Q4 2024 Summary
Published Feb 7, 2025, 7:58 PM UTC- Avery Dennison expects its Intelligent Labels (IL) business to grow by 10% to 15% in 2025, driven by strong growth in apparel and general retail segments, and potential new program rollouts, despite a slight expected decline in the logistics segment.
- High-value categories such as Embelex and Vestcom are anticipated to deliver strong growth in 2025, with Embelex projected to grow high single digits to low double digits, and Vestcom expected to achieve high single to low double-digit growth, contributing positively to earnings.
- The company's disciplined capital allocation strategy and strong balance sheet enable it to pursue strategic acquisitions and share buybacks, positioning Avery Dennison to optimize growth, margin, and capital efficiency and drive earnings expansion.
- Avery Dennison's growth in the Intelligent Labels segment may be negatively impacted in 2025 due to a decline in volumes from a key logistics customer. The company acknowledges that they are not assuming any further adoptions in logistics during 2025, with adoptions more likely in 2026. This could result in only slight growth or even a decline in this segment.
- Solutions Group margins have been impacted by unfavorable mix and increased costs, including investments in the Mexico plant. In the fourth quarter, high-value solutions were down mid-single digits, affecting margins, and while the company expects margins to improve, there is uncertainty about the pace and extent of this recovery.
- Potential delays in customer deployments and timing variances in adoption of Intelligent Labels technology could constrain overall growth. Some customer programs have shifted from 2024 to 2025, and such delays could impact the timing of revenue recognition and growth in 2025.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | Up approx 3.6% (from $2,110.5M in Q4 2023 to $2,185.7M in Q4 2024) | Revenue growth was achieved through solid segment performance, with the Materials Group generating $1,472M and the Solutions Group $713.7M, reflecting improved sales volume and mix relative to the prior period. |
Operating Income | Down nearly 35% (from $402.3M in Q4 2023 to $263.2M in Q4 2024) | Operating margin compression occurred despite higher total revenue; increased operating costs and cost pressures likely eroded margins, highlighting challenges in controlling expenses compared to the previous period. |
Net Income | Up roughly 15% (from $143.1M in Q4 2023 to $174.0M in Q4 2024) | Net income improvement indicates that non-operating factors—such as better tax management and possibly lower interest expenses—helped offset the decline in operating income, showing resilient bottom-line performance compared to Q4 2023. |
Basic EPS | Increased from $1.77 to $2.17 (over 22% growth) | EPS gains were driven by the increase in net income and efficiency improvements, resulting in stronger per-share earnings despite the operating income decline, demonstrating effective translation of underlying profitability to shareholder returns. |
Diluted EPS | Increased from $1.77 to $2.16 (over 22% growth) | Stronger diluted EPS reflects similar underlying drivers as Basic EPS—higher net income, cost management initiatives, and overall improved profitability—which countered the negative impact of margin compression seen in operating income. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS | FY 2025 | no prior guidance | $9.80 to $10.20 | no prior guidance |
Organic Sales Growth | FY 2025 | no prior guidance | 3% to 4% | no prior guidance |
Volume Growth | FY 2025 | no prior guidance | Mid-single-digit | no prior guidance |
Restructuring Savings | FY 2025 | no prior guidance | $40 million | no prior guidance |
Adjusted Free Cash Flow Conversion | FY 2025 | no prior guidance | ~100% | no prior guidance |
Intelligent Labels Growth | FY 2025 | no prior guidance | 10% to 15% | no prior guidance |
Currency Translation Impact | FY 2025 | no prior guidance | Headwind to operating income | no prior guidance |
Incremental Working Days | FY 2025 | no prior guidance | +2 days | no prior guidance |
Materials Group Growth | FY 2025 | no prior guidance | Mid-single-digit volume growth | no prior guidance |
Solutions Group Growth | FY 2025 | no prior guidance | Margins expected to expand in 2025 | no prior guidance |
Adjusted EPS | Q1 2025 | no prior guidance | Up slightly versus prior year | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Intelligent Labels (IL) | Initially ~20% growth in Q1–Q2, then ~15% in Q3, with variability tied to large logistics rollouts and customer readiness | Growth expectations at 10–15% for 2025, tempered by logistics volume declines and cautious adoption timelines | Recurring topic, more cautious by Q4 |
Materials Group Performance | Consistent margin improvements discussed in Q1–Q3; Europe’s macro was a key focus earlier, often linked to demand volatility | Up 4% ex-currency, 17% margin, and less emphasis on Europe’s macro outlook | Still important, but less emphasized in Q4 |
Europe’s Macro Environment | Repeatedly noted as uncertain in Q1–Q3, affecting label volumes and business sentiment | Minimal focus in Q4; Europe noted as stable with low-single-digit growth | Reduced emphasis by Q4 |
Rising Paper Costs in Europe | Highlighted in Q1 due to port strike and inflation, continued into Q2, partly stabilized by Q3 | Not mentioned in Q4 | No longer mentioned |
$55 Million SG&A Increase | Discussed in Q2 as driven by incentive compensation and return of certain variable costs | No mention in Q4 | No longer mentioned |
Kroger Partnership | Q3 had detailed discussions on multi-quarter implementation for food-segment RFID adoption | Briefly noted in Q4 as a bakery department rollout starting in 2025, but with fewer details | Less detail in Q4 |
Solutions Group Margins | Generally strong margins in Q1–Q3; targeted ~18%+ as volumes recover | 17.8% margin in Q4 (down slightly from prior year), impacted by mix and costs | More cautious sentiment in Q4 |
Embelex | Little to no specific mention in Q1–Q3, aside from high-value solutions references | Projected double-digit growth driven by team sports demand and World Cup 2026 tailwinds, newly spotlighted in Q4 | Newly emphasized in Q4 |
Capital Allocation & Buybacks | Previously mentioned as part of overall strategy; lower buyback volumes in earlier quarters | Heightened focus on disciplined allocation; returned $525M to shareholders, accelerated share repurchases in Q4 | Increased emphasis in Q4 |
Future-Impact Expansions | Ongoing discussion of broadening IL usage and leveraging high-value platforms since Q1–Q3 | Pursuing IL growth in food/logistics, potential strategic acquisitions, and scaling Vestcom/Embelex for long-term gains | A key driver for sustained growth |
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IL Growth Amid Customer Pullback
Q: How will customer volume declines affect IL growth in 2025?
A: We're assuming a slight decline in our logistics segment between 2024 and 2025 due to the customer's volume pullback. This impact is included in our 10% to 15% IL growth range for 2025. We're not expecting further adoptions in 2025, with more likely continuation in 2026. -
2025 Sales Growth Assumptions
Q: What are your 2025 core sales growth assumptions and the breakdown between volume and price?
A: We're projecting 3% to 4% sales growth, based on GDP growth in our base business, adjusted for apparel cannibalization in IL. In the Materials business, we expect mid-single-digit volume growth with a little bit of price contribution. -
Raw Material Cost Outlook
Q: What are your expectations for raw material cost inflation or deflation in 2025?
A: We anticipate a stable environment with slight deflation in Q1. There's typically a 1 to 2 quarter lag between raw material price changes and our pricing. We're modeling some negative raw material pricing into Q1 and Q2 of 2025 but expect stabilization afterward. -
Solutions Margins and Mix Impact
Q: Why did Solutions margins lag sales growth, and what are the incremental margin expectations for next year?
A: The mix was a significant factor, with some areas down mid-single digits impacting margins. We also had double costs from starting our Mexico plant. Looking ahead, we expect margins to expand as we accelerate growth in high-value segments like Vestcom and IL. -
Growth in Embelex and Vestcom
Q: Can you clarify growth expectations for Embelex and Vestcom in 2025?
A: We expect double-digit growth in Embelex, driven by personalized engagement and new customer rollouts. Vestcom is projected to grow high single to low double digits, bolstered by a new customer and progress in Media Solutions. These contribute to our target of 12% earnings growth at the upper end of our range. -
Confidence in Logistics Customer Volumes
Q: Given past choppiness, what gives you confidence in logistics customer volumes for this year?
A: We've learned from our first adoption, improving our planning and service for this customer. Volume issues from 2024 have been resolved. We're involved across their supply chain and have high confidence in the volumes aligned for 2024. -
Capital Allocation and Debt Refinancing
Q: What are your capital allocation plans, and how will you handle debt coming due?
A: We'll continue our strategy of pursuing strategic acquisitions and share buybacks. We have €500 million debt maturing in March, which we'll repay using proceeds from €500 million senior notes issued at 3.75%. We don't anticipate needing to raise more funds in the near term. -
Tariff Exposure Impact
Q: How could potential tariffs affect your operations in Mexico and China?
A: Our direct exposure to tariffs is very limited. We largely produce and sell within the same region and can flex production globally as needed. In Mexico, we have a new IL facility but can relocate production if necessary. In China, any impact would be modest and indirect. -
Apparel IL Growth Timing
Q: How should we think about Apparel IL growth in 2025, between first and second half?
A: We expect low double-digit growth in Apparel IL for 2025. Growth should accelerate throughout the year as new programs roll out. Timing shifts are normal, but we remain confident in achieving our long-term IL growth rate of 15% plus.