Avery Dennison Corporation Q4 FY2025 earnings call

• Delivered solid full-year 2025 results with adjusted EPS of $9.53 and $700 million of adjusted free cash flow. - Resilient despite trade policy changes and softer consumer sentiment, maintaining adjusted EBITDA margin of 16.4%. - Focus on driving growth in high-value categories, accelerating innovation, delivering productivity, and allocating capital effectively. - In Materials Group, high-value categories now 38% of portfolio; Intelligent Label had high single-digit growth, Performance Materials mid-single digits, Graphics and Reflectives low single digits. - In Solutions Group, high-value categories 60% of portfolio; Vesprom grew >10%, Embellix high single-digit growth, Intelligent Labels low single digits. - Achieved 2025 sustainability goals and making progress on 2030 objectives.

Materials Group: Reported sales increased 5%. While organic sales were slightly down, low single-digit volume and mix growth was offset by deflation-related price reductions. High-value categories represent 38% of the segment's portfolio. Adjusted EBITDA margin was 16.6%, down 40 basis points. Solutions Group: Sales increased roughly 1.5%. High-value categories now represent 60% of the portfolio. Adjusted EBITDA margin was 17.8%, up nearly a point sequentially. Enterprise-wide intelligent label platform: Sales grew mid-single digits. Food, logistics, and other categories delivered high teens growth in Q4 and ~10% for full-year 2025.

• 2026 adjusted earnings per share expected to grow ~6% at midpoint on organic sales growth of 0 to 2%. - 2026 reported sales growth expected 5% to 7%, including organic growth 0-2%, ~4% from currency translation, ~1% from Taylor Adhesives acquisition. - Adjusted earnings per share in range of $2.4 to $2.46, ~6% growth year over year midpoint. - Expect ~$50 million in restructuring savings, normalization of 2025 temporary savings, and benefits from favorable currency and lower share count partially offset by higher tax rate and interest expense. - Target ~100% free cash flow conversion, ~$260 million in fixed and IT capital spending, sequential increase in earnings.

• Ongoing trade policy changes and softer consumer sentiment as headwinds. - Tariff-related uncertainty impacting base solutions in Solutions Group. - Higher employee-related costs affecting margins. - Raw material deflation/inflation impacts on costs.

Q: Josh Spector from UBS asked about apparel market trajectory.

A: Dion Stander responded that apparel market has tariff uncertainty, soft volumes, with anticipation of growth later in the year but continued caution from retailers.

Q: Matt Roberts from Raymond James asked about general retail compliance rollouts and logistics pilots.

A: Dion Stander responded that general retail compliance rollouts should return, and in logistics, expanding pilots with other customers and international operations are in discussion.

Q: Anthony Pettinari from Citigroup asked about quarterly timing of restructuring benefits and Walmart sales cadence.

A: Gregory Lovins responded restructuring benefits balanced across quarters, and Dion Stander said Walmart sales rollout expected to ramp in third and fourth quarters and accelerate in 2027.

Q: Mike Roxland from Truist Securities asked about early 2026 growth drivers and apparel customer plans.

A: Dion Stander responded on focus on high-value category new customers, innovation acceleration, digital and AI use, and ongoing apparel customer adoption and rollouts.

Q: John Dunigan from Jefferies asked about inventory levels and CapEx.

A: Gregory Lovins responded on inventory turns and working capital pressures, and CapEx increase in 2026 for productivity and future capacity.

Q: George Staphos from Bank of America Securities Inc. asked about customer acquisition costs and paper supply.

A: Dion Stander responded no anticipated increase in customer acquisition costs and positive progress in paper supply management.

Q: John McNulty from BMO Capital Markets asked about employee cost inflation and pricing.

A: Gregory Lovins responded that material reengineering helps offset employee cost inflation, with pricing following raw material input costs.