Avery Dennison Corporation

Ladies and gentlemen, thank you for standing by. During this 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, press the star followed by the 0. Welcome to Avery Dennison's earnings conference call for the first quarter ended April 3rd, 2021. This call is being recorded and will be available for replay from noon Pacific Time today through midnight Pacific Time May 1st. To access the replay, please dial 800-633-8284 or 1-402-9777. I'd now like to turn the call over to John Ebley, Avery Dennison's Head of Investor Relations. Please go ahead, sir.

Thank you, Pema. 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 Schedules A4 to A8 of the financial statements accompanying today's earnings release. 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 Pettier, Chairman, President, and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Mitch.

Thanks, John, and good day, everyone. We are off to a strong start to the year, with revenue up 11%, EPS up 45%, both well above expectations, and strong free cash flow. The favorable results were driven by improving and broad-based volume and productivity gains across the portfolio, as all three of our operating segments delivered strong sales growth and significant margin expansion. We experienced strong demand as many economies emerged from the depths of the recession amidst rising confidence. This, combined with both the structural and temporary productivity initiatives we've drove a strong quarter. Now, while we are pleased with the results, our strong performance comes at a time of continued uncertainty given the global health crisis and constraints within supply chains. The current environment further reinforces our determination to remain vigilant in protecting the health and well-being of our team and agile to ensure we continue to meet our customers' needs. While the rate of COVID-19 infections declined in a number of countries, including the U.S., and optimism increases as vaccines roll out, much of continental Europe has been in lockdown and other countries such as India and Brazil have experienced a significant rise in infection rates. Fortunately, the rate of new cases among the team remains relatively stable. In addition to the effects of the pandemic, natural disasters such as the Texas winter storm and other factors, the microchip shortage being an example, are constricting supply chains even further. affecting our end markets and adding to inflationary pressures. Despite these supply chain constraints, we've been able to deliver record volumes as our team has done a great job at leveraging our global network and scale to ensure we continue to meet customers' needs. Now a quick update by business. Label and graphic materials posted strong top-line growth for the quarter. as demand for consumer packaged goods and e-commerce trends continued to drive strong volume in our label and packaging materials business, while our graphic and reflective solutions business rebounded faster than expected. LGM's margin was strong in the quarter, ahead of expectations, actually, as the flow-through from higher volume, including strength in high-value categories, coupled with productivity gains, enabled significant margin expansion. Retail branding and information solutions delivered strong sales growth in the quarter, driven by both high-value product categories, particularly RFID, and the core apparel business. The strong top line was driven by retailers and brands gearing up for a rebound in demand and, to a lesser extent, easier comps. Enterprise-wide, intelligent label sales were up 40% X currency and up 20% on an organic basis. As expected, The strong growth of our RFID business was primarily driven by apparel, while outside of apparel, we continued to see strong momentum building for new applications. As we outlined in detail at our investor day last month, we have a tremendous amount of opportunity in this space in apparel, food, logistics, and more. And as you also heard, our focus is not only to be the world's leading RFID supplier, we are creating a broader intelligent labels platform to bridge the physical and digital worlds. As part of this, we are investing in digital identification technologies that enhance the ability to manage and store item level information. To this end, we recently announced two digital initiatives. One, the acquisition of a small software startup, Zipium, and the other being the launch of a connected product cloud platform startup, Atma.io. As for the bottom line, RBIS delivers significant margin expansion in the quarter driven by higher volume and productivity initiatives. Given the margin and growth profile of this business, we will continue to ramp up our pace of investments in this segment, particularly in intelligent labels, with an accelerated pace throughout the remainder of the year. Turning to industrial and healthcare materials, The segment delivered strong sales growth in the quarter, driven by a significant rebound in demand for industrial products, while we continue to make good progress towards achieving the long-term margin target for this business. We continue to invest in the segment, including the acquisition of JDC Solutions, a small manufacturer of specialty tapes for use in a variety of high-value industrial applications that we closed in March. Now, given our strong performance in Q1 and our revised expectations for the rest of the year, we have raised our full year outlook and now anticipate top-line growth of 9% to 11% X currency and earnings per share of $8.40 to $8.80. We are pleased with the continued progress we are making towards the success of all of our stakeholders. Our consistent performance reflects the strength of our markets, our industry-leading positions, the strategic foundations we've laid, and our agile and talented team. We remain focused on our five key strategies, driving outsized growth in high-value categories, growing profitably in our base businesses, focusing relentlessly on productivity, effectively allocating capital, and leading in an environmentally and socially responsible manner. We are confident that the consistent execution of these strategies will enable us to achieve our long-term goals, including consistently delivering GDP plus growth and top quartile returns. And once again, I want to thank our entire team for their tireless efforts to keep one another safe while continuing to deliver for our customers during this challenging period, bringing a whole new level of agility and dedication to address the unique challenges at hand. Over to you, Greg.