• Earnings Per Share (EPS): $2.33 for the third quarter, up 9% compared to the prior year.
• Full Year EPS Guidance: Raised to $9.35 to $9.50, targeting nearly 20% growth compared to the prior year.
• Revenue Growth: Sales up 5% excluding currency effects and 4% on an organic basis.
• Adjusted EBITDA Margin: 16.4% for the third quarter, up 40 basis points from the prior year.
• Free Cash Flow: $420 million generated through the first three quarters, up nearly $50 million compared to the prior year.
• Net Debt to Adjusted EBITDA Ratio: 2.1 at quarter end.
• Shareholder Returns: $315 million returned through share repurchases and dividends in the first nine months.
• Materials Group Sales: Up 4% excluding currency and on an organic basis.
• Solutions Group Sales: Up 6%, with base solutions up mid-teens and high-value solutions up low single digits.
• Intelligent Labels Sales Growth: Mid-teens year-to-date, with more than 20% growth in apparel and general retail categories.
• Adjusted EBITDA Margin for Solutions Group: 17.9%, up 110 basis points sequentially and 150 basis points compared to the prior year.
• Organic Sales Growth Outlook for 2024: Estimated at 4.5% to 5%, targeting the high end of the previous outlook.
• Restructuring Savings: More than $55 million expected, up $5 million from the previous outlook.

• Warning! GuruFocus has detected 5 Warning Sign with AVY.

Release Date: October 23, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Avery Dennison Corp (NYSE:AVY) delivered strong earnings per share of $2.33, exceeding expectations and prompting an increase in full-year guidance.
• Both the Materials Group and Solutions Group showed strong bottom-line growth, with Intelligent Labels continuing to drive significant top-line growth.
• The company announced a strategic collaboration with Kroger to enhance customer experience through RFID technology, marking a significant step in the food segment.
• Avery Dennison Corp (NYSE:AVY) maintained a strong balance sheet, with a net debt to adjusted EBITDA ratio of 2.1, and returned $315 million to shareholders through share repurchases and dividends.
• The company is well-positioned to capitalize on long-term growth opportunities in diverse markets, with a focus on Intelligent Labels and high-value solutions.

Negative Points

• Macro retail volumes remain soft, particularly in developed regions, due to the cumulative effects of inflation, impacting consumer demand.
• Volume growth in Europe was slightly below expectations, affected by normal volume seasonality and softer retail volumes.
• The Intelligent Labels segment experienced uneven growth, with logistics volumes softer than expected due to prior year customer inventory builds and a customer transition.
• The Vestcom business faced challenges due to drugstore channel softness and impacts from a hurricane, affecting volume in the third quarter.
• The broader macro environment remains uncertain, with muted sentiment in Europe and cautious outlooks for retail volumes.

Q & A Highlights

Q: On the Materials segment, is the volume rebound in 2024 starting to plateau, and what is causing lower-than-forecast volume in Intelligent Labels for logistics? A: Gregory Lovins, CFO, explained that materials volumes, particularly in Europe, are slowing due to seasonality and softer retail volumes. Deon Stander, CEO, added that the broader macro environment remains uncertain, especially in Europe. The lower-than-forecast volume in logistics is mainly due to prior year inventory builds and a customer transition, which is now largely complete.

Q: Can you provide more details on the new Kroger opportunity and its potential impact on tag volumes and growth? A: Deon Stander, CEO, stated that the Kroger collaboration will start in the bakery department and expand over time. The food segment presents a significant growth opportunity, being much larger than apparel. The rollout will be phased over several quarters, and while specific program sizes aren't disclosed, it will contribute to the 15%+ growth target.

Q: What is causing the slowdown in Vestcom, and how does it impact earnings? A: Deon Stander, CEO, noted that the slowdown in Vestcom was due to drugstore channel softness and a temporary price freeze from a hurricane. However, Vestcom is expected to return to growth in the fourth quarter, and it remains a significant high-value segment with good growth prospects.

Q: How do you view the margins for the food opportunity within RFID, and how does it compare to your current business? A: Deon Stander, CEO, mentioned that the Intelligent Labels platform, including food, generally maintains above-segment margins. While ASPs may vary, margins are relatively consistent across different categories and remain above average.

Q: How did label volumes and Intelligent Labels perform in Q3, and what factors influenced these results? A: Deon Stander, CEO, confirmed that label volumes were largely in line with the industry, maintaining or expanding market share. Intelligent Labels experienced some volatility due to logistics rollouts and customer transitions, but overall performance aligns with market trends, with long-term growth expected.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.