Avery Dennison Corporation

Ladies and gentlemen, welcome to Avery Dennison's earnings conference call for the third quarter ended on September 27, 2025. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a Q&A session. At that time, if you have a question and have joined via telephone, please press star followed by the number 9 to enter the queue. If you have joined via Zoom, please use the raise hand function. As a reminder, this webcast is being recorded and will be available for replay on the Avery Dennison Investor Relations website. I'd now like to turn the call over to William Gilchrist, Avery Dennison's Vice President of Investor Relations. Please go ahead, sir.

Thank you, Karina, and welcome to Avery Dennison's third quarter 2025 earnings conference call. 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 A8 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, Gillian. Hello, everyone. We delivered a solid third quarter with earnings up 2% year over year and above the midpoint of expectations. while continuing to execute in a dynamic environment. This outcome underscores the strength and durability of our franchise, demonstrating our ability to activate multiple levers in our portfolio to deliver across a range of macro scenarios. As expected, our business continues to be impacted by ongoing trade policy changes. Encouragingly, we've fully mitigated direct cost increases through strategic sourcing adjustments and select pricing surcharges. Moreover, while base apparel volumes were still impacted in the third quarter, we did see improvements sequentially relative to the organic growth headwind in the second quarter. In materials group, operational excellence was key to margin expansion during the quarter. A sustained focus on productivity and benefits from modest volume mixed growth drove margins up 50 basis points year over year. Modest revenue declines in high-value categories were primarily driven by low single-digit declines in graphics and performance tapes, which faced headwinds from isolated customer and distributor inventory management adjustments. This is partially mitigated by continued strong growth in specialty durable labels and adhesives. We expect the inventory adjustment impacts to be short-lived and to see high-value categories return to growth in the fourth quarter. Overall materials group and base label materials volumes were up slightly compared to prior year. Importantly, we continue to see growth in our differentiated films volumes, which is a positive mixed driver for the business. Solutions Group delivered organic sales growth of 4%, driven by high single-digit growth in high-value categories. Vescom continued its momentum, growing over 10%, and Embellix delivered more than 10% growth as well. Overall apparel sales exceeded expectations, rising low single digits in the quarter. As you can see on slide seven, our apparel business is seeing divergent trends. High value category apparel sales grew high single digits, benefiting from strength in umbilics, with strong growth related to next year's World Cup, and mid single digit apparel IL growth. While base apparel sequentially improved as expected, It remains down low single digits, reflecting soft retailer and brand demand as they continue to navigate the impacts of tariff policies. Solutions margins performed better than typically sequential declines, but were down 90 basis points compared to prior year. Profitability was impacted by higher employee costs, continued growth investments, and network inefficiencies stemming from tariff policy changes. Turning to enterprise-wide intelligent labels, Sales grew approximately 3% compared to prior year, in line with our expectations. We are encouraged by the sequential improvement in the business, which was driven by key growth market segments. Specifically, apparel and food, logistics, and industrial grew at mid-single digits rate. In apparel and general retail, both market segments are still being impacted by tariff policy changes. However, apparel partially recovered in the quarter, while general retail remained soft. Strong growth continued in food as our strategic collaboration with Kroger ramps up as expected. Longer term, our conviction in this large addressable market continues to grow. This morning, we jointly announced a major partnership with Walmart to leverage Avery Dennison's RFID innovation and solutions in their fresh grocery categories of bakery, meat, and deli. This adoption of aisle and fresh food in the second large grocer is a key industry milestone and reinforces our conviction in the growth potential of this large addressable market. In logistics, the business expanded sequentially but was down slightly compared to prior year. Our share in this market segment remains strong and we have a robust pipeline of opportunities. As we highlighted in the second quarter call, we're executing initiatives to reduce identified network inefficiencies and associated costs created by the tariff policy changes. These improvements will help drive profitable growth while maintaining high quality and reliability for our customers. Looking forward, we anticipate the fourth quarter will deliver an improved rate of year-over-year growth versus what we saw in the third quarter. While growth will likely continue to remain constrained by trade policy uncertainty, particularly in apparel and general retail market segments, we view this as a temporary headwind. Our conviction in the long-term growth of this high-value category platform remains strong, given the value we are creating for our customers and the adoption we see across new segments. Turning back to the total company, taking into account the continued dynamic environment we're anticipating both overall sales and earnings per share growth in the fourth quarter. We remain prepared for a range of scenarios, leveraging our proven playbook to safeguard earnings in the near term, while accelerating initiatives to drive differentiation and growth over the cycle. Shifting to our core strategies, I am confident that we have the initiatives, innovation, capital allocation framework and team in place to consistently deliver strong profitable growth and top-portal returns across the cycle. Progress in each of these strategies was evident in the fourth quarter, further cementing our conviction. Our business is positioned for success, with secular growth tailwinds that fundamentally outweigh cyclical events over the cycle. Key trends, including item-level digitization, enhanced consumer engagement, product customization, and business productivity needs are aligned with a growing portion of our business. The drivers in our high-value categories are clear, and our exposure to them continues to expand. These categories now represent 45% of our total business year-to-date, an increase compared to prior year, underscoring our strategic shift towards higher growth and higher margin opportunities. Intelligent labels adoption is accelerating, with our largest addressable market segment in food now gaining significant traction. Our focus on innovation outcomes and commercial excellence is creating differentiation across our businesses. Examples include introducing new RFID innovation in food, our stalling software in Vescom, and expanding our clean flake adhesive adoption in filmic labels for recycling purposes. Finally, we continue to harness the power of our disciplined capital allocation approach and balance sheet strength to return capital to shareholders and strategically expand our presence in high-value categories where we hold competitive advantages. Year-to-date, we repurchased approximately $454 million in stock and have grown our dividend by 7%. Concurrently, we closed the $390 million Taylor Adhesive bolt-on, immediately strengthening our materials group high-value category adhesives franchise with clear cost synergies and strong growth potential. In summary, while the current backdrop has muted our overall growth in 2025, we have further strengthened the resilience of our franchise, deployed capital into attractive opportunities, and advanced our strategic priorities. This underpins our confidence in returning to strong growth and maintaining top quartile returns for our business and shareholders. I want to extend my gratitude to our entire team for their unwavering focus on excellence, dedication to overcoming the challenges at hand, and relentlessly focusing on executing our strategic priorities. Over to you, Greg.