Q3 2024 Summary
Published Jan 28, 2025, 9:22 PM UTC- 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.
- 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.
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Organic Sales Growth | Q3 2024 | ~4.5% | 4.06% (calculated from revenue of $2,183.4MVs. $2,098.3M) | Missed |
EPS Growth (yoy) | Q3 2024 | ~19% growth at midpoint (full-year guidance) | 31% increase (from $1.72To $2.26) | Beat |
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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. -
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. -
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. -
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. -
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. -
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. -
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. -
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. -
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.