Avery Dennison Corporation

Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in the listen only mode. Afterward, we will conduct a question and answer session. At that time, if you have a question, please press the one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. Welcome to Avery Dennison's earnings conference call for the fourth quarter and full year ended on December 31st, 2022. This call is being recorded and will be available for replay from 4 o'clock p.m. Eastern Time today through midnight Eastern Time February 5th. To access the replay, please dial 800-633-8284 or 1-402-977-9140 for international callers. is 2202-0690. I'd now like to turn the conference over to John Eble, Avery Dennison's Head of Investor Relations. Please go ahead.

Thank you, Frank. 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 from 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 Butier, Chairman and Chief Executive Officer, Deon Stander, President, Chief and Chief Operating 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 posted impressive results in 2022 in the face of an extremely challenging environment. We delivered another year of double-digit EPS growth on a constant currency basis. EPS is up 40% from 2019 levels. reflecting our consistent ability to deliver year-over-year earnings growth despite concurrent and compounding challenges. Both our materials group and solutions group delivered solid top and bottom line results last year, while driving further acceleration in the pace of intelligent labeled adoption. As you can see, we have changed our operating segments. We combined LGM and IHM to create the materials group. Over the past few years, we've been leveraging more and more of the operational capabilities and technologies across LGM and IHM to enhance our ability to win in each business' respective marketplace. The combination of these two businesses is the next evolutionary step of this strategy. As for RBIS, we renamed the segment the Solutions Group to better reflect the increasingly broader reach and ambitions of our solutions beyond retail. Dion will provide color on segment performance in a moment. Both businesses delivered impressive results in 2022, especially considering the significant macro headwinds we faced, including sizable currency movements, pandemic-driven demand challenges in China, the Russian war in Ukraine, and, of course, significant inflation and supply chain disruptions. In addition to the unique challenges that the inflation and supply chain disruptions presented, This also caused an increase in demand volatility throughout the year. The high inventory levels downstream from us, which we called out at the start of the year, were built further mid-year. Then, as supply chain constraints began to ease and raw material inflation showed signs of moderating, inventories were reduced swiftly beginning in November. This trend continued into December and January. Now, while we anticipated the inventory buildup downstream from us to unwind at some point, the pace and magnitude of reductions was faster and greater than we expected and than we have seen in past corrections. Overall, while this put significant pressure on our financial results in Q4 and now in Q1 of this year, we see the reduction of excess inventory as a good thing as it positions our industries and business to return to a more normalized growth trajectory beginning in Q2. That said, such a sudden decline in volume is indicative of patterns of previous macro slowdowns. We have been activating countermeasures accordingly. We have initiated temporary cost reduction actions, ramping up restructuring initiatives, and paring back capital investments in our base businesses while protecting investments in our high growth initiatives, particularly intelligent labels, both organically and through M&A. Despite a challenging macro environment, we are targeting mid to single digit EPS growth in 2023, reflecting a soft Q1 driven by inventory corrections, followed by a second half run rate for EPS of more than $10. Our strong track record over the long term reflects the strength of our markets, our industry leading positions, the strategic foundations we've laid, and our agile and talented team. Our playbook is working extremely well as we continue to focus on five overarching strategic pillars. 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. As you know, a key element of our strategy to drive outsized growth in high-value categories has been our focus on intelligent labels. which we expect to be a billion dollar platform this year. We continue to invest in this platform as we expect it to grow more than 20% annually in the coming years. This is a tremendous example of our strategies at work. We've refined our strategies over time, raising the bar for ourselves in the process to ensure we continue to deliver superior value creation for all of our stakeholders. We have a clear set of objectives and strategies focused on their mutual success. We're making great progress towards our 2030 sustainability goals and are on track to deliver our 2025 financial objectives, which Greg will walk through momentarily. The ability of our teams to drive these strategies forward over the long haul and deliver these impressive results, including once again achieving double-digit EPS growth last year, is remarkable. So I once again thank our entire team for their tireless efforts to keep one another safe while delivering for all of our stakeholders.