Avery Dennison Corporation

Ladies and gentlemen, thank you for standing by. Welcome to Avery Dennison's earnings conference call for the third quarter ended September 28, 2019. 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. This call is being recorded and will be available for replay from 12 p.m. Pacific Time today through midnight Pacific Time October 26th. To access the replay, please dial 800-633-8284 or plus 1-402-977-9140 for international callers. The conference ID number is 21896770. I would now like to turn the call over to Cindy Gunther, Avery Dennison's Vice President of Investor Relations and Finance. Please go ahead, Madam.

Thank you, Ash. Today we'll discuss our preliminary unaudited third 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 Loven, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Mitch.

Thanks, Cindy, and good day, everyone. We delivered solid profit growth in the third quarter, despite softer than usual market demand, with EPS once again up double digits over prior year on a constant currency basis. Our focus in this slower growth environment has been to protect, even expand our margins in the base business, while driving faster than average growth in high value categories like RFID. We're executing well on both fronts. We appear to have recaptured most of the share we recently lost in LGM, Our intelligent labels platform continues to drive over 20% growth from RFID-enabled solutions, and IHM's commercial execution continues to improve. At the same time, a relentless focus on productivity was again a key driver of margin expansion for the company this quarter. In sum, we are making good progress against our key strategic priorities and are on track to deliver our long-term financial targets. Label and graphic materials posted strong profitability on roughly a point of organic growth for the quarter, driven primarily by volume. High-value categories again grew faster than the base. As I mentioned, though all of the market data isn't in yet for the third quarter, we have good reason to believe that by the end of the quarter, we had recaptured the bulk of the share we seeded at the tail end of the inflationary cycle. In terms of global market trends, it appears that the soft market conditions that we saw in the first half of the year largely continued into the third quarter, with a modest improvement in Europe, offset by a moderation of demand in South Asia. Retail branding and information solutions delivered solid organic growth driven by ongoing strength in RFID and external embellishments, which more than offset declines in the base apparel business. As we mentioned in July, we saw trade-related uncertainty impacting orders in the second quarter. This uncertainty was reinforced when additional tariffs were announced in August. Now, while trade-related issues are causing near-term uncertainty, we are well positioned in the base business given our global footprint and differentiated product and service capabilities. As for RFID, the growth trajectory continues to be resilient. with continued strength in apparel and even faster growth from other promising verticals, though obviously off of a small base. Our total pipeline of customer engagements continues to expand, up more than 40% from just the beginning of this year, driven primarily by categories outside of apparel. As the leader in ultra-high frequency RFID, we are positioned extremely well to capture these opportunities with industry-leading innovation and manufacturing capabilities and the best, most experienced team in the space. We continue to increase our level of investment 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 digital life. In industrial and healthcare materials, sales growth was relatively strong on an organic basis due in part to lapping the slowdown in China's automotive market last year. That said, given the high proportion of this segment's portfolio that is focused on industrial and markets, I'm pleased with the solid top-line performance the team delivered. And, importantly, we made excellent progress in the quarter towards achieving our operating margin target for the business. In short, another solid quarter overall in the midst of a challenging environment. Our strategies to deliver outside growth in high-value categories are 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 protect and expand offering margin. While we lowered the high end of our near-term outlook for top-line growth due to recent market trends, and currency shifts caused us to reduce the high end of our EPS guidance for the year, we are confident in our ability to achieve our long-term objectives, including GDP plus growth and top quartile returns. We will continue to seek opportunities to leverage our positions of strength commercially, operationally, and financially, and, as you've heard Sidney say before, be prepared to lean forward even as others may pull back. Now I'll turn the call over to Greg.