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.