Avery Dennison(AVY) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q2 2021, sales grew 29% on a constant currency basis, with revenue up 14% compared to 2019, EBITDA margins increased by 80 basis points, and EPS rose by 30% [7][8][29] - Adjusted earnings per share reached $2.25, exceeding expectations by about $0.10 and approximately $1 per share above the prior year [22][29] - The company raised its full-year adjusted EPS guidance to between $8.65 and $8.95, reflecting strong Q2 performance and increased expectations for the remainder of the year [29][30] Business Line Data and Key Metrics Changes - Label and Graphic Materials (LGM) sales increased by 17% ex-currency and 16% organically, driven by higher volume and pricing [25] - Retail Branding and Information Solutions (RBIS) sales surged 73% ex-currency and 72% organically, with a 14% increase compared to 2019 [27] - Industrial and Healthcare Materials segment saw a 39% increase ex-currency and 33% organically, reflecting strong growth in industrial categories [28] Market Data and Key Metrics Changes - North America sales were up high single digits, Western Europe sales increased mid-teens, and emerging markets grew roughly 20% [26] - The Asia-Pacific region experienced approximately 20% growth, led by significant increases in India and the ASEAN region, while Latin America grew over 30%, particularly in Brazil [26] Company Strategy and Development Direction - The company remains focused on executing five key strategies: driving outsized 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 [14] - The acquisition of Vestcom is expected to enhance the company's position in high-value categories and accelerate its intelligent label strategy [6][15] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing uncertainty due to the global health crisis and supply chain constraints but expressed confidence in demand for the second half of the year [8][9] - The company anticipates continued strong organic sales growth and has raised its full-year sales growth expectations to 14% to 16% ex-currency [29][30] Other Important Information - The company generated $388 million of free cash flow year-to-date, with $206 million in Q2, and returned $203 million in cash to shareholders through dividends and share repurchases [24] - The acquisition of Vestcom, valued at $1.45 billion, is expected to be accretive to EPS by 2022 and will be funded through a combination of cash and debt [21][22] Q&A Session Summary Question: How does Vestcom leverage Avery's core capabilities? - The acquisition aligns with strategic initiatives, increasing exposure to high-value categories and enhancing data management capabilities [36] Question: What is the expected burden of inflation on second-half earnings? - The company expects a gap of roughly $0.15 due to inflation impacts from the first half to the second half [39] Question: Can you disaggregate the incremental core sales increase? - Approximately 40% to 50% of the increase came from stronger second-quarter volumes, with the remainder expected in the back half [41] Question: What are Vestcom's historical growth rates and margin profiles? - Vestcom has consistently delivered high single-digit growth rates and margins above the company average [44] Question: What materials are experiencing shortages? - The company is facing shortages primarily in chemicals and films, along with freight issues [60] Question: How much did the non-Intelligent Label solutions area grow in RBIS? - The non-Intelligent Labels business grew at mid single-digits overall [66]