Avery Dennison Corporation

Please continue to stand by the conference will begin shortly. We do appreciate your patience and ask that you please remain on the line. Today's conference will begin shortly. Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a listen-only mode. Later, 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 the operator, please press star 0. Welcome to Avery Dennison's earnings conference call for the fourth quarter and full year ended on January 1, 2022. This call is being recorded and will be available for replay from noon Pacific time today through midnight Pacific time February 5th. To access the replay, please dial 800-633-8284 or 1-402-977-9140 for international callers. The conference ID is 21997964. I'd now like to turn the call over to John Ebley, Avery Dennison's Head of Investor Relations. Please go ahead.

Thank you Tina please note that throughout today's discussion will be making references to non gap financial measures. The non gap measures that we use are defined qualified and reconciled with gap on schedules a four to eight 10 of the financial statements accompanying today's earnings release. We remind you that will 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 Buttier, 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're pleased to report our 10th consecutive year of strong top and bottom line growth. Our label and graphic materials business delivered strong performance in the year of significant raw material inflation and constrained supply. Retail branding information solutions posted both strong top line growth and significant margin expansion. Industrial and healthcare materials made solid progress. And importantly, our intelligent labels platform continues to deliver significant growth and increasing potential. In addition to great results for the year, 2021 marked an important milestone for the company as the final year of measurement for the five-year financial targets we communicated in early 2017. This is the third long-term performance cycle we've completed since first introducing this discipline back in 2012, and I'm pleased to report that we once again achieved our company goals. Our consistent performance over the years reflects the resilience of our industry-leading market positions, the strategic foundations we've laid, and our agile and talented workforce. Our playbook is working extremely well as we continue to focus on five overarching strategic pillars. Driving outside 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. Over the last five years, we achieved, exceeded even, our long-term company-wide goals set in early 2017, including delivering an EPS CAGR of 17% and growing the company to $8.4 billion in revenue. There were many important milestones achieved over this time horizon. One standout, of course, is Intelligent Labels, now a $700 million platform. This business tripled in size over the last five years, growing 20% annually on an organic basis. The strong growth over this time horizon was driven primarily by apparel, as we continued to drive further adoption of the technology and expand programs with major customers in this key end market. And while we continue to expect apparel to be the key growth driver in the coming few years, we see even greater opportunity over the long run in other key untapped markets. For example, in the food segment, Three quick service restaurants, after successful pilots, are in the early stages of rolling out RFID to improve supply chain traceability and inventory accuracy. And in logistics, we continue to work with shipping and logistics players, seeking further automation to drive speed and productivity. As a leader in ultra-high frequency RFID, we are positioned extremely well to not only capture these new opportunities, but to create them. To that end, we are continuing to invest, in developing new applications and markets, adding new technologies, both physical and digital, increasing our manufacturing capacity, and expanding our team, the best, most experienced in the space. The momentum in intelligent labels, where we continue to expect long-term growth of 15% to 20% annually, is a great example of the progress we continue to make. But it is only one example of many across the portfolio. Over the last five years, we've made solid progress in achieving the objectives in IHM, great progress in LGM, and truly remarkable progress in RBIS. We are focused on creating exceptional value for all of our stakeholders across the entire company. Now, looking specifically at 2021, the year was no different as we made solid progress on our strategic pillars while posting impressive results. We delivered EPS of $8.91 for the year, up 25% from 2020 and 35% from 2019 levels. We grew the top line by roughly 19% on a constant currency basis and 16% organically. All three segments delivered strong results relative to both 2020 and 2019 with solid growth in our base businesses and continued above average volume growth from high value categories. These strong results come at a time of continued increasing challenges. The ramping up of COVID infections in many countries, continued supply chain constraints, and additional inflationary pressures are taxing the industry, our customers, and our teams. The biggest challenges are now in LGM North America and Europe, where we are seeing both increasing constraints on the availability of raw materials and additional inflationary pressure. The team has continued to find ways to manage these compounding challenges and deliver impressive results over the last couple of years, and we are confident we will do so again in 2022. Now, a brief summary of the year by segment. Label and graphic materials delivered another year of strong margins and exceptionally strong top line growth, reflecting above average volume growth as well as pricing. Throughout the year, orders remained elevated. This was driven by continued strong demand for consumer packaged goods and e-commerce trends, as well as, to a lesser extent, we believe inventory building downstream from us given the supply chain challenges and significant inflationary pressures. We experienced raw material constraints across many categories throughout the year. Currently, we are seeing some easing of constraints in chemicals and resins, but increasing constraints for paper and transportation. We exited the year with annualized inflation of more than $600 million, a nearly 20% increase in our materials businesses alone as the cost of raw materials and freight continue to rise. Given the magnitude of this inflation and the lag in the timing of our price increases, margins moderated in the back half of the year for this business. While we are experiencing even more inflation as we start this year, particularly in paper, we expect to offset the higher costs over the cycle. we remain confident in our ability to continue driving GDP plus growth in this high return business. Retail branding and information solutions continues to deliver impressive results, with margins expanding to another record on significant revenue growth for the year, driven by strength in both high value categories as well as the base business. As I mentioned earlier, momentum in our Intelligent Labels platform continues, as sales grew roughly 30% on an organic basis compared to 2020, and roughly 40% compared to 2019. And our recent Vescom acquisition is not only achieving its performance goals, but also showing positive early signs in providing additional channel access to intelligent labels. In the industrial and healthcare materials segment, sales rebounded versus prior year, well above 2019 levels, and operating income grew significantly. We've made solid progress in this group of businesses over the last few years. However, the challenges in some of its end markets, principally automotive, have hindered our ability to achieve our ambitions. Despite these challenges, we are focused on achieving the long-term potential of this group. Now, as for capital allocation, we continue to execute a balanced strategy. We have increased our pace of growth and capability building investments, both organically and through M&A. Over the last couple of years, we've completed several acquisitions, expanded our venture program, and started ramping up the pace of organic investments, which we recently began further accelerating. The overriding focus of our M&A venture program and organic investments is to further increase our presence in high value categories, increase our pace of innovation, and advance our sustainability initiatives. And we intend to continue this path all while maintaining a strong balance sheet and returning cash to shareholders. With these great results in mind, it's important to highlight that our overriding focus is on the long-term success of all of our stakeholders, and we have a clear set of objectives and strategies focused on their mutual success. We're making great progress towards our 2025 and 2030 sustainability goals and are on track to deliver our 2025 financial objectives. As you know, the overarching objective of our long-term financial targets is to deliver GDP plus growth and top quartile returns on capital. This is a recipe for superior value creation over the long term, and we are confident in our ability to continue doing so. After delivering a 20% increase in EPS in 2021 ex-currency, we are again targeting double-digit EPS growth in 2022. While 2022 is already shaping up to be just as challenging as the last couple of years, we are prepared for it, commercially, operationally, and financially. And once again, I want to thank our entire team for their tireless efforts to keep one another safe while delivering for all of our stakeholders. This has been a particularly taxing time for our teams, and we are all grateful for their dedication, agility, and focus. Thank you. Now I'll hand the call over to Greg.