Avery Dennison Corporation Q3 FY2025 earnings call

• Delivered solid third quarter with earnings up 2% y/y and above expectations, showing strength of franchise. • Impacted by trade policy changes but fully mitigated direct cost increases via strategic sourcing and pricing. • Materials Group saw margin expansion due to productivity and volume mix. • Solutions Group had organic sales growth driven by high-value categories. • Intelligent Labels sales grew 3%, with sequential improvement, and major partnership with Walmart in fresh grocery categories. • Focus on core strategies like innovation, capital allocation, and differentiation across businesses. • Year-to-date repurchased ~$454M in stock and grew dividend by 7%, closed $390M Taylor adhesive acquisition.

Materials Group: Organic sales down 2% year over year. Adjusted EBITDA margin was 17.5% in the quarter, up 50 basis points year over year. Modest revenue declines in high-value categories like graphics and performance tapes were offset by growth in specialty durable labels and adhesives. Solutions Group: Organic sales grew 4%, with high-value categories up high single digits. VESCOM grew over 10%, Embellix over 10%, and apparel sales rose low single digits. Intelligent Labels: Sales grew approximately 3% compared to the prior year, with apparel improving to mid-single digit growth, food, logistics, and industrial categories combined up mid-single digits, while general retail categories were impacted by tariff-related softness.

• Fourth quarter expected sales growth 5% to 7%, with organic growth 0% to 2%, currency translation ~2%, extra days in quarter ~2%, and Taylor Adhesives acquisition ~1%. • Adjusted EPS expected in range of $2.35 to $2.45. • Expect $5M currency translation benefit, ~$60M restructuring savings, interest expense $135M, and Taylor Adhesives to have immaterial impact on Q4 EPS due to timing and amortization.

• Ongoing trade policy changes impacting business. • Inventory adjustments in high-value categories as a short-term headwind. • Tariff-related uncertainties affecting volumes and margins. • Wage inflation and growth investments impacting Solutions Group margins. • Network inefficiencies from tariff policy changes.

Q: As it relates to the materials segment, how are volumes progressing sequentially given macro uncertainty?

A: In Q3, volumes were less than expected across regions due to lower retail volumes, CPG demand, and episodic events in high-value categories, but outlook for Q4 is similar growth with emerging markets also seeing lower volume due to tariff impacts.

Q: Talk about the Walmart news and its potential over the next couple of years?

A: Partnership is a validation of technology effectiveness for grocers, seen as strategically important for food growth. Estimates suggest high single-digit to low double-digit growth on total enterprise IL revenue over two years, ramping as rollout progresses.

Q: What's seen in the IL pipeline and need for new capital in intelligent labels?

A: Pipeline grows in number and dollar value across segments. For Walmart, initial phase doesn't require additional capacity, with modular approach and existing infrastructure, revisiting in two years if needed.

Q: About joint sensor technology with Walmart and other customers?

A: UHF RFID is key for item-level, while other sensing tech like WILIA is for palette/case level. Agnostic to technology, both contribute to digital identities for physical objects.

Q: Logistics segment weakness and potential for new deployments/share gains?

A: Weak in Q3 but progress with UPS partnership, expecting share expansion with UPS by year-end. Broader logistics environment has pilots/trials with key providers, assessing 2026 rollouts.

Q: Sales and EPS guide considerations, lagged price downs, etc.?

A: Sequentially, seasonality, share buyback, restructuring, inventory absorption, price deflation are factors. Q3 to Q4 has slight positives and headwinds.

Q: Walmart collaboration timing and Embellix expectations?

A: Walmart rollout starts small in Q4, ramps in 2026-2027. Embellix had strong Q3 due to World Cup prep, with base business improving and in-venue/consumer customization applications growing.

Q: Walmart RFID tag pricing and calendar switch?

A: Tags on meat are in best range with higher ASP. Switching from 4-4-5 calendar to Gregorian calendar, adding ~2 points to Q4 sales, with less impact from fixed costs on those days.

Q: Deflation in materials and IL disconnect with apparel?

A: Deflation in paper, chemicals, films, with tariff-related inflation in US offset by surcharges. IL disconnect due to new rollouts not tied to base apparel volume, like Inditex Group extension.