Avery Dennison Corp Q1 FY2025 earnings call

• Delivered a strong first quarter with earnings per share up 4% ex-currency. - Materials Group had solid volume growth and strong margins, with high-value categories making up over a third of sales and growing high single digits. - Solutions Group had strong top-line growth and margin expansion, with VESCOM growing and Embellix expected to strengthen later. - Enterprise-wide intelligent labels grew mid-single digits, with food collaboration with Kroger on track and logistics solutions seeing returns. - Addressed macro uncertainty due to trade policy and outlined strategies to mitigate impacts.

Materials Group sales were up 1% currency and on an organic basis, driven by low single-digit volume and mix growth, partially offset by deflation-related price reductions. Organically, high-value categories were up high single digits. Materials Group delivered a strong adjusted EBITDA margin of 17.7% in the quarter. Solutions Group sales were up 5% on an organic basis, with base solutions up high single digits and high-value solutions up low single digits. Solutions Group delivered a strong adjusted EBITDA margin of 17.2%, up 110 basis points compared to the prior year.

• Expect adjusted earnings per share for Q2 2025 to be in the range of $2.30 to $2.50, up sequentially. - Anticipate roughly $7 million headwind from currency translation, better than initial expectations. - Expect restructuring savings, net of transition cost, of more than $45 million, up $5 million from prior expectations. - Focus on quarterly guidance due to macro uncertainty.

• Macro uncertainty from evolving trade policy and potential indirect impact on macro demand, especially for discretionary categories. - Tariffs have direct and indirect impacts, with direct impact on material purchases being low but mitigatable, while indirect impact on macro demand is more uncertain.

Q: How did tariff prebuying impact the first quarter and what's the outlook for apparel in Q2?

A: No material tariff prebuying impact in Q1; in Q2, apparel is expected to have mid-single-digit decline due to brands/retailers assessing sourcing and pricing.

Q: What's the reason for the jump in working capital and how to deal with low single-digit tariff impact?

A: Working capital jump due to inventory purchases and incentive/rebate payments; dealing with tariffs via pricing surcharges and sourcing shifts.

Q: Is the apparel demand change due to China tariff or economic event and reason for share buyback despite cloudy outlook?

A: Change is China tariff issue; share buybacks align with capital allocation strategy, focusing on intrinsic value when share price is low.

Q: How to mitigate share erosion in logistics and details on 2026 logistics deployments?

A: Maintain majority share via innovation, process engineering, and support; 2026 logistics deployments are in pilot phase with extension and interest.

Q: Raw material outlook for Q2 and progression of net price?

A: Raw materials relatively stable with potential slight deflation offset by tariffs; net price cadence still applicable with surcharges implemented.

Q: Logistics end market stability and trigger points for structural actions?

A: Logistics end market relatively stable due to aligned volume with customers; trigger points include tariff evolution and macro environment monitoring, with playbook for belt-tightening and structural actions.