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    Avery Dennison (AVY)

    Q1 2025 Earnings Summary

    Reported on Apr 29, 2025 (Before Market Open)
    Pre-Earnings Price$174.83Last close (Apr 22, 2025)
    Post-Earnings Price$173.48Open (Apr 23, 2025)
    Price Change
    $-1.35(-0.77%)
    • Diversified Revenue & High-Value Growth: The company is showing resilient fundamentals as it continues to grow in high-value segments such as intelligent labels (IL) and Vestcom, even in a challenging macro environment. This diversified revenue base, spanning both materials and solutions groups, helps cushion against cyclical downturns while unlocking significant long‑term opportunity.
    • Disciplined Capital Allocation: Management’s commitment to returning cash to shareholders is evident in the significant share buybacks executed in Q1, which were accelerated when the share price declined. This disciplined approach signals strong confidence in the company’s intrinsic value and its ability to generate attractive returns over time.
    • Supply Chain Flexibility & Tariff Mitigation: The company has developed a robust global sourcing network that enables it to shift apparel production away from regions subject to tariffs. With only a small portion of revenue (around 4–10%) potentially impacted, management’s proactive pricing surcharges and sourcing adjustments help mitigate cost pressures while maintaining strong margins.
    • Tariff-related apparel headwinds: The Q&A discussion highlighted that apparel demand is expected to decline in the mid-single digits, driven by China‐related tariff issues. This suggests that if tariffs remain or worsen, a significant segment of the business—especially apparel tags (about 4% of revenue)—may underperform, putting downward pressure on overall volume and margins.
    • Macroeconomic and trigger point uncertainties: Executives mentioned monitoring various trigger points (e.g., evolving tariffs, GDP projections, and customer sourcing shifts) that could force additional structural actions. Such uncertainties indicate that if economic conditions deteriorate more than anticipated, the company may face abrupt earnings and margin pressure.
    • Aggressive buybacks amid a cloudier outlook: The company significantly accelerated its share repurchase program (spending roughly $260 million in Q1) even as outlook guidance became less clear, potentially exposing the firm to capital allocation risks if market conditions worsen or if the intrinsic value deteriorates further.
    MetricYoY ChangeReason

    Total Revenue

    Virtually unchanged (–0.1% change)

    Total revenue in Q1 2025 remained essentially flat ($2,148.3M vs. $2,151.3M in Q1 2024), as the slight decline in Materials Group was offset by growth in the Solutions Group. This stability reflects offsetting movements where favorable volume/mix in some segments were counterbalanced by raw material deflation-related price reductions and minimal foreign currency translation impacts.

    Materials Group Revenue

    –1% YoY (from $1,496.5M to $1,480.1M)

    Materials Group revenue declined modestly by about 1% YoY, primarily due to lower volume and pricing pressures from raw material deflation despite a reclassification of RFID product revenue that slightly supported the group. The decline indicates that earlier gains in volume from previous recovery periods were not fully sustained in Q1 2025 under current market cost pressures.

    Solutions Group Revenue

    +2% YoY (from $654.8M to $668.2M)

    Solutions Group revenue increased by 2% YoY as growth in high-value categories, such as Intelligent Labels, and strong performance in base categories contributed positively. These gains were driven by ongoing strategic initiatives and productivity improvements that build on previous periods’ high-value growth, despite some softness in logistics and apparel segments.

    Net Income

    –3.6% YoY (from $172.4M to $166.3M)

    Net Income declined by 3.6% YoY due to several headwinds including raw material deflation-related price reductions, losses on venture and other investments, and unfavorable foreign currency translation. These challenges partially offset benefits from productivity initiatives and higher volume/mix seen in earlier periods, resulting in a dip compared to the relatively higher net income performance in Q1 2024.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Adjusted EPS

    Q2 2025

    no prior guidance

    $2.30 to $2.50

    no prior guidance

    Sales Growth

    Q2 2025

    no prior guidance

    Sales growth anticipated in most businesses, offset by a mid-single-digit decline in apparel, resulting in overall sales roughly comparable to the prior year

    no prior guidance

    Sequential Increase in Earnings

    Q2 2025

    no prior guidance

    Driven by traditional seasonality, business momentum in high-value categories like Vestcom, and a sequential currency benefit assuming current rates

    no prior guidance

    Annual Wage Inflation Cycle

    Q2 2025

    no prior guidance

    Impacts from tariffs on apparel revenue and the annual wage inflation cycle starting April 1 are expected to partially offset growth

    no prior guidance

    Raw Material Costs

    Q2 2025

    no prior guidance

    Modest inflation anticipated sequentially in Q2 2025, with higher tariffs impacting by mid‑Q2. Surcharges are being implemented to account for these higher costs

    no prior guidance

    Restructuring Savings

    Q2 2025

    no prior guidance

    More than $45 million, up $5 million from prior expectations

    no prior guidance

    Currency Translation Impact

    Q2 2025

    no prior guidance

    $7 million headwind to operating income from currency translation, better than the $30 million headwind expected earlier in the year

    no prior guidance

    MetricPeriodGuidanceActualPerformance
    Adjusted EPS
    Q1 2025
    “Up slightly versus prior year”
    2.09Compared to 2.13 in Q1 2024, indicating a year-over-year drop
    Missed
    TopicPrevious MentionsCurrent PeriodTrend

    Intelligent Labels Growth & Rollout Timing

    Previous calls (Q2–Q4 2024, Q3 2024) emphasized targets of 10–15% growth, strong adoption in apparel and food segments with some uneven rollout timing and reliance on new program launches

    Q1 2025 shows mid-single digit growth overall; strong performance in apparel and food but continued delays in logistics and emerging uncertainty around rollout timing due to external pressures

    Stable growth with increasing caution due to tariff and sourcing uncertainties.

    Vestcom Business Performance & Volume Softness

    In Q2–Q4 2024, Vestcom experienced softness (especially in drugstore channels and due to customer bankruptcies) but had signs of recovery via re-signings and new partnerships

    In Q1 2025, Vestcom delivered strong high single-digit growth driven by new program rollouts (e.g., CVS Health) and improved performance even in downturn cycles

    An improvement from earlier softness toward robust growth and strategic expansion.

    Capital Allocation & Share Buybacks

    Q2–Q4 2024 focused on a steady, disciplined approach with balanced dividends and repurchases, including significant activity in Q3 and accelerated buybacks in Q4

    Q1 2025 featured a notably aggressive share repurchase program ($260 million), reinforcing a commitment to opportunistic, grid-based buybacks despite uncertainty

    More aggressive and opportunistic buyback activity amid market dislocation, signaling strong confidence.

    Apparel Segment Performance (Normalization vs Tariff Headwinds)

    Earlier periods (Q2–Q4 2024 and Q3 2024) highlighted normalization of apparel volumes post-destocking with little mention of tariff issues

    Q1 2025 reports a shift where initially positive apparel performance is facing volatility and expected mid-single digit declines because of China tariff-induced headwinds

    A notable shift from normalization to emerging tariff-induced headwinds that could dampen growth.

    Supply Chain Flexibility & Tariff Mitigation Measures

    Q2 2024 emphasized flexible supply chains with minimal tariff impacts and effective scenario planning; Q4 2024 highlighted regionalized operations and a strong global network

    Q1 2025 describes active sourcing adjustments, pricing surcharges, and continued scenario planning to mitigate rising tariff impacts and ensure flexibility

    Continued focus with more active measures in response to evolving tariff pressures.

    Macro-economic Uncertainties & Trigger Point Monitoring

    Q2–Q4 2024 discussed an uncertain macro environment with cautious outlooks, using inventory levels and customer feedback as trigger points; Q3 noted European softness and Q4 focused on stable GDP expectations

    Q1 2025 underscores elevated uncertainty due to shifting trade policies and lower GDP projections, with enhanced monitoring of tariffs, customer behavior, and proactive scenario planning

    Sustained uncertainty with heightened proactive monitoring and readiness to adapt to macro shifts.

    Margin Performance in Materials & Solutions Amid Cost Pressures

    Q2 2024 reported strong margins in Materials (around 17.9%) and improving Solutions margins (up 100 bps) while Q3–Q4 2024 evidenced stable-to-improving margins with offsetting cost pressures and investments

    Q1 2025 indicates Materials margins at 17.7% (despite productivity gains) and Solutions margins up by 110 bps YoY, with both segments contending with cost pressures from raw material pricing and tariffs

    Mixed performance: Materials slightly lower YoY while Solutions improve; cost pressures remain a significant factor.

    Strategic Partnerships & Expansion into Food and Retail Segments

    Q2 2024 noted early pilot programs and targeting a vast food market; Q3 2024 and Q4 2024 announced strategic collaborations with Kroger and CVS Health to enhance Intelligent Labels and Vestcom solutions

    Q1 2025 continues to leverage strategic partnerships, with robust progress in collaborations with Kroger (food segment) and CVS Health (retail), reinforcing growth in these key segments

    Partnerships are solidifying and expanding, enhancing long-term growth opportunities in high-potential food and retail markets.

    Competitive Pressures & Input Cost Inflation

    Q2 2024 reported low single-digit inflation driven by higher paper prices and acknowledged competitive pricing pressure through proactive pricing actions; Q3 2024 saw continued cost challenges mitigated by product reengineering

    Q1 2025 indicates that competitive pressures continue alongside input cost inflation (notably paper) while strategic pricing surcharges and sourcing adjustments are in play to offset tariff impacts

    Continuing cost pressures and competitive dynamics with sustained measures to counteract rising input costs.

    1. Share Repurchase
      Q: Why accelerate stock buybacks amid uncertainty?
      A: Management explained that with the share price in a decline, they increased repurchases in an orderly, disciplined fashion, confident in their long‑term intrinsic value and capital allocation strategy ($260 million buyback, consistent approach).

    2. Structural Actions
      Q: What triggers additional structural moves?
      A: They monitor macro trends, tariff evolutions, and early softening in demand to decide on further belt‑tightening and sourcing adjustments, ensuring prompt action if economic indicators worsen.

    3. China Sourcing
      Q: How much volume might shift from China?
      A: Management estimates that around 10% of the remaining Chinese apparel volume could be reallocated if tariffs persist, leveraging their established network in diverse sourcing regions.

    4. Intelligent Label Growth
      Q: What is IL growth guidance for Q2?
      A: They now expect overall intelligent label growth to moderate from high single digits to mid-single digits, largely due to headwinds in the apparel segment while general retail remains low single digits.

    5. Raw Material Costs
      Q: How will raw material costs trend?
      A: The outlook is for a relatively stable cost environment with low single-digit inflation or slight deflation, partly offset by tariff impacts that will be managed with pricing surcharges.

    6. Working Capital
      Q: Why did working capital increase in Q1?
      A: The uptick resulted from higher incentive compensation and increased customer rebate payments, with expectations that tariff-related impacts will only materialize later in Q2.

    7. US Demand
      Q: What are the trends in US demand?
      A: US demand in the materials business remains steady, although apparel orders have slowed due to ongoing adjustments in sourcing from China.

    8. RFID Tariff Impact
      Q: Will RFID supply chain costs rise due to tariffs?
      A: Tariff impacts appear minimal for RFID components because of diversified sourcing and strong, fast paybacks from RFID program investments.

    9. Logistics Stability
      Q: How stable is the logistics market?
      A: The logistics segment is considered stable due to preset volume agreements and historical resilience, with new pilot programs indicating strong potential moving into 2026.

    10. Capital Spend Flexibility
      Q: Is extra capital needed for relocating production?
      A: Management noted there is ample existing capacity and minimal extra capital is required when shifting production, ensuring efficient use of resources amid sourcing changes.

    Research analysts covering Avery Dennison.