Avery Dennison(AVY) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported adjusted earnings per share of $2.33, a 9% increase compared to the prior year, driven by higher volume and productivity [11] - Sales increased by 5% excluding currency effects and 4% on an organic basis, with adjusted EBITDA margin at 16.4%, up 40 basis points year-over-year [11][12] - Free cash flow was strong at$ 420 million for the first three quarters, up nearly $50 million from the previous year, with a net debt to adjusted EBITDA ratio of 2.1 [11][12] Business Line Data and Key Metrics Changes - **Materials Group**: Sales were up 4% excluding currency and on an organic basis, with mid-single-digit volume growth offset by deflation-related price reductions [12][13] - **Solutions Group**: Sales increased by 6% on an organic basis and 7% excluding currency, with base solutions up mid-teens and high-value solutions up low-single digits [14][15] Market Data and Key Metrics Changes - In North America and Asia, volume increased compared to the prior year, while Europe saw slightly below expectations due to normal seasonality [4][12] - The macro retail environment remains soft, particularly in developed regions, as inflation continues to impact consumer behavior [4][5] Company Strategy and Development Direction - The company is focused on expanding its Intelligent Labels platform, targeting over 15% sales growth in the long term, with significant opportunities in food, logistics, and general retail [6][7] - A strategic collaboration with Kroger aims to enhance customer experience through RFID technology, starting in the bakery department [7][28] Management's Comments on Operating Environment and Future Outlook - Management raised full-year earnings guidance to$ 9.35 to $9.50 per share, anticipating nearly 20% growth compared to the prior year [10][16] - The company remains cautious about the uncertain macro environment, particularly in Europe, but is confident in its long-term growth strategies [10][22] Other Important Information - The company continues to execute a disciplined capital allocation strategy, returning$ 315 million to shareholders through share repurchases and dividends in the first nine months of the year [11][12] - The company expects to maintain stable raw material costs in the fourth quarter after addressing recent inflation through pricing actions [13] Q&A Session Summary Question: On the Materials segment and volume rebound in 2024 - Management noted that materials volumes, particularly in Europe, are experiencing seasonal slowing, with price reductions impacting sales compared to 2022 [20][21] Question: Scale of the Kroger opportunity - The Kroger collaboration is expected to expand beyond bakery into other food categories over time, with significant growth potential in the food segment [28][29] Question: Vestcom's slowdown and its impact on earnings - The slowdown in Vestcom was attributed to drugstore channel softness and external factors like hurricane-related price freezes, but growth is expected to resume [33][34] Question: Intelligent Labels growth in Q3 - Intelligent Labels growth was adjusted to mid-teens year-to-date, with expectations for continued growth despite some softness in logistics [36][37] Question: Pricing trends in the third quarter - Management indicated low single-digit inflation in raw materials, with stable pricing expected moving forward [54]