Avery Dennison Corporation

Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. Welcome to Avery Dennison's earnings conference call for the second quarter, ended June 29, 2019. This call is being recorded and will be available for replay from 2 p.m. Pacific Time today through midnight Pacific Time July 26. To access the replay, please dial 800-633-8284 or 1-402-977-9140 for international callers. The conference ID number is 2189-6769. I'd now like to turn the call over to Cindy Gunther, Avery Dennison's Vice President of Investor Relations and Finance. Please go ahead.

Thank you, Tina. Today we will discuss our preliminary unaudited second quarter results. Please note that throughout today's discussion, we'll be making references to non-GAAP financial measures. The non-GAAP measures that we use are defined, qualified, and reconciled with GAAP on pages A4 to A8 attached to the financial statements accompanying today's earnings release, and the appendix of our supplemental presentation materials. We remind you that we'll make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the Safe Harbor Statement included in today's earnings release. On the call today are Mitch Butier, Chairman, President, and Chief Executive Officer, and Greg Levin, Senior Vice President and Chief Financial Officer. Now I'll turn the call over to Mitch.

Thanks, Cindy. Good day, everyone. Earnings in the second quarter met our expectations, delivering a roughly 12% increase over a prior year on a constant currency basis, as we more than offset softer-than-expected growth with increased productivity. Now, 2019 is obviously playing out a bit differently than we envisioned at the start of the year, and as you can see from our results, we are once again proving our ability to anticipate shifting market conditions and are responding swiftly. This agility is enabling us to sustain our earnings growth trajectory and maintain the midpoint of our EPS guidance for the year. We continue to execute well in driving outsized growth in high-value categories, with growth of these products and solutions again outpacing the base business in Q2. And at the same time, our relentless focus on productivity was again a key driver of margin expansion. In sum, we are making good progress against our key strategic priorities and, despite the current environment, are on track to deliver our long-term financial targets. Label and graphic materials posted roughly a point of organic growth for the quarter, driven by pricing, with high-value categories again growing faster than the base. Overall, volumes declined modestly, reflecting softer market demand as well as the previously discussed loss of share in less differentiated categories over the preceding couple of quarters. Recall that This share loss resulted from our disciplined execution of pricing actions near the end of the inflationary cycle. We've begun to recover that share while sustaining the strong margin that we achieved in the same period last year. The slower demand trends we saw in Q1 continued into Q2. We've adjusted our full year guidance to reflect the softer market conditions through the balance of the year, combined with gradual focused share gains. As I mentioned, productivity efforts supported a strong operating margin for LGM in the quarter. We had been anticipating the possibility of a general market slowdown, and so, in addition to some belt tightening, we accelerated restructuring actions that we had in the pipeline to both further improve our competitiveness in each region, as well as to drive long-term sustainable expansion of both margins and returns. Retail branding and information solutions delivered solid organic growth driven by ongoing strength in RFID while continuing to drive significant margin expansion. RFID grew once again by more than 20%, while the pace of the base business slowed. The slowdown in the base reflected general market softness, as well as what appeared to be some choppiness in timing of retailer purchases in light of trade-related uncertainty. While apparel market uncertainty remains, we are well-positioned to win here, with our unsurpassed global footprint and differentiated product and service capabilities. The strong growth in RFID continues to be fueled by apparel, while we make great progress in developing other promising verticals. Our total pipeline of customer engagements continues to expand, now up by more than 30% from just the beginning of this year, with engagements in categories outside of apparel, including food, beauty, logistics, leading the way. As the leader in ultra-high frequency RFID, we are positioned extremely well to capture these opportunities with our industry-leading innovation and manufacturing capabilities and the best, most experienced team in the space. We continue to increase our investments in business development and other resources to drive this growth as we build out our intelligent labels platform to enable a future where every item can have a digital twin and a digital life. In industrial and healthcare materials, sales were flat on an organic basis, driven by the decline in global auto production, which more than offset solid growth in other industrial categories, as well as strong growth in our medical business. And we once again made good progress in the quarter towards achieving our operating margin target for this business. In short, another solid quarter, and despite a softer top line, we are reaffirming our earnings guidance midpoint for the year. Our strategies to deliver outside growth in high-value categories are clearly working, and our relentless focus on productivity continues to enable us to increase our pace of investment in these categories, increase our competitiveness overall, and grow profitably in our base businesses while, importantly, continuing to expand operating margins. We are confident in our ability to achieve our long-term objectives to drive GDP plus growth and top quartile returns, and we will continue to seek opportunities to leverage our positions of strength, commercially, operationally, and financially, and lean forward even as others may pull back. Now I'll turn the call over to Greg.