Avery Dennison(US:AVY)2025-10-22 16:00Financial Data and Key Metrics Changes - The company reported adjusted earnings per share of $2.37, up 2% year over year, exceeding the midpoint of expectations [11] - Reported sales increased by 1.5% compared to the prior year, with organic sales remaining comparable to the prior year [11] - Adjusted EBITDA margin was strong at 16.5%, up 10 basis points year over year, with adjusted free cash flow of nearly $270 million generated in the quarter [12][11] Business Line Data and Key Metrics Changes - Materials Group sales were down 2% on an organic basis, with modest volume mix growth offset by low single-digit deflation-related price reductions [13] - Solutions Group delivered organic sales growth of 4%, driven by high single-digit growth in high-value categories, while base solutions were down low single digits [15] - Apparel business saw high-value category sales grow high single digits, while base apparel remained down low single digits due to soft retailer demand [5][6] Market Data and Key Metrics Changes - North America and Europe experienced continued soft consumer product demand, leading to comparable volume, while emerging markets showed growth with Asia-Pacific up low single digits and Latin America up mid-single digits [14] - The company noted that general retail categories continued to experience tariff-related softness, with sales down mid-teens [16] - The enterprise-wide Intelligent Labels sales grew approximately 3% compared to the prior year, with growth in apparel and food segments [6][15] Company Strategy and Development Direction - The company is focused on leveraging its RFID innovation and solutions, particularly in the fresh grocery categories, as evidenced by a new partnership with Walmart [6][9] - The strategic shift towards high-value categories is underscored by these categories now representing 45% of total business year to date [9] - The company anticipates improved year-over-year growth in the fourth quarter, despite ongoing trade policy uncertainties [7][8] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate macro uncertainties and maintain strong profitable growth [8][19] - The company expects slight improvements in organic sales growth and continued year-over-year EPS growth in the fourth quarter [18][19] - Management highlighted the importance of innovation and strategic partnerships in driving future growth, particularly in the food segment [6][9] Other Important Information - The company repurchased approximately $454 million in stock and increased its dividend by 7% year to date [10] - The acquisition of Tailor Adhesives for $390 million is expected to strengthen the Materials Group's high-value category adhesives franchise [10] - The company is transitioning to a fiscal calendar that aligns with the Gregorian calendar, which will add approximately 2% to growth in the fourth quarter [70] Q&A Session Summary Question: How are volumes progressing in the Materials segment given macro uncertainty? - Management indicated that while overall volumes were positive, they were less than expected due to lower retail volumes and muted demand from consumer packaged goods [22][23] Question: Can you discuss the Walmart partnership and its potential impact? - The partnership is seen as a critical validation of the company's technology, with expectations of high single-digit to low double-digit growth in Intelligent Labels revenue over the next couple of years [25][28] Question: What is the current status of the Intelligent Labels pipeline? - The pipeline continues to grow in both opportunities and dollar value, with good traction in key segments [31][32] Question: How does RFID technology coexist with other IoT technologies in Walmart? - The company believes UHF RFID is the best-suited technology for item-level identification, while other IoT technologies have specific use cases [49][50] Question: What are the expectations for the Embelex business going forward? - Management expressed optimism for continued growth in the Embelex business, particularly related to the World Cup [62][64] Question: Where is deflation occurring in materials, and how does it compare to price competition? - Deflation has been observed primarily in paper and chemicals, with slight headwinds from price inflation due to tariffs [73][74] Question: Why is there a positive disconnect this quarter between Intelligent Labels and apparel? - The difference is attributed to new rollouts and technology deployments that have been successful despite overall apparel weakness [77]