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    Avery Dennison (AVY)

    AVY Q2 2025: Guides Q3 EPS $2.24–2.40, FCF backs buybacks

    Reported on Jul 22, 2025 (Before Market Open)
    Pre-Earnings Price$179.01Last close (Jul 21, 2025)
    Post-Earnings Price$176.89Open (Jul 22, 2025)
    Price Change
    $-2.12(-1.18%)
    • Disciplined Capital Allocation: Management’s commitment to shareholder returns is evident from ongoing share buybacks and dividend increases, underpinned by a strong balance sheet and a low net debt-to-adjusted EBITDA ratio of 2.3.
    • Sequential Earnings Improvement: Guidance for Q3 with adjusted EPS in the range of $2.24–$2.40 and expectations for Q4 uplift from favorable seasonality and productivity initiatives indicate a positive turn in earnings trajectory.
    • Innovation and Market Leadership: Continued investments in product and process innovation—such as enhancing the IL platform, new rollouts with VESCOM at CVS, and breakthrough developments in food tags—underscore AVY’s ability to differentiate its offerings and capture market share in high-value categories.
    • Trade policy and tariff uncertainty continue to weigh on the apparel and general retail segments, as customers remain cautious and orders are flat to prior year, raising concerns about sustained margin pressure if tariffs persist or worsen.
    • Underperformance in the Intelligent Label (IL) platform remains a concern, with management explicitly stating dissatisfaction with its current growth trajectory and the need for significant network efficiency improvements and innovation to turn it around.
    • Reliance on strategic pricing adjustments and sourcing shifts to offset the inflationary impact of tariffs may not be sustainable long term, potentially compressing earnings if such measures fail to fully counteract rising costs, especially with a full-quarter tariff impact expected in Q3.
    MetricYoY ChangeReason

    Total Revenue

    -0.66%

    The overall decline from $2,235.3 million in Q2 2024 to $2,220.5 million in Q2 2025 is driven primarily by a reduction in the Solutions Group revenue, which was not fully offset by the marginal increase in Materials Group revenue.

    Materials Group

    +0.22%

    Revenue increased slightly from $1,546.8 million to $1,550.2 million, suggesting steady underlying volume performance; however, factors such as pricing adjustments or market pressures may have limited broader growth, consistent with prior period stability.

    Solutions Group

    -2.64%

    The decrease from $688.5 million in Q2 2024 to $670.3 million in Q2 2025 reflects continued challenges in this segment—likely due to reduced demand or pricing dynamics—that contrast with earlier periods where high-value offerings supported growth.

    MetricPeriodPrevious GuidanceCurrent GuidanceChange

    Adjusted EPS

    Q3 2025

    $2.30 to $2.50

    $2.24 to $2.40

    lowered

    Sequential Inflation Impact

    Q3 2025

    no prior guidance

    low single-digit inflation impact expected

    no prior guidance

    Apparel Volumes

    Q3 2025

    no prior guidance

    outlook uncertain with soft volumes

    no prior guidance

    Currency Translation Benefit

    FY 2025

    no prior guidance

    $7 million benefit to operating income

    no prior guidance

    Restructuring Savings

    FY 2025

    no prior guidance

    approximately $50 million, net of transition costs

    no prior guidance

    Free Cash Flow Conversion

    FY 2025

    no prior guidance

    targeting roughly 100% conversion

    no prior guidance

    Earnings Growth

    FY 2025

    no prior guidance

    anticipated return to earnings growth in Q4

    no prior guidance

    Tariff Impacts

    FY 2025

    no prior guidance

    low single-digit inflation impact from tariffs

    no prior guidance

    MetricPeriodGuidanceActualPerformance
    Sales Growth (YoY)
    Q2 2025
    Sales roughly comparable to the prior year
    2,235.3(Q2 2024) vs 2,220.5(Q2 2025) → -0.66% YoY
    Met
    TopicPrevious MentionsCurrent PeriodTrend

    Disciplined Capital Allocation and Share Buybacks

    Prior calls (Q1, Q4, Q3) emphasized an unwavering, disciplined approach with accelerated share repurchases when shares were undervalued.

    Q2 reiterated commitment to disciplined capital allocation with continued buybacks—albeit at a slower pace—and a dividend increase, reflecting tactical adjustments.

    Consistent focus on disciplined capital allocation; pace of buybacks has been moderated to adapt to market conditions.

    Sequential Earnings Improvement and Growth Guidance

    Q1, Q4, and Q3 provided sequential EPS improvement with guidance forecasts and expectations for gradual earnings and sales growth.

    In Q2, guidance remains on track with a forecast for Q3 EPS and an emphasis on strong free cash flow and growth strategies, with minor adjustments reflecting seasonality.

    Steady focus on sequential improvement with minor numeric adjustments as a result of seasonal factors.

    Intelligent Labels (IL) Performance and Platform Innovation

    Earlier periods (Q1, Q4, Q3) highlighted robust IL growth, technology enhancements, and strategic innovations driving long‐term value.

    Q2 maintains that narrative with mid-single digit sequential growth, new loss detection suite, improved inlay designs, and the launch of innovative food‐tag solutions, reinforcing IL’s leadership.

    Continuous emphasis on advancing IL technology and innovation, underscoring its importance for long-term growth.

    Trade Policy and Tariff Uncertainty with Strategic Pricing Adjustments

    Q1 discussed tariff uncertainty and the use of pricing surcharges; Q4 minimized direct tariff exposure; Q3 did not address this topic.

    Q2 detailed both direct and indirect tariff impacts—such as a >$0.10 EPS headwind—and described measures like strategic pricing surcharges to offset tariff‐induced cost increases.

    Heightened attention on managing tariff impacts in Q2, reflecting evolving trade policies while the overall approach remains consistent.

    Supply Chain Flexibility and Tariff Mitigation Strategies

    Q1 and Q4 emphasized a robust global network with scenario planning and regional procurement to mitigate tariffs and geopolitical risks.

    Q2 highlighted active shifts in manufacturing volumes from China to regions like Vietnam and South Asia, complemented by strategic sourcing adjustments to offset tariff effects.

    Consistent focus on flexible supply chain management, with Q2 providing more detail on region-specific adjustments.

    High-Value Growth Segments (Vestcom, Embelex) and Revenue Diversification

    Previous calls (Q1, Q4, Q3) reported strong Vestcom performance, noted challenges in Embelex, and discussed broad revenue diversification across Materials and Solutions groups.

    Q2 reports Vestcom growth of approximately 10% and acknowledges challenges in Embelex with an optimistic view for later improvement, emphasizing ongoing revenue diversification.

    Steady commitment to high-value segments with slight optimism for Vestcom and an expected turnaround for Embelex, reinforcing a diversified revenue strategy.

    Innovation and New Product Development (including IL enhancements and food tags)

    Q1, Q4, and Q3 consistently underscored innovation leadership through enhancements in IL technology and the development of advanced food tag solutions (e.g. recyclable or microwavable tags).

    Q2 continues this focus by introducing a proprietary loss detection suite, launching innovative microwavable and recyclable food tags, and outlining further proprietary IP for food categories later in the year.

    Persistent and robust innovation focus; new product developments continue unabated, reinforcing the company’s leadership.

    Strategic Collaborations and New Market Opportunities (e.g., Kroger partnership in the food segment)

    Q1, Q4, and Q3 highlighted strategic partnerships—most notably with Kroger—and initiatives aimed at expanding into new markets such as the broader food segment.

    Q2 reaffirms the importance of the Kroger partnership, noting strong momentum in the food segment and discussions to further expand pilot programs across other grocery channels.

    Strategic collaborations remain central to market expansion, with continued emphasis on food segment opportunities.

    Risks from Aggressive Buyback Practices amid a Cloudier Outlook

    Q1 briefly addressed buyback practices, emphasizing a disciplined, grid-based approach despite a cloudier outlook.

    Q2 did not explicitly discuss buyback risks, suggesting that attention on this topic has diminished, though the disciplined strategy underpins all periods.

    While earlier periods acknowledged potential risk, current communications reflect a stable, disciplined capital allocation strategy with less focus on aggressive buyback risks.

    Macroeconomic Uncertainties and Trigger-Point Risks

    Q1, Q3, and Q4 mentioned macroeconomic uncertainties—including trade policy shifts and geopolitical risks—with an emphasis on scenario planning and trigger points for structural actions.

    Q2 acknowledges ongoing trade policy and tariff uncertainties affecting segments like apparel, with detailed discussion on mitigating these risks through scenario planning.

    Persistent macro uncertainties; Q2 provides more granular detail on tariff effects, maintaining a proactive approach to diverse trigger-point risks.

    Cost Inflation and Input Price Pressures (e.g., rising paper prices)

    Q1 noted modest raw material pricing changes; Q3 focused particularly on low single-digit paper price inflation and corresponding pricing actions; Q4 described a stable to deflating raw materials environment.

    Q2 discusses inflationary pressures driven by tariffs, with strategic sourcing adjustments and pricing surcharges mitigating the impact, even as global deflation trends persist in other inputs.

    Ongoing vigilance on cost pressures with varying emphasis: earlier periods highlighted raw material trends, while Q2 focuses on tariff-driven inflation pressures.

    Logistics Segment Performance Challenges Impacting Growth

    Q1 and Q4 mentioned competitive dynamics and volume challenges (linked to previous year rollouts and transitions), while Q3 described temporary soft volumes due to inventory adjustments.

    Q2 did not highlight significant logistics challenges; instead, it painted a picture of stabilization and steady performance in the logistics segment.

    Previous headwinds in logistics appear to be normalizing in Q2, suggesting a temporary nature to earlier challenges.

    Customer Deployment Delays and Revenue Recognition Timing Issues

    Q4 addressed typical deployment delays and revenue recognition timing shifts (by one to two quarters), though these were not seen as material; Q1 and Q3 offered little comment on the subject.

    Q2 did not discuss these issues, indicating they are not top of mind for the current period.

    Historically acknowledged but not a current focus; deployment delays remain a known, non-material factor.

    Shift in Innovation Focus: Reduced Emphasis on Food Tags

    Earlier periods (Q1, Q3, Q4) demonstrated robust and growing emphasis on food tag innovations with multiple pilot programs and new product launches, with no indication of de-emphasis.

    Q2 continues to highlight significant innovation in food tags, including new microwavable and recyclable solutions and planned category expansion later in the year.

    No shift observed; the strong focus on food tags persists consistently across all periods.

    1. Free Cash Flow
      Q: How are free cash flow and repurchases managed?
      A: Management is disciplined with a strong balance sheet, continuing share repurchases while keeping robust free cash flow and maintaining capacity for organic investments and M&A.

    2. IL Innovation
      Q: What are the plans for IL growth?
      A: They are focused on improving network efficiency and accelerating innovation—launching new tags and enhanced loss detection—to drive IL platform growth.

    3. 4Q Outlook
      Q: Expected apparel volumes and earnings drivers?
      A: Management anticipates apparel volumes to improve modestly in Q3, with 4Q earnings picking up from favorable seasonality and productivity initiatives.

    4. Tariff Offset
      Q: When are tariff costs fully offset?
      A: Tariff impacts were largely offset in Q2 by surcharges and sourcing shifts, with similar mitigation expected in Q3 despite full-quarter exposure.

    5. Food Rollout
      Q: Impact of Kroger store closures on Food?
      A: Despite planned closures, the rollout remains strong at about 700 stores, with discussions to accelerate protein deployments based on solid ROI.

    6. Embellix & VESCOM
      Q: What is the outlook for Embellix and VESCOM?
      A: Embellix is expected to rebound in Q4 ahead of major events, while VESCOM shows solid progress with CVS and continues to deliver 10% growth amid a resilient retail environment.

    7. Materials & Apparel IL
      Q: When will materials exit rates and apparel IL improve?
      A: Exit rates in Materials are flat, and Embellix improvements are anticipated in Q4; ongoing innovations in apparel IL—such as loss detection and design enhancements—support a gradual turnaround.

    8. Solutions Demand
      Q: Will pent-up solutions demand accelerate turnaround?
      A: Management noted that despite muted customer sentiment due to tariff uncertainty, demand is slowly normalizing with strong trends in related Food and Logistics categories.

    9. Vietnam Orders
      Q: Are Vietnam orders showing improvement in July?
      A: A slight pickup was seen in Vietnam as orders shifted from China, though overall apparel orders remain roughly flat year-to-date.

    10. Graphics & SG&A
      Q: Explain Graphics growth and SG&A reductions.
      A: Graphics and Reflectives grew in the high single digits driven by strong traction in key markets, while SG&A savings stemmed from restructuring actions and lower incentive comp accruals.

    Research analysts covering Avery Dennison.