Avery Dennison Corporation

Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a list-only mode. Afterward, we will conduct a question and answer session. At that time, if you have a question, please press star followed by the number one on your telephone keypad. Welcome to Avery Dennison's earnings conference call for the third quarter ended on September 28, 2024. This call is being recorded and will be available for replay after 4 p.m. Eastern time. today and until midnight Eastern time, October 30th, 2024. To access the replay, please dial 1-800-770-2030 or 1-609-800-9909 for international callers. The conference ID number is 5855706. I'd now like to turn the call over to John Ebley. Avery Dennison, Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you, Jeremy. 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 A9 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 Dion Stander, President and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer. I'll now turn the call over to Dion.

Thanks, John, and hello, everyone. We delivered another strong quarter with earnings per share of $2.33 above our expectations and are raising our full year guidance. We now expect earnings of $9.35 to $9.50 per share for the year and are targeting roughly 20% earnings growth compared to prior year. Both materials group and solutions group delivered strong bottom line growth in the quarter and in intelligent labels, we are delivering another year of strong top-line growth and continue to see significant opportunity ahead. Materials Group continued to demonstrate its resilience in the third quarter, again delivering solid volume growth and strong margins. In North America and Asia, volume increased compared to prior year and sequentially, in line with expectations. In Europe, volume was slightly below expectations increasing compared to prior year and down sequentially, largely driven by normal volume seasonality. Broadly, macro retail volumes remain soft relative to long-term trends, particularly in developed regions, as the cumulative effects of inflation continue to weigh in consumers, and we do not anticipate this will change in the near term. Solutions Group delivered strong sales growth and margins in the third quarter. driven by strong growth in the base and continued growth in high-value solutions. Overall, the apparel category was strong after normalizing mid-year as we expected, providing further evidence that retailers and brands are largely through destocking. In the quarter, we were able to largely overcome some interruption in the apparel industry due to the unrest in Bangladesh, a key apparel sourcing country. Within high-value solutions, strong growth in apparel and general retail categories was partially offset by logistics and drugstore channel softness. Focusing on our intelligent labels platform, as we continue to connect billions of physical items with digital identities, I have high conviction in delivering against our target of roughly 15% plus sales growth over the long term. This multi-decade growth opportunity will be driven by continued adoption in apparel and accelerate adoption in new segments such as food, logistics, and general retail, a key focus for us in the near term. As the market leader, we are extremely well positioned to capitalize on this opportunity. In food, we announced a strategic collaboration with Kroger focused on building a better customer and associate experience through RFID technology. This collaboration makes item level digital identification possible enabling more frequent and accurate inventory information to maximize freshness, reduce waste, and improve the associate experience. The collaboration will begin in the bakery department across the Kroger network. This is the first grosser moving to rollout for item level RFID tagging and represents a significant step forward for our intelligence labels business and the industry overall in a very large addressable market with significant opportunity for growth in the years to come. Turning to results, enterprise-wide intelligent label sales were up mid-teens year to date. As we share during our investor day, new customer rollouts will be uneven, particularly due to the pace of deployment, as well as by comparison to initial volume builds for new program adoption in prior years. In this context, we now expect double-digit growth for the full year on softer logistics volume. Overall, the ability of our solutions to help address industry challenges such as labor efficiency, waste, transparency, and consumer connection in very large volume categories like logistics, retail, and food is increasingly resonating with customers. Key pilots and rollouts are delivering significant value and compelling proof points for broader segment adoption. We continue to invest to capture the significant opportunity ahead as we grow the size of the overall industry. further advancing our leadership position at the intersection of the physical and digital. Stepping back, the underlying fundamentals of our business are strong. We're exposed to diverse and growing markets with clear catalysts for long-term growth. We are industry leaders in our primary businesses with clear competitive advantages in scale and innovation. And we have a clear set of strategies that we continue to evolve over time and are key to our success over the long term and across a wide range of business cycles. We remain confident that our strategies, along with our team's ability to execute in dynamic environments, will enable us to continue to generate superior value creation through a balance of GDP plus growth and top quartile returns over the long term. In summary, we delivered another strong quarter and raised our guidance for the year to deliver nearly 20% earnings growth in 2024. While we are increasing our outlook for the year, the environment remains uncertain and warrants some degree of caution. We remain confident in delivering 10% earnings growth across a range of scenarios over the cycle recently laid out in our investor day. I want to thank our entire team for their continued resilience, focus on excellence, and commitment to addressing the challenges at hand. With that, I'll hand the call over to Greg.

Thanks, Dion, and hello, everybody. In the third quarter, we delivered adjusted earnings per share of $2.33, up 9% compared to prior year, driven largely by benefits from higher volume and productivity. Compared to prior year, sales were up 5% X currency and 4% on an organic basis, as higher volume was partially offset by deflation-related price reductions. Adjusted EBITDA margin was strong at 16.4% in the quarter, up 40 basis points compared to prior year, with strong margins in both segments. And we continued to generate strong free cash flow, with $420 million generated through the first three quarters, up nearly $50 million compared to prior year. Our balance sheet remains strong, with a net debt to adjusted EBITDA ratio at quarter end of 2.1. which includes paying down $300 million of debt, which matured in August. We continue to execute our disciplined capital allocation strategy, including investing in organic growth and acquisitions while continuing to return cash to shareholders. In the first nine months of the year, we returned $315 million to shareholders through the combination of share repurchases and dividends. And in the third quarter, we repurchased 300,000 shares and distributed $71 million in dividends. Turning to segment results for the quarter, materials group sales were up 4% ex-currency and on an organic basis compared to prior year, driven by mid-single-digit volume growth partially offset by deflation-related price reductions. Looking at label materials organic volume trends versus prior year in the quarter, North America was up mid to high single digits. Europe was up mid single digits, including the impact of the slight volume pull forward into Q2 that we noted last quarter. Asia Pacific was up low single digits, and Latin America was up mid to high single digits. High value segment growth was also strong with graphics and reflective sales up mid single digits organically and tapes up low single digits organically with particular strength in industrial categories. Materials Group delivered a strong adjusted EBITDA margin of 17% in the third quarter, moderating sequentially as expected due to typical volume seasonality and comparable to prior year as higher volume and benefits from productivity were offset by higher employee-related costs and the net impact of pricing in raw material costs. Regarding raw material costs in the third quarter, globally, we saw low single-digit inflation sequentially, as expected. The increase was driven by higher paper prices, primarily in Europe. We've addressed the cost increases through a combination of product reengineering and pricing actions, as we discussed last quarter. As we moved through the third quarter, paper prices began to stabilize. Overall, we expect our raw material costs to be fairly stable in the fourth quarter. Shifting now to Solutions Group, sales were up 6% on an organic basis and 7% ex-currency, with base solutions up mid-teens as apparel volume remained normalized and high-value solutions were up low single digits. Within a high-value solutions, strong growth in intelligent labels, apparel, and general retail categories was partially offset by logistics and softer volumes in our drugstore channel, Invescom. As Dion mentioned, enterprise-wide intelligent label sales grew mid-teens through the first three quarters of the year, as apparel volume normalizes and new categories adopt. While the third quarter was below our expectations, we delivered more than 20% growth in apparel and general retail categories, which was partially offset by logistics, largely due to prior year customer inventory builds and a customer transition that reduced some RFID parcel volume in the third quarter. That transition is now largely complete. Despite uneven growth this year, as Dion mentioned, the Kroger collaboration we announced yesterday is another proof point of our industry leadership and builds on our confidence in delivering on the significant opportunity ahead. Solutions Group delivered strong adjusted EBITDA margin of 17.9%, up 110 basis points sequentially and 150 basis points compared to prior year, driven by benefits from higher volume and productivity partially offset by higher employee-related costs and investments. Now, shifting to our outlook for 2024, we have raised our guidance for adjusted earnings per share to be between $9.35 and $9.50, with the midpoint reflecting nearly 20% growth versus prior year. As you'll recall, our outlook includes our four key drivers of earnings growth in 2024, which are on track. The normalization of label volumes early in the year, the normalization of apparel volume mid-year, strong growth in intelligent labels as apparel rebounds and new programs roll out, and ongoing productivity actions. We've outlined additional key contributing factors to our guidance on slide 12 of our supplemental presentation materials. In particular, in focusing on the changes from July, we estimate 4.5% to 5% organic sales growth, now targeting the high end of our previous outlook. For the year, we continue to expect high single-digit volume growth partially offset by deflation-related price reductions. We expect incremental savings from restructuring actions of more than $55 million, up $5 million from our previous outlook, some of which was delivered in Q3. And we now anticipate a headwind from currency translation of roughly $5 million in operating income for the year, slightly better than our previous outlook for both the third and fourth quarters. And we continue to target roughly 100% adjusted free cash flow conversion. In summary, we delivered another strong quarter, increased our outlook for earnings growth, remain confident in our ability to continue to deliver exceptional value through our strategies for long-term profitable growth and disciplined capital allocation. And now we'll open up the call for your questions.

Ladies and gentlemen, if you would like to register a question, press star followed by the number one on your telephone keypad. You will hear a confirmation of your request. If your question has been answered and you would like to withdraw your registration, please press star one again. And then to accommodate all participants, we ask that you please limit yourself to one question and then return to the queue if you have additional questions. One moment while I get the first question ready. Our first question comes from the line of Hansham Punjabi from Barb. Please go ahead.

Hello, everyone. Hope you're doing well. I guess, yeah, thanks, Dion. So I guess first off on the material segment, you know, and it's related to the volume rebound in 2024, is that starting to plateau in your opinion? You know, in other words, you had a rebound following the destocking impact last year, and now you have a weaker consumer as an offset, which is why you're still below. uh sort of 22 2022 levels and then an intelligent label specific to logistics it's a lower than forecast volume dynamic in 2024 specific to just end market conditions or just tough comps what what is the issue there yeah so on the material side i think when we look at the quarter overall i think we see as we as we would have expected you know materials volumes particularly in europe uh sequentially slowing a little bit from seasonality

I guess if you compare over a couple year period, especially compared to 2022, price is a pretty significant factor there. So from that perspective, we're in the midst of raising prices in 2022. Now we've seen some deflation over the last year and prices have come down. So that's part of it when you look at the sales number overall. From a volume perspective, I don't think we've seen much change in the overall trends. I would say, or as Dion mentioned in the earlier comments, Materials Europe was a little bit lighter than we expected, and we do continue to see a little bit softer retail volumes in Europe overall. But otherwise, not much change from a trend perspective on volumes and materials.

Yeah, just let me reiterate, I think the broader macro environment still remains uncertain. We're seeing that even in feedback from our customers. We talked about particularly in Europe, our customers in Europe and their end customers are reflecting kind of the more muted sentiment we're seeing over there, and that's confirmed by macro retail volume data that we see in Europe. To your IL question specifically, maybe just take a step back. I think we laid out what we believe is the significant growth opportunity that lies ahead of us the last time we met at the Investor Day. And our conviction in delivering on that 15% plus growth target over the time, I think the Kroger announcement is just yet another inflection point, I think, that is going to really resonate in the industry and provide a catalyst for further growth. And think about our apparel business having adopted multiple proof points. We now have another proof point visible in logistics, and we are now in the process of having a visible proof point in food as well. And I think that is going to be a key part of how we unlock the future. I will also say our focus in the near term is very much on driving adoption. making sure that we're not only creating the demand, but also executing that demand. And some of these intercom quarterly movements are less focused on as we move forward. I will say in logistics specifically, the biggest variance that we saw was really down to prior inventory customer builds year on year, and then also this customer transition that impacted some RFID volume overall. And this is, I think, which has now largely been completed, as Greg indicated, And that is, I think, a first-year annualization challenge, less an ongoing issue moving forward.

Our next question comes from the line of John McNulty from BMO Capital. Please go ahead.

Yeah, good morning. Thanks for taking my question. So I guess on the new Kroger opportunity, can you help us to think about the scale of that? I know Fresh Bakery is kind of the first launch, and then there's more to come. I guess, can you help us to think about what that might mean in terms of either tag volumes or growth for you, how that phases in, how quickly that may phase in? And then I guess also tied to that, I know there's a lot of discussion right now in the QSR markets around food safety. I guess, can you speak to the pilot programs that you're seeing and if you see the potential for some meaningful launches in QSR as we go into 2025?

John, thanks for the question. Let me just spend a bit of time on the Kroger piece first, and I'll switch to Kirasar. And I think, as I said, our conviction in our long-term growth target of delivering on that 15% plus is really anchored on making sure that we drive adoption. So as we said in the parallel, driving that and continue to drive that in logistics. And I think for the first time, the Kroger announcement puts an exclamation point under the fact that the technology has ubiquity and has value in driving demonstrable return on investments for food customers, particularly at the grocery level as well. I also just would characterize that that food segment, as you recall, is the largest of all the segments that we've been talking about. It is of an order of magnitude higher than apparel, which is only 40% penetrated, roughly in the 200 billion unit side. So it presents a significant upside for the industry and for us as the market leaders. The work that we're doing with Kroger will start in the bakery channel. and then roll out across the estate for over time. And our expectation, John, is that in time, ultimately, we'll expand beyond bakery into areas such as protein and fresh produce. I think equally, this is going to take time and the rollout will be adoption. We've seen this in apparel, we've seen this in logistics, and I don't doubt that we can also see this in food. But I think there's a couple of things that stand out for me on the Kroger piece. One is the value of the partnership that we've had with them over a long period, which actually was founded on the relationship that we have with our Vestron business in Kroger over many years as well. And secondly, the fact that we've been able to bring to them an approach that both drives at an innovation level, but also at an execution level. We don't comment, as you know, on the size of programs at specific customer levels, but this rollout will help us deliver on that 15% plus growth target as we discussed in our investor day, John. On the QSR specifically, I think we already have a couple of QSRs in rollout, most notably one, where their focus has been on food safety, which is what drove it originally. And in that instance, we're actually leveraging the digital identification physical items to go back to source so that you have transparency of where something was produced and its freshness through the cycle. We have a number of other QSRs in similar discussions. And I do think the more recent FISMA regulations that have come out in the United States will act as an accelerant for food safety drive. And by definition, I think they're going to lean into RFID as an enabling technology, which then will continue to be to our benefit as the market leader.

Our next question comes from the line of George Stappas from Bank of America. Please go ahead.

Hi, everyone. Good morning. Hi, George. Thanks for taking my question. So I wanted to continue on the intelligent label question progress. So I know you can't talk about size of program and all that relative to a customer. Can you talk to us though about how many stores this initially is launched at within Kroger over whatever number of months or quarters you can speak to and You know, tell us a little bit more underneath the hood what's going on in terms of how Kroger needs to implement this, you know, front end, back end, and how you're involved. So any color there would be helpful. And then secondly, what's going on with Vestcom in terms of the slowdown there and what's that mean in terms of your earnings, recognizing that you are still, you raised guidance for the year. That'll come back in the next round.

Sure, George. On the Kroger specific role, so the focus is initially on bakery, and we're going to ramp over time as we go through the next number of quarters to ultimately be close to kind of full estate, which I think is in the order of 2,800 stores. And the way that we're doing that, George, is because bakery in some ways is largely contained within one department, within one supply chain, it's a much easier piece to execute. Most of the execution will actually happen in the bakery, in the store, not in the specific supply chain itself, although there will be elements as we progress that will further go back down the supply chain. That makes it more manageable, and the approach that we're going to take, working in collaboration with Kroger, is to do this on a phased rollout as we go across the next six or so quarters as well. In terms of ESCOM, the issue that we saw in the third quarter was really related to a couple of points. So one was The general drugstore channel softness that I'm sure all of you are aware of had an impact on some of our volume in the third quarter. One of our customers is just now starting to emerge from bankruptcy, which is a positive sign. We'll return to growth as we move forward, and actually we'll see overall Vescom growth in the fourth quarter actually again. The second element, which is a little bit more different, is that because of the hurricane we saw, particularly affecting southeastern states, Part of the emergency declaration that happens is they have a price freeze on all food items. And so that meant there were less price ticket changes during that period. Again, that will be ameliorated as we move into the fourth quarter. Yes, Invescom remains a very significant high value segment business for us with outsized and above segment margins. and good growth prospects, even in the drugstore channel where we're engaged with a very large white space opportunity and hoping to have some progress as we go through 2025 in that regard, George.

Our next question comes from the line of Michael Roxland from Truist Securities. Please go ahead.

Thanks, Dion, Greg, John, for taking my questions. Two questions for me, just in 3Q, can you comment how much Intelligent Labels actually grew? You mentioned strong growth in the apparel and general retail. You mentioned the weakness in logistics and the drugstore account. So just wondering how much it actually grew in the quarter. And the second question is just following up on your comments on the drugstore channel. It sounds like this last question that it's temporary, in terms of weakness, but could it be something more permanent? You're seeing a lot of drugstores, Walgreens, and others announce store closures. So do you think there's been a shift in drugstores in terms of fewer drugstores that could have some type of more permanent impact on best comes?

So, Mike, in the third quarter, I think as you heard Greg say, we moved our, given the softness in logistics we called out, we moved our year-to-date performance from the half year where we were mid to high teens to mid-teens for the year-to-date after nine months. As it relates to the drugstores, there's certainly a temporary piece of this volume recovery as it relates to, for example, hurricane pricing and some of the recovery of these, some of our drugstore channel partners as they come through their own challenges. But I don't necessarily see this as a long-term permanent shift. In fact, we actually see significant white space opportunity. We don't deal with all the drugstore players. And we have in discussion with a very large one talking about how we can deliver some of the solutions we have. If you think about what we do in our Vescom business is really to provide two elements. One is a productivity solution for labor efficiency in store. And labor is still the biggest denominated quotient concern that retailers generally have. And the second is a media solution that brings consumer connection at the point of purchase of the shelf. Much of what Vescom does, which is largely a data composition engine and takes in multiple feeds of data and then sends that out in terms of a label format, is patented ourselves. And so we have a uniquely advantaged solution in that regard. And I do think as retail continues to have some degree of challenge when it comes to labor and attracting consumers into the store, our solutions will increasingly resonate in that regard.

Our next question comes from the line of Jeff Zekoukis from JP Morgan. Please go ahead.

Thanks very much. So in the solutions group, base solutions grew 15%. So that's 6% growth for the whole segment. And if Intelligent Labels is now growing 15 and it used to grow 17 or 18, that means that Intelligent Labels grew 10. So VESTCOM and embellishments then must have shrunk 10%. Is that correct? And then secondly, Kroger's baked goods are about $5 billion. And I don't know, their average baked good is somewhere between 250 and $5. So that's a billion tags or maybe two billion tags at $0.03. So that's $30 million to $60 million a year. Is this the order of magnitude we're talking about?

Yeah. And your first question, Jeff. So when you look at overall and high value segments, as we talked about, we're up low single digits, X currency in the quarter. So Dion already talked about Vescom. Vescom was down given the drugstore channel impacts that we talked about. And Bellix was also a little soft, partially impacted by that Bangladesh unrest, as well as in performance apparel, a little bit softer this quarter as well. Intelligent labels growth, if you recall, is in both segments. So we continue to drive growth in the solution segment as we also continue to leverage our strong converter base within our material segment to grow really in the general retail categories that we've talked about growing very well in. That shows up in the materials business. So it's split between both, our growth and IL split between both solutions and materials. So overall, that's largely the framework for how we get to where we were on overall high-value cycle.

And Jeff and Kroger, you're right that bakery is the smallest part of their kind of what I would call periphery perishable items, but it's one that has significant impact for the retailer in this regard. A lot of what gets done in terms of understanding what items are fresh and highly perishable in that regard are manually done. And so you have both an impact on kind of labor effectiveness, as well as the associate experience in the store. And this is why we know that the technology can impact both of those, both improve the associate experience, which is critical for retailers, and the second piece is also making sure that you're able to drive efficiency and, by definition, reduce waste as well. We're not going to comment on the size of the exact program as we roll out over time, Jeff, but I will say that this is going to be for us a very important tipping point for the industry It's the first visible marker that food and grocery will go. And when people realize the scale of the ubiquity of that benefit, like in apparel, as we're now starting to see in logistics, I think it'll act as a catalyst for further acceleration and adoption.

Our next question comes from the line of Josh Spector from EDS. Please go ahead.

Yeah, good morning. I guess maybe more generally within RFID and specifically the food opportunity, can you just talk about the margins or kind of the drop-through that you expect on that market, assuming you're not going to comment on Kroger specifically? I guess, does that come in line with what your average RFID book of business is today? Is it below until you get scale, or is there some reason why it's higher? Any framing there would be helpful. Thanks.

As we said for a long time, our intelligent labels platform is above segment margin overall. And whether the product is ultimately in apparel or in logistics or now in these different food categories, while the ASP may vary depending on the complexity of the product or the breadth of the solution, we typically see relatively consistent margins across all of these, and they're above average segment margins.

Our next question comes from the line of Matthew Roberts from Raymond James. Please go ahead.

Hey, good morning, everybody, and thank you for the time. Maybe if I could touch a little bit more. Can you hear me? Yes. Okay, thanks. Maybe if I could touch a little bit more on the food opportunity and see what Kroger is trying to look or learn from the bakery. I know you said it's six or so quarters for the full rollout, but Once it is in place, are there any milestones or timelines put in place before potentially rolling it out to other departments? And also, while I appreciate it is still early and planning with more to come in a couple months for 2025, And in September, you laid out your long-term financial framework. But should we expect 2025 to be within that framework of the 5% top line and 10% EPS growth? Or are there any unique items or timing from 2024 that could impact that bridge? Thanks for taking the questions.

Yeah. In terms of the broader food opportunity, Matthew, just let me reiterate again, you know, it's the largest category that we see for aisle adoption overall. The order of magnitude comparison is 200 billion units of same food in the addressable market relative to 65 or 70 for logistics, relative to 45 or so for apparel. So there's an enormous runway, multi-decade opportunity ahead of us in that regard. As it relates to the timing of the rollout, we're not necessarily sharing all the details in this. We're focused on bakery first, and over the estate we'll roll out over a period of time. Based on those results, Our anticipation is that we will then move to categories like proteins and leafy greens as we move forward. And again, that will take time. And I will stress this again, there will be uneven rollouts as we go through this period, both from a timing and an adoption phase across, we've seen this across apparel, we've not seen this slightly in logistics, and I don't doubt we're gonna see this in food as well. Our focus, I'll reiterate this, our focus is on sharing with driving adoption, creating the demand, and then executing and fulfilling that demand.

Yeah, on the 2025 question, Matt, as you said, at Investor Day, we laid out our financial framework for the future where we talked about growing 10% adjusted earnings per share growth annually. You know, I would say right now our early view of 2025 is that we'd be following that algorithm that we laid out a month or so ago. You know, when we look at the drivers of that, obviously, Intelligent Labels growth, we've talked about being a driver of that. In apparel, we'll have a more normalized first half of the year next year. And our margins in the second half of this year in solutions are better in our first half, so that should give us a little bit of first half benefit as well. And then continue to have more normalized growth in materials. But as Dion laid out earlier, a bit uncertain retail environment there, so we remain cautious a little bit on that front. But those are the main drivers that helped get us towards delivering that target we laid out back in September.

Our next question comes from the line of Anthony Pettinari from Citi. Please go ahead.

Good morning. Do you think your label volumes track kind of in line with the industry in 3Q? Or, you know, given it may be difficult to track market share quarter to quarter, maybe you could just speak year to date. And then I guess maybe same question for intelligent labels. Do you think you're kind of growing in line or stronger, a little bit weaker than the market. And then just to reiterate, like the weaker 3QIL activity, is that just completely kind of like timing of projects and the comp, or is there anything from like an industry perspective that you'd point to that impacted volumes in the quarter?

Yes, I think the high level, yes, our label volumes are largely in line with industry and we continue to hold, if not slightly maintain and expand share in our label business generally across the world. As it relates to our IL business, there is some volatility because of this logistics significant rollout last year and some softness this year. But generally, we're performing, given that we're creating the market, we're performing in line with the market overall. And we expect over the long term to continue to be the majority share provider and slightly expand our share as we move through that, given some of the competitive advantages we have as well. As it relates to the third quarter, your question was, was it related to just those specific comps and the transition piece? Yes, it was. There was nothing else that really had a fundamental impact on what we saw from a third quarter IL performance.

Our next question comes from the line of Michael Leadhead from Barclays. Please go ahead.

Great. Thank you. Good morning, guys. Can you speak to the pricing in both of your businesses sequentially in the third quarter? Are you seeing incremental price give back or are prices generally flat at current levels? And relatedly, it sounds like European materials input costs up, price and demand perhaps a bit softer. Is there any change in terms of how you guys need to approach the European market going into 25? Or is it just sort of transitory weakness given where we are in the cycle at this point?

Thanks, Mike, for the question. So overall, when we look from Q2 to Q3, we saw low single digit inflation, really, I guess, very low single digit inflation sequentially after a little bit of sequential inflation in the second quarter as well. And as you said, that's really largely in paper in Europe is where we're seeing that. And we talked about last quarter that we were announcing and implementing some price inactions. So we also had some low single-digit price benefit sequentially from Q2 to Q3 as we were managing that. So the net impact was pretty negligible in the quarter overall. So I think when we look forward, we continue to see a relatively stable environment overall from a materials perspective. So we don't see that shifting too much in the very near term. Difficult to call more on an ongoing basis, though.

Mr. Ebley, there are no further questions at this time. I will now turn it back over to you for closing remarks.

Thanks, Jeremy. As you all know, our overarching objective is to deliver GDP plus growth and top quartile returns, which is a recipe for superior EVA and value creation over the long term. We are confident that the consistent execution of our strategies will enable us to achieve our long-term objectives. This now concludes our Q3 earnings call. Thank you all for joining today.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.