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    Avery Dennison Corp (AVY)

    CFO Change
    Board Change

    Business Description

    Avery Dennison Corporation is a global materials science and digital identification solutions company that provides a wide range of branding and information solutions. The company operates through two primary business segments: the Materials Group and the Solutions Group. Avery Dennison sells pressure-sensitive label materials, films, performance tapes, fasteners, RFID inlays and tags, software applications, and branded packaging solutions, focusing on optimizing labor and supply chain efficiency, reducing waste, advancing sustainability, and better connecting brands and consumers through innovative solutions that integrate physical and digital elements .

    1. Materials Group - Focuses on pressure-sensitive label materials, films, performance tapes, and fasteners, and includes high-value categories such as graphic solutions and reflective solutions. This segment is a leader in the industry, being 2.5 times larger than its nearest competitor in label materials .

    2. Solutions Group - Offers RFID inlays and tags, software applications, and branded packaging solutions, with a strong emphasis on the Intelligent Labels business that uses RFID technology to enhance inventory accuracy and supply chain efficiency, particularly in the apparel, logistics, and food industries .

    Q3 2024 Summary

    Initial Price$223.45June 28, 2024
    Final Price$222.34September 28, 2024
    Price Change$-1.11
    % Change-0.50%

    What went well

    • AVY continues to hold, if not expand, market share in its label business globally and expects to be the majority share provider in Intelligent Labels over the long term, leveraging competitive advantages.
    • The strategic collaboration with Kroger positions AVY to capitalize on a significant growth opportunity in the food segment, which is an order of magnitude larger than apparel, with expectations to expand beyond bakery into areas like proteins and fresh produce.
    • AVY is on track to deliver its long-term financial targets, including 10% adjusted EPS growth annually, supported by strong growth in Intelligent Labels and normalization in other business segments, presenting a multi-decade growth opportunity.

    What went wrong

    • Intelligent Labels (IL) growth is slowing, with year-to-date performance moving from "mid- to high teens to mid-teens" after nine months, partly due to softness in logistics and customer transitions.
    • Vestcom is experiencing volume softness, especially in the drugstore channel, due to challenges faced by drugstore partners, which could impact future performance.
    • Increasing input costs in Europe, particularly higher paper prices, combined with softer demand, may pressure margins in the Materials Group if not fully offset by pricing actions.

    Q&A Summary

    1. Kroger Partnership and Food Sector Expansion
      Q: Can you discuss the scale and rollout plans of the Kroger partnership and potential expansion into other food categories?
      A: The partnership with Kroger initially focuses on rolling out Intelligent Labels in the bakery department across approximately 2,800 stores over the next six quarters. Bakery is an easier starting point due to its contained supply chain. Over time, we expect to expand into other areas like proteins and fresh produce, tapping into a food segment market of 200 billion units, significantly larger than apparel or logistics. This rollout will contribute to our 15%+ growth target in Intelligent Labels.

    2. Intelligent Labels Growth Outlook
      Q: How is the growth trajectory for Intelligent Labels, considering recent softness in logistics?
      A: Despite some softness in logistics due to prior-year inventory builds and customer transitions , we remain confident in delivering our 15%+ growth target for Intelligent Labels. The third-quarter performance was affected by specific comps and transitions , but we expect growth to normalize as these factors are now largely completed.

    3. Vestcom Performance and Prospects
      Q: Is the slowdown in Vestcom temporary or indicative of a permanent shift?
      A: The third-quarter slowdown in Vestcom was due to temporary factors like drugstore channel softness and impacts from a hurricane causing price freezes. One customer emerging from bankruptcy is a positive sign, and we expect Vestcom to return to growth in the fourth quarter. We don't see this as a permanent shift and are engaging with new opportunities in the drugstore channel.

    4. 2025 Financial Guidance
      Q: Will 2025 align with your long-term growth framework of 5% top line and 10% EPS growth?
      A: Our early view of 2025 is that we will follow the algorithm laid out in our long-term financial framework, aiming for 10% adjusted EPS growth annually. Key drivers include growth in Intelligent Labels, a more normalized first half in apparel, and better margins in Solutions.

    5. Margins in Food RFID Segment
      Q: Are margins in the food RFID market consistent with your average RFID margins?
      A: Yes, our Intelligent Labels platform generally achieves margins above segment average. While ASPs may vary depending on product complexity, margins across apparel, logistics, and food categories are relatively consistent and above average.

    6. Label Volumes and Market Share
      Q: Did your label volumes track in line with the industry, and how is your market share?
      A: Our label volumes are largely in line with the industry, and we continue to maintain or expand our market share globally. In Intelligent Labels, despite some volatility, we perform in line with the market and expect to expand our share over the long term due to our competitive advantages.

    7. European Materials Segment and Pricing
      Q: How are pricing and input costs affecting your European Materials segment, and do you foresee changes going into 2025?
      A: From Q2 to Q3, we saw low single-digit inflation in materials, mainly in European paper. We implemented pricing actions, resulting in a negligible net impact for the quarter. Looking ahead, we expect a relatively stable materials environment and don't anticipate significant shifts in the near term.

    8. Intelligent Labels Margin Impact
      Q: How much did Intelligent Labels grow in 3Q, and what's the impact on margins?
      A: Given the logistics softness, year-to-date Intelligent Labels growth moved from mid-to-high teens at mid-year to mid-teens after nine months. Despite this, our Intelligent Labels platform continues to contribute above segment margins.

    9. Intelligent Labels in QSR and Food Safety
      Q: What is the potential for Intelligent Labels in QSR markets and food safety initiatives?
      A: We are already rolling out Intelligent Labels with a couple of QSRs, focusing on food safety by providing transparency of product origin and freshness. Recent FISMA regulations are expected to accelerate the adoption of RFID technology in food safety, which will benefit us as a market leader.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Materials Group1,460.51,476.01,456.01,418.85,811.31,496.51,546.81,497.7
    - Labels, graphics and reflectives----5,076.8---
    - Tapes and adhesives----665.3---
    - Other----69.2---
    Solutions Group604.5614.5642.3691.72,553.0654.8688.5685.7
    - Apparel418.8-408.7-1,661.4459.6476.2463.8
    - Identification Solutions and Vestcom185.7-233.6-891.6195.2212.3221.9
    Industrial and Healthcare Materials--------
    Pressure-sensitive Materials--------
    Retail Branding and Information Solutions--------
    Vancive Medical Technologies--------
    Total Revenue2,065.02,090.52,098.32,110.58,364.32,151.32,235.32,183.4
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    U.S.446.4430.7425.41,275.82,578.3437.4441.6436.4
    Europe, Middle East, Africa498.9510.3494.6802.92,306.7534.7549.9498.5
    Asia315.6338.1327.91,563.62,545.2326.2344.0354.9
    Latin America113.7117.2126.2225.2582.3120.6127.0124.4
    Other85.979.781.9104.3351.877.684.383.5
    - Sales in China (including Hong Kong)--------
    Total Revenue2,065.02,090.52,098.32,110.58,364.32,151.32,235.32,183.4
    KPIs - Metric / QuarterFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Operational Working Capital14.3%14.0%13.1%12.5%-13.4%13.4%14.3%
    Average Days Sales Outstanding60626261-636266
    Average Inventory Turnover5.86.26.56.6-6.26.46.1
    Average Days Payable Outstanding74737677-787679

    Executive Team

    NamePositionStart DateShort Bio
    Deon M. StanderPresident and Chief Executive OfficerSeptember 1, 2023Deon M. Stander has been with Avery Dennison for over 20 years, holding various leadership roles. He was previously the President and Chief Operating Officer from March 2022 to August 2023 .
    Mitchell R. ButierExecutive ChairmanSeptember 1, 2023Mitchell R. Butier has been with Avery Dennison since March 2007, serving in roles such as President, Chief Operating Officer, and Chief Financial Officer. He was Chairman and CEO from 2019 to 2022 .
    Gregory S. LovinsSenior Vice President and Chief Financial OfficerMarch 2017Gregory S. Lovins has held various positions within Avery Dennison, including Vice President and Interim CFO in 2017, and Vice President and Treasurer from 2016 to 2017 .
    Deena Baker-NelSenior Vice President and Chief Human Resources OfficerSeptember 2020Deena Baker-Nel has served in various HR roles at Avery Dennison, including Vice President and Chief Human Resources Officer from 2020 to 2022 .
    Nicholas R. ColistoSenior Vice President and Chief Information OfficerSeptember 2020Nicholas R. Colisto was previously Vice President and CIO at Avery Dennison from 2018 to 2022, and before that, he was SVP and CIO at Xylem Inc. from 2012 to 2018 .
    Francisco MeloPresident, Solutions GroupApril 2023Francisco Melo transitioned to President of the Solutions Group in April 2023. He was previously SVP and General Manager of Avery Dennison Smartrac from 2022 to 2023 .
    Divina F. SantiagoVice President, ControllerSeptember 2023Divina F. Santiago served as Vice President Finance from 2022 to 2023 and as Senior Director, Finance from 2008 to 2022 before becoming Vice President and Controller .
    Ignacio J. WalkerSenior Vice President and Chief Legal OfficerSeptember 2020Ignacio J. Walker has held various legal positions at Avery Dennison, including Vice President and Chief Legal Officer from 2020 to 2022 .
    Maria Fernanda MejiaDirector, Audit Committee MemberFebruary 2024Maria Fernanda Mejia has over 35 years of consumer goods industry expertise. She was CEO, International, at Newell Brands Inc. from February 2022 to February 2023 .
    Ward DicksonDirector, Chair of Audit Committee, Finance Committee MemberN/AWard Dickson serves as the Chair of the Audit Committee and is a Finance Committee Member. Specific start date and additional biographical information are not provided.

    Questions to Ask Management

    1. Given the recent softness in logistics impacting your Intelligent Labels growth, what strategies are you implementing to mitigate this slowdown and ensure consistent growth within the segment?
    2. With the drugstore channel softness and a major customer emerging from bankruptcy, how do you plan to address potential long-term structural changes in this channel and diversify Vestcom's client base?
    3. As you embark on the significant rollout with Kroger in the food segment, how are you managing the operational and execution risks associated with scaling up RFID technology across 2,800 stores, and how confident are you in achieving your growth targets in this new market?
    4. Given that Europe's materials volume was slightly below expectations and you experienced higher paper prices, how do you plan to navigate cost pressures and demand softness in Europe, and are any strategic adjustments needed for 2025?
    5. While you've raised your earnings guidance for the year, you mention that the environment remains uncertain; what specific uncertainties are you most concerned about that could impact your ability to deliver on growth and earnings targets, particularly in the Solutions Group?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateApril 2022
    End Date/DurationN/A
    Total additional amount$750 million
    Remaining authorization amount$485.6 million
    DetailsEnhance long-term stockholder value

    Past Guidance

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Earnings Per Share (EPS): $9.35 to $9.50, nearly 20% growth at midpoint .
      2. Organic Sales Growth: 4.5% to 5%, targeting high end of previous outlook .
      3. Volume Growth: High single-digit volume growth, offset by deflation-related price reductions .
      4. Restructuring Savings: More than $55 million, up $5 million from previous outlook .
      5. Currency Translation Impact: Headwind of roughly $5 million in operating income .
      6. Adjusted Free Cash Flow Conversion: Targeting roughly 100% .

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Earnings Per Share (EPS): $9.30 to $9.50, 19% growth at midpoint .
      2. Organic Sales Growth: Roughly 4.5% .
      3. Volume Growth: High single-digit volume growth .
      4. Incremental Savings from Restructuring Actions: More than $50 million .
      5. Currency Translation Impact: Headwind of roughly $10 million in operating income .
      6. Intelligent Labels Platform: More than 20% volume growth, mid-teens sales growth .
      7. Adjusted Free Cash Flow: Targeting roughly 100% conversion .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Adjusted Earnings Per Share (EPS): $9 to $9.50, 17% increase at midpoint .
      2. Organic Sales Growth: Roughly 4% .
      3. Volume Growth: High single digits .
      4. Incremental Savings from Restructuring Actions: More than $45 million .
      5. Currency Translation Impact: Headwind of roughly $5 million in operating income .
      6. Intelligent Labels Growth: Roughly 20% growth .
      7. Earnings Timing: Stronger earnings in the second half of the year .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Organic Sales Growth: Roughly 3.5% .
      2. Adjusted Earnings Per Share (EPS): $9 to $9.50, 17% increase at midpoint .
      3. Adjusted EBITDA Margin: 15% plus, targeting closer to 16% .
      4. Return on Total Capital (ROTC): Mid- to high teens .
      5. Intelligent Labels Growth: 20% or more growth .
      6. Materials Group EBITDA Margin: Progress towards 17% target .
      7. Overall Productivity: Offset higher employee costs .
      8. Net Nonoperational Items: Roughly neutral .
      9. First Quarter Adjusted EPS: Similar to Q4 2023, with improvement expected .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • Checkpoint Systems, Inc., a subsidiary of CCL Industries Inc.; R-pac International Corporation; and SML Group Limited - Competitors in the Solutions Group, particularly in RFID solutions .
    • UPM Raflatac, a subsidiary of UPM Corporation; Fedrigoni Self-Adhesives; Lintec Corporation; Flexcon Corporation, Inc. - Competitors in label materials .
    • 3M Company and the Orafol Group - Competitors in graphics and reflective products .
    • 3M; Tesa-SE, a subsidiary of Beiersdorf AG; Nitto Denko Corporation - Competitors in performance tapes products .

    Latest news

    Recent developments and announcements about AVY.

    Corporate Leadership

      Board Change

      ·
      Nov 15, 2024, 12:00 AM

      Danny G. Allouche has been elected as the company's Senior Vice President and Interim Chief Financial Officer, effective November 15, 2024. He will retain his current role as Chief Strategy and Corporate Development Officer in addition to his new responsibilities .

      CFO Change

      ·
      Nov 15, 2024, 12:00 AM

      Gregory S. Lovins, the Senior Vice President and Chief Financial Officer of Avery Dennison Corporation, began a medical leave of absence on November 14, 2024, and ceased serving as the company's principal financial officer as of that date. Danny G. Allouche has been elected as the Interim Chief Financial Officer, effective November 15, 2024 .

      Leadership Change

      ·
      Nov 8, 2024, 12:00 AM

      Ken C. Hicks is leaving Avery Dennison Corporation to focus on his new role as President and Chief Executive Officer at PetSmart LLC. His resignation was effective immediately and was not due to any disagreement with the company .

      Board Change

      ·
      Nov 8, 2024, 12:00 AM

      Ken C. Hicks, a 17-year member of the Board of Directors of Avery Dennison Corporation, resigned from the board effective immediately on November 7, 2024, to focus on his new role as President and CEO at PetSmart LLC. His resignation was not due to any disagreement with the company .