Avery Dennison Corporation Q1 FY2026 earnings call

• Delivered strong start to 2026 with organic sales up 1% and adjusted EPS up 7% year over year, driven by diversified portfolio and productivity/cost control. • Materials Group results stronger offsetting softer Solutions Group; base label materials growth compensated for softness in high value categories. • Responding proactively to raw material inflation with price increases and material reengineering. • Investing $75 million in Williard to deepen partnership and strengthen Intelligent Labels platform, including joint go-to-market team. • Maintaining commercial and operational agility to stay ahead of inflationary pressures. • Extending scenario planning and driving productivity/cost management. • Solutions Group's high value categories growth as long-term driver, but base categories softer.

Materials Group: Reported sales growth of 11% over prior year, organic sales grew ~2% driven by mid single-digit volume/mix growth partially offset by deflation-related price reductions; base label materials business grew mid single digits offsetting softness in certain high value categories; adjusted EBITDA up low double digits and margin up 10 basis points. Solutions Group: Reported sales decreased 3% quarter over prior year, organic sales down 1%; high value categories grew low single digits, base categories down mid single digits; adjusted EBITDA margin 16.4%, down 80 basis points year over year. Enterprise-wide Intelligent Labels platform: Sales down low single digits compared to prior year, softer in logistics due to softer demand and inventory management, but saw growth in apparel and general retail; expecting 2026 growth to outpace 2025 with second half more weighted, apparel and general retail expected full-year growth, food category to inflect with Walmart ramp in back half, logistics lapping outsized volume in 2025 and expanding pilots.

• Anticipate earnings growth at midpoint of guidance range for second quarter with organic sales growth 0% to 2%. • Reported sales growth expected 2% to 4% in second quarter, including ~1% from currency translation and ~1% from Taylor Adhesives acquisition. • Expect adjusted EPS in range of $2.43 to $2.53 for second quarter, ~3% growth at midpoint. • Full year 2026 expects approximate $0.25 EPS benefit from favorable currency and lower share count, partially offset by higher adjusted tax rate and interest expense; increased restructuring savings expectation to >$55 million; targeting roughly 100% adjusted free cash flow conversion with ~$260 million fixed and IT capital spending; anticipating sequential increases in earnings throughout the year excluding destocking impacts.

• Geopolitical uncertainty triggering raw material inflation, impact on profitability if inflationary pressure lasts longer. • Softness in certain end markets affecting high value categories in Solutions Group. • Volatility in logistics demand and inventory management impacting Intelligent Labels platform sales. • Macroeconomic uncertainty potentially affecting consumer elasticity and volume outlook for end markets.

Q: On Intelligent Labels, how did Q1 play out relative to initial expectations and has view on 2026 core sales changed?

A: Q1 played out slightly lower than anticipated mostly on logistics volume; still believe 2026 growth to outpace 2025 with second half new programs ramping.

Q: Peer into revenue bridge for quarter, talk about pricing to offset cost pressure in Q2 and weakness in high value categories in Materials?

A: Greg says Q2 has high single-digit sequential inflation, implementing price increases; Deon says high value category weakness in Q1 had idiosyncratic reasons, anticipation of return to growth.

Q: Estimating flat earnings per share in second quarter, what's restraining growth and outlook for Q3?

A: Gregory says slight price/cost timing headwind, but productivity increases offset; expects continued sequential earnings growth through Q3 and Q4.

Q: Dig into IL business, how much logistics headwind and leverage with Williard investment?

A: Deon says majority logistics softness from end customer demand, chip change temporary; Williard investment deepens partnership, expands total addressable market for IL platform.

Q: Clarify price/cost and sequential earnings growth, any cost flow through in Q3?

A: Gregory says some inflation flow through to Q3, continues to do price increases; expects sequential earnings growth through year.

Q: Clarify IL cadence and logistics customer update?

A: Deon says significant ramp in second half, logistics international expansion going well.

Q: Customers offsetting cost via price and impact on volume outlook?

A: Deon says expanding scenario planning, accelerating productivity; customers vary by region, CPG volumes muted but some growth, apparel soft but inventory ratios low.

Q: Intelligent Labels exit rate in Q1 and acceleration in March/April?

A: Deon says nothing dramatic, second quarter comps easier.

Q: Capital allocation, pace of buybacks?

A: Gregory says continue return-based approach, balance investment pipeline and buybacks.

Q: Expand scenario planning and prebuy prevention?

A: Deon says expanding scenarios on productivity, innovation, commercial excellence; Gregory says global scale helps ensure supply and limit prebuy impact.