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Avery Dennison Corp (AVY)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered EPS above expectations: reported EPS $2.41 and adjusted EPS $2.42; revenue $2.2205B; organic sales −1.0%. EPS beat Wall Street consensus by ~$0.03*, while revenue missed by ~$22.1M* as tariffs weighed on apparel/general retail demand .
  • Materials Group margins remained strong (adj. EBITDA 17.8%), Solutions Group adj. EBITDA 17.1% despite apparel softness; high‑value categories grew low single digits, offsetting tariff impacts via productivity and sourcing surcharges .
  • Guidance shifted to quarterly focus; Q3 2025 adjusted EPS guided to $2.24–$2.40, with slight sales growth YoY but typical seasonal EPS downtick vs Q2; full-year considerations updated to a ~$7M FX tailwind (from prior headwind) and ~$50M net restructuring savings .
  • Capital returns robust: H1 2025 cash returned $503M; share repurchases $360M; quarterly dividend increased ~7% to $0.94 and declared payable Sept 17, 2025 .
  • Near-term stock reaction catalysts: tariff uncertainty on apparel sourcing and the pace of Intelligent Labels (IL) adoption (food/logistics strength vs apparel softness) alongside productivity and restructuring delivery .

What Went Well and What Went Wrong

What Went Well

  • Strong EPS and cash generation despite macro/tariff headwinds; adjusted EBITDA margin rose to 16.6% (+20 bps YoY) and adjusted FCF ~$189M, reflecting productivity and disciplined capital allocation .
  • Materials Group delivered resilient margins (adj. EBITDA 17.8%) on modest volume/mix gains; Graphics & Reflectives up high single digits; Performance Tapes/Medical up low single digits .
  • Management mitigated direct tariff cost impacts via strategic sourcing and pricing surcharges; indirect apparel demand impact estimated >$0.10 EPS headwind was offset in part by high-value growth and productivity (“earnings above expectations”) .
  • Quote: “We delivered a solid second quarter, with earnings above expectations… growth in our high‑value categories and productivity in the base business offset the impact from tariffs.” – CEO Deon Stander .

What Went Wrong

  • Organic sales declined −1.0% (total company), with Solutions Group down −0.8% organically; apparel/general retail categories down ~6% in Q2 as customers paused/reassessed sourcing under trade policy uncertainty .
  • Materials Group adjusted operating margin dipped 20 bps YoY to 15.6% on net pricing/raw material inputs despite productivity benefits .
  • IL platform growth was uneven: apparel/general retail down mid-single digits, while Embelex declined high single digits; management explicitly “not satisfied” with IL growth trajectory and is taking network efficiency/innovation actions .

Financial Results

Company Results vs Prior Periods and Estimates

MetricQ4 2024 (oldest)Q1 2025Q2 2025 (newest)
Total Net Sales ($USD Billions)$2.1857 $2.1483 $2.2205
Reported EPS ($)$2.16 $2.09 $2.41
Adjusted EPS ($)$2.38 $2.30 $2.42
Adjusted Operating Margin (%)12.8% 12.8% 12.9%
Adjusted EBITDA Margin (%)16.4% 16.4% 16.6%
Net Income Margin (%)8.0% 7.7% 8.5%

Results vs Wall Street Consensus (S&P Global)

MetricQ2 2025 ConsensusQ2 2025 ActualBeat/Miss
EPS ($)2.394*2.42 +$0.03 (beat)*
Revenue ($USD Billions)$2.2426*$2.2205 −$0.0221 (miss)*

Values marked with * retrieved from S&P Global.

Segment Performance

Segment MetricQ4 2024 (oldest)Q1 2025Q2 2025 (newest)
Materials Group Net Sales ($USD Billions)$1.4720 $1.4801 $1.5502
Materials Adj. Operating Margin (%)14.8% 15.6% 15.6%
Materials Adj. EBITDA Margin (%)17.0% 17.7% 17.8%
Solutions Group Net Sales ($USD Billions)$0.7137 $0.6682 $0.6703
Solutions Adj. Operating Margin (%)11.4% 10.2% 10.0%
Solutions Adj. EBITDA Margin (%)17.8% 17.2% 17.1%

KPIs and Cash

KPIQ4 2024 (oldest)Q1 2025Q2 2025 (newest)
Organic Sales Change (%)+3.3% +2.3% −1.0%
Adjusted Free Cash Flow ($USD Millions)$279.5 −$53.1 $188.9
Net Debt / Adj. EBITDA (LTM, x)2.0x 2.3x 2.3x
Dividend per Share ($)——$0.94 (raised ~7%)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSQ2 2025$2.30–$2.50 Actual $2.42 Delivered within range
Reported EPSQ3 2025—$2.14–$2.30 Introduced
Adjusted EPSQ3 2025—$2.24–$2.40 Introduced
FX Translation impact (OI)FY 2025~$7M headwind (Q1) ~$7M tailwind Raised
Net Restructuring SavingsFY 2025>$45M ~$50M Raised
Adjusted FCF ConversionFY 2025~100% (target) ~100% (target) Maintained
Interest Expense (net)FY 2025—~$110M Provided
Adjusted Tax RateFY 2025~26% ~26% Maintained
DividendQ2 2025+Prior rateIncreased to $0.94; declared payable 9/17/25 Raised

Earnings Call Themes & Trends

TopicQ4 2024 (Q-2)Q1 2025 (Q-1)Q2 2025 (Current)Trend
Tariffs/MacroNo IL logistics adoption in ’25; slight logistics decline planned; stable raw material environment Elevated uncertainty; moved to quarterly guidance; low direct tariff exposure; potential indirect demand impacts Direct tariff costs largely offset via surcharges/sourcing; apparel sourcing demand down; cautious Q3 outlook Uncertainty peaked; mitigation effective
Intelligent Labels (IL)10–15% IL growth planned; apparel + general retail strong; logistics lapping program IL mid-single-digit growth in Q2 expected; apparel growth planned but tariff risks noted IL comparable YoY; apparel/general retail down MSD; food/logistics up mid-teens; network efficiency & innovation push Mixed: non-apparel strength vs apparel softness
VestcomNew CVS rollout announced for H1’25 Strong growth expected; H1 ramp Up ~10% in Q2; program rollouts continuing Improving
Embelex~25% FY24 growth (incl. M&A) Mid-single-digit decline in Q1 Down HSD in Q2; expected improvement later in year, World Cup tailwind Soft near-term; improving later
Materials GroupStrong productivity/margins; HVC up HSD Volume/mix up; modest deflation; margins resilient Adj. EBITDA 17.8%; label materials down LSD; graphics up HSD Stable margins
FX/RestructuringNet debt/EBITDA 2.0x; €500M notes issued Restructuring savings >$45M; FX headwind ~$7M Restructuring ~$50M; FX tailwind ~$7M Positive shift

Management Commentary

  • Strategic posture: “We are prepared for various scenarios and will continue to leverage our proven playbook to safeguard earnings, while driving key initiatives to deliver strong profitable growth over the cycle.” – CEO Deon Stander .
  • Tariff mitigation: “We substantially mitigated the increased costs through strategic sourcing adjustments and the implementation of select pricing surcharges.” – CFO Greg Lovins .
  • IL trajectory: “I’m not satisfied with our current growth and earnings trajectory, particularly within our IL platform… taking action to improve network efficiency as well as expand innovation.” – CEO Deon Stander .
  • Capital allocation: Returned ~$500M in H1; dividend up to $0.94; buybacks continued given intrinsic value view .

Q&A Highlights

  • Apparel/solutions outlook: Orders improved through Q2; apparel volumes assumed down low single digits in Q3; IL expected to grow in food/logistics while apparel normalizes over time .
  • Tariff impacts: Direct inflationary impact low-single-digit; largely offset in quarter via surcharges and sourcing shifts; Q3 will see full-quarter tariff effects .
  • Geographic sourcing shifts: Some volume moved from China to Vietnam/South Asia; AVY can support across its footprint; apparel orders roughly flat YTD .
  • IL innovation: Focus on loss detection, recyclability tags, proprietary food tech; aim to expand share; network efficiency actions to reduce costs .
  • Cash returns/M&A: Continued buybacks and dividend growth with ample balance sheet capacity; EVA focus; robust M&A pipeline across high‑value categories .

Estimates Context

  • Q2 2025 EPS of $2.42 beat S&P Global consensus of ~$2.394 by ~$0.03; revenue of $2.2205B missed S&P Global consensus of ~$2.2426B by ~$22.1M as apparel/general retail softness under tariffs weighed . Values retrieved from S&P Global*.
  • Q3 2025 adjusted EPS guidance $2.24–$2.40 brackets the S&P consensus (~$2.33*), with management assuming continued apparel softness and typical seasonality .
  • Implication: Estimates should adjust for tariff-driven apparel demand impacts, modest FX tailwind, and incremental restructuring savings; margin resilience supported by productivity .

Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • EPS resilience driven by productivity and high‑value mix; margin profile intact despite tariffs, supporting near‑term downside protection .
  • Watch apparel sourcing clarity; improved orders exiting Q2 but management remains cautious for Q3; IL growth skewing to food/logistics near term .
  • Materials Group is the ballast: strong, stable margins and breadth across regions/products; leverage to graphics/tapes .
  • Guidance cadence now quarterly; FX flipped to a ~$7M tailwind; restructuring savings raised to ~$50M—supporting H2 earnings trajectory .
  • Capital returns remain robust: dividend lifted to $0.94; ongoing buybacks; net leverage ~2.3x leaves capacity for M&A to accelerate high‑value exposure .
  • IL platform: management accelerating innovation and network efficiency; near‑term mix favors food/logistics while apparel normalizes over time .
  • Near‑term trading lens: headline risk around tariffs/apparel vs positive margin/cash prints; surprises likely from IL customer rollouts and Vestcom execution .

Other Relevant Q2 2025 Press Releases

  • Dividend declared: $0.94 per share payable Sept 17, 2025; board also increased quarterly rate ~7% in Q2 .
  • 8‑K furnished with Q2 press release and supplemental presentation (Exhibits 99.1, 99.2), reiterating guidance and non‑GAAP reconciliations .