Avery Dennison Corporation

Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in 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. And 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 on July 3rd, 2021. This call is being recorded and will be available for replay from noon Pacific time today through midnight Pacific time July 31st. To access the replay, please dial 800-633-8284 or plus 1-402-977-9140 for international callers. The conference ID number is 21969420. I'd now like to turn the call over to John Eble, Avery Dennison's Head of Investor Relations. Please go ahead.

Thank you, Mladen. 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 A10 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 Boutier, Chairman, President, and Chief Executive Officer, Greg Lovins, Senior Vice President and Chief Financial Officer, and Dion Stander, Vice President, and General Manager, RBIS. I'll now turn the call over to Mitch. Thanks, John, and good day, everyone.

We delivered another strong quarter ahead of our expectations, raised our outlook for the second half, and announced an agreement to acquire Vescom, a leader in shelf-edge pricing and branded labeling solutions in the U.S. Vescom has roughly $400 million in revenue with a consistent history of strong growth and above company average margins. Vescom will further expand our position in high-value categories while adding channel access and data management capabilities that have the potential to further advance our intelligent label strategy. Dionne will tell you more about the acquisition, both the strength of the company and how it will accelerate our strategies in a moment. Turning to results. In the second quarter, earnings rebounded significantly as sales grew 29% on a constant currency basis, reflecting a strong rebound in RBIS and IHM and continued strength in LGM. The quarter was even more impressive relative to 2019, with revenue up 14%, EBITDA margins up 80 basis points, and EPS up 30%. 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. While the rate of new cases among our team remains stable, many parts of the world are experiencing an increase in COVID-19 cases. Certain countries, particularly in South Asia, have experienced a significant rise in infection rates, leading to the recent disruptions at a few RBS manufacturing locations. While this is impacting July, we don't anticipate These disruptions will impact demand in the back half of the year. In addition to the effects of the pandemic, supply chains remain constricted, affecting in markets and adding to inflationary pressures. This constraint on the availability of raw materials, freight, and in the U.S., labor, continues to impact the industries in which we operate. Despite these constraints, we've been able to deliver record volumes as our team continues to leverage our global network and scale to minimize disruptions to our customers. 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 customer needs. Now a quick update by business. Label and Graphic Materials posted strong top-line growth for the quarter. at demand for consumer packaged goods and e-commerce labels continued to drive strong volume in our label and packaging materials business, while our graphic and reflective solutions business rebounded significantly off prior year lows. As for profitability, LGM margins remain strong despite increasing inflationary headwinds, including costs in the core from the supply chain constraints. Given the increasing inflationary pressures, we are redoubling our efforts on material reengineering and again raising prices. We are targeting to close the inflation gap relative to mid last year by the fourth quarter. Retail branding and information solutions delivered robust growth in the quarter and expanded margins significantly compared to prior year lows. Compared to 2019, margins expanded further as the segment grew 25% on a constant currency basis and 14% organically, driven by strength in both high-value product categories, particularly intelligent labels, as well as the core apparel label business as retailers and brands continued to gear up for a strong rebound in end demand. Enterprise-wide, intelligent label sales were up 40% compared to 2019. As expected, the strong growth in our RFID business was primarily driven by apparel, while outside of apparel, we continued to see strong momentum building for new applications in all key geographies. In the food segment, for example, a North American restaurant chain recently began rolling out RFID across their network after a successful pilot over the past year. And in logistics, we saw positive momentum, including the adoption of an intelligent label solution at a large global player and the transport of hazardous materials, such as batteries, which require special shipping protocols. These are just two examples of programs of what will be many in the years to come. In the industrial and healthcare materials segment, sales rebounded off prior year lows, showing positive growth compared to 2019, as the segment is on pace for its fourth consecutive year of margin expansion. Given our strong performance in the second quarter and our increased expectations for the rest of the year, we have raised our full year outlook for the company, both on the top and bottom lines. Overall, I'm 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 the consistent execution of our five key strategies to drive outsized growth in high-value categories, grow profitably in our base businesses, focus relentlessly on productivity, effectively allocate capital, and lead in an environmentally and socially responsible manner. We are confident that a consistent execution of these strategies, both organically and through M&A, such as the VESCOM acquisition, 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. Now, I'll turn the call over to Dion to provide more color on the high-performing and high-potential acquisition we announced today. Dion?