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Avery Dennison Corp (AVY)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was broadly in line: net sales $2.15B (-0.1% reported; +2.3% organic), adjusted EPS $2.30 (+0.4% YoY; ~+4% ex-FX), and margins stable; modest EPS underperformance versus consensus was offset by slight revenue outperformance . S&P Global consensus for Q1 was EPS $2.315*, revenue $2.146B*, EBITDA $353M*; actuals were EPS $2.30, revenue $2.148B, EBITDA $352M (near inline overall)* [GetEstimates].
  • Materials Group delivered solid volumes and strong margins; Solutions Group posted 4.9% organic growth with apparel strength and logistics softness; enterprise Intelligent Labels grew mid-single digits with food and apparel up and logistics down as expected .
  • Guidance pivot: management withdrew full-year guidance, moving to quarterly due to tariff/macro uncertainty; Q2 adjusted EPS guided to $2.30–$2.50, with sales roughly flat YoY and mid-single-digit decline expected in apparel; direct tariff cost impact is low single-digit and mitigated via surcharges/sourcing .
  • Capital allocation remained active: $331M returned to shareholders, including $262M repurchases of 1.4M shares; dividend raised ~7% to $0.94/quarter (payable June 18, 2025) .
  • Stock narrative catalysts: tariff/China sourcing dynamics (risk to near-term apparel volumes), Intelligent Labels momentum in food and general retail, and quarterly guidance shift (signals caution, but execution consistent) .

What Went Well and What Went Wrong

  • What Went Well

    • Intelligent Labels momentum in food and apparel; management highlighted Kroger collaboration and broader pilots, with IL up MSD and “clear competitive advantages” in scale and innovation .
    • Materials Group margins held up: adjusted operating margin 15.6% and adjusted EBITDA margin 17.7% (up 70 bps sequentially), with productivity and volume offsets against pricing/raw materials .
    • Capital returns and balance sheet: $331M returned, net debt/EBITDA 2.3x; CFO reaffirmed disciplined buybacks when shares trade below intrinsic value .

  • What Went Wrong

    • Q1 adjusted FCF was negative ($53.1M) on typical seasonality and higher incentive/rebate payments; working capital was heavier versus prior year .
    • Tariff-driven uncertainty: shift to quarterly guidance; apparel expected to decline mid-single digits in Q2; direct tariff impacts are small but indirect demand effects less certain .
    • IL logistics remained soft as expected; Embelex down mid-single digits; management flagged normalization and pilots likely converting in 2026, not 2025 .

Financial Results

Sequential performance (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Millions)$2,183.4 $2,185.7 $2,148.3
Adjusted EPS ($)$2.33 $2.38 $2.30
Reported EPS ($)$2.25 $2.16 $2.09
Adjusted EBITDA Margin %16.4% 16.4% 16.4%
Adjusted Operating Margin %12.8% 12.8% 12.8%
Organic Sales Change %4.3% 3.3% 2.3%

YoY comparison (oldest → newest)

MetricQ1 2024Q1 2025
Revenue ($USD Millions)$2,151.3 $2,148.3
Adjusted EPS ($)$2.29 $2.30
Reported EPS ($)$2.13 $2.09
Adjusted Operating Income ($USD Millions)$273.7 $274.5
Adjusted EBITDA ($USD Millions)$351.0 $352.4
Adjusted Free Cash Flow ($USD Millions)$58.1 ($53.1)

Segment breakdown (YoY; oldest → newest)

SegmentSales ($USD Millions)Adjusted Op Margin %Adjusted EBITDA Margin %
Materials Group (Q1 2024 → Q1 2025)$1,496.5 → $1,480.1 16.1% → 15.6% 18.3% → 17.7%
Solutions Group (Q1 2024 → Q1 2025)$654.8 → $668.2 9.3% → 10.2% 16.1% → 17.2%

KPIs

KPI (Q1 2025 unless noted)Value
Organic Sales Change (Total Company)+2.3%
Adjusted Operating Income$274.5M
Adjusted EBITDA$352.4M
Adjusted Free Cash Flow($53.1)M
Net Debt to Adjusted EBITDA (LTM)2.3x
Total Debt / Cash & Equivalents$3,459.1M / $195.9M
Shares repurchased / cost1.4M / $262M
Cash returned to shareholders$331M
Adjusted tax rate26%

Results vs Wall Street consensus (S&P Global)

Metric (Q1 2025)ConsensusActualOutcome
Primary EPS ($)$2.315*$2.30 Slight miss*
Revenue ($USD Millions)$2,145.7*$2,148.3 Slight beat*
EBITDA ($USD Millions)$353.4*$352.4 Near inline*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2025$9.80–$10.20 Withdrew full-year; shifted to quarterly Withdrawn FY guidance
Reported EPSQ2 2025N/A$2.25–$2.45 Introduced
Adjusted EPSQ2 2025N/A$2.30–$2.50 Introduced
Currency translation headwind to OIFY 2025~$30M headwind ~$7M headwind Improved
Restructuring savings (net)FY 2025~$40M ~$45+M Raised
Net interest expense (net)FY 2025~$105M ~$110M Raised
Adjusted tax rateFY 2025~26% ~26% Maintained
Segment outlook (Apparel)Q2 2025N/AMid-single-digit decline expected New
Sales outlook (Total)Q2 2025N/AOverall sales roughly comparable YoY New
Dividend per share2Q 2025N/A$0.94 (payable 6/18/25; +~7%) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 & Q4)Current Period (Q1 2025)Trend
Tariffs & macroCautious view; FY25 adj EPS 10–15% IL growth; currency headwind ~$5–$30M Shift to quarterly guidance; direct tariff impact low single-digit; apparel MSD decline in Q2; pricing surcharges/sourcing mitigation Elevated uncertainty; proactive mitigation
Intelligent Labels (IL)Kroger bakery rollout announced; IL mid-teens YTD; logistics softness IL up MSD; apparel & food strong, logistics down; pilots likely 2026 conversion Mixed: strength in apparel/food, logistics normalization
Raw materials/pricingPaper-led inflation in Europe (Q3); stable outlook Modest deflation Q1; relatively stable outlook Q2; tariffs mid-Q2 begin to impact Stabilizing, tariff overlay
Vestcom & EmbelexVestcom drugstore softness/hurricane; Embelex growth 2024 Vestcom up HSD; Embelex down MSD; confidence in strengthening later 2025 Improving Vestcom; Embelex timing variability
China sourcing & apparelApparel IL expected to grow; limited direct tariff exposure; USMCA compliance ~$350M apparel labels for China-exported garments to U.S.; rerouting capacity; expect some migration Manageable direct impact; indirect demand uncertain

Management Commentary

  • “We delivered a strong first quarter, in-line with expectations. Both our Materials and Solutions Groups achieved strong results in a dynamic environment.” — CEO Deon Stander .
  • “Shifting to quarterly from full-year guidance due to macro uncertainty; expect Q2 adjusted EPS of $2.30 to $2.50.” — Supplemental materials .
  • “Relatively small proportion of our material purchases are impacted [by tariffs], less than 10% globally… implementing sourcing adjustments and pricing surcharges.” — CFO Greg Lovins .
  • “Enterprise-wide Intelligent Labels up mid-single digits… strong growth in apparel and food, partially offset by a decline in logistics.” — Management remarks .

Q&A Highlights

  • Tariffs and pricing: Direct tariff impact expected to be low single-digit inflation on raw materials; mitigation via surcharges and sourcing shifts; apparel Q2 anticipated MSD decline tied mainly to China tariffs .
  • Working capital/FCF: Q1 FCF negative on seasonality, higher incentive and rebate payouts; DSOs/DPOs moved modestly; no unusual items beyond expected payments .
  • Buybacks: Q1 repurchase acceleration grounded in grid discipline and perceived intrinsic value; uncertainty on FY outlook emerged only in recent weeks due to tariff developments .
  • Logistics pilots: Broad pilot engagement across major logistics providers; conversions more likely in 2026; focus on labor efficiency/routing accuracy outcomes .
  • Raw materials: Overall stable to slight deflation; paper dynamics remain the larger driver versus chemicals/films; tariffs begin mid-Q2 .

Estimates Context

  • Q1 2025 results versus S&P Global consensus: EPS $2.315* vs actual $2.30 (slight miss), revenue $2.146B* vs $2.148B (slight beat), EBITDA $353M* vs $352M (near inline)* [GetEstimates] .
  • Q2 2025 guidance ($2.30–$2.50 adjusted EPS) bracketed the Q2 consensus EPS $2.394*; management expected overall sales roughly flat YoY with apparel MSD decline, consistent with consensus sales expectations* [GetEstimates].
    Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Resilient margins and stable organic growth despite macro headwinds suggest core earnings power remains intact; segments executed well with balanced mix and productivity offsets .
  • Quarterly guidance and tariff commentary increase near-term uncertainty; apparel exposure to China-U.S. flows (~$350M revenue) is small (≈4%) but demand elasticity warrants monitoring .
  • Intelligent Labels continues to be the secular growth lever: food and general retail momentum, apparel normalized; logistics likely a 2026 conversion event, tempering near-term upside .
  • Capital returns remain supportive: $331M returned in Q1 and dividend up to $0.94; balance sheet leverage at 2.3x net debt/EBITDA provides flexibility for continued buybacks/M&A .
  • Near-term positioning: expect Q2 sequential EPS uptick on seasonality, currency tailwind (~$7M OI headwind revised from $30M), and ongoing restructuring savings (>$45M) .
  • Estimate implications: modest EPS trim for Q1 variance balanced by stable revenue; IL logistics timing could keep outer-quarter estimates conservative until pilot conversions firm up [GetEstimates] .
  • Watchlist items: apparel ordering trends through Q2, tariff execution/pricing surcharges, raw material stability (paper), Vestcom retail programs ramp and Embelex recovery into late 2025 .