 12% ex. currency and 10% on an organic basis, with adjusted EBITDA margin decreasing to 12.9% [27] Market Data and Key Metrics Changes - North America sales for LGM were up mid-teens, while Western Europe sales were up high single digits despite raw material and labor challenges [24] - Emerging market sales were up roughly 10% in the quarter, with India and China both showing double-digit growth [25] Company Strategy and Development Direction - The company focuses on five strategic pillars: driving outside growth in high-value categories, growing profitably in base businesses, focusing on productivity, effectively allocating capital, and leading in an environmentally and socially responsible manner [8] - The Intelligent Labels platform is expected to grow at a long-term rate of 15% to 20% annually, with significant opportunities in food and logistics markets [10][11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from COVID-19, supply chain constraints, and inflationary pressures, particularly in LGM for North America and Europe [12] - The company anticipates adjusted EPS for 2022 to be in the range of $9.35 to $9.75, with organic sales growth expected to be 8% to 11% [27][28] Other Important Information - The company generated $798 million of free cash flow in 2021, up 46% compared to the prior year [23] - The company deployed $1.5 billion for acquisitions and returned $400 million to shareholders through share repurchases and dividends [23] Q&A Session Summary Question: Can you provide more color on the raw material constraints? - Management noted that constraints have shifted from petrochemicals to paper, particularly in Europe, impacting volumes [32][33] Question: Does the inflation in paper affect competitive positioning? - Management stated that they have been able to raise prices across all categories and maintain competitiveness despite challenges in paper supply [38] Question: What is the expected timing for being price-cost neutral? - Management indicated that the lag for price adjustments is expected to be about a quarter, with ongoing inflation impacting the timeline [50][51] Question: How are investments in intelligent labels expected to impact growth? - Management highlighted that the $35 million investment in intelligent labels is primarily for operating expenses aimed at market development and innovation [41][44] Question: What is the outlook for production impacts in China? - Management confirmed that all plants in China are operational and not experiencing lockdowns, with no significant impact on guidance [58][59] Question: What was the amount of raw materials that could not be recovered by price? - Management acknowledged a gap in Q4 due to inflation, but the dollar gap remains roughly the same as previous quarters [60][61]