Avery Dennison Corporation

Ladies and gentlemen, welcome to Avery Dennison's earnings conference call for the fourth quarter, ended on December 31st, 2025. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a Q&A section. At that time, if you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and enter the queue. 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, Miriam, and welcome to Avery Dennison's fourth quarter and full year 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 solid full-year 2025 results with adjusted EPS of $9.53 and $707 million of adjusted free cash flow. a performance that once again underscores the durability of our franchise and our ability to activate multiple levers across a range of macro scenarios. While ongoing trade policy changes and softer consumer sentiment have been headwinds for our business, we successfully leveraged our productivity playbook to maintain an adjusted EBITDA margin of 16.4%. Our results demonstrate the resilience of our model as we remain focused on driving outsized growth in high-value categories accelerating innovation to advance our differentiation, delivering productivity to protect base margins, and allocating capital effectively. Turning to the fourth quarter segment results, in materials group, reported sales increased 5%. While sales were down slightly on an organic basis, we saw low single-digit volume and mixed growth that was more than offset by deflation-related price reductions. we are continuing to advance our strategic shift towards high-value categories, which now represent 38% of the segment's portfolio, a figure we expect to expand with a full year of tailored adhesives. Within this segment, Intelligent Labels delivered high single-digit growth, underscoring its role as an important growth engine, while performance materials grew mid-single digits and graphics and reflectives grew low single digits. High-value categories help balance our base categories which were down low single digits in the quarter, lower than expected on SUFTA customer volumes. From a margin perspective, adjusted EBITDA margin was 16.6%, down 40 basis points compared to the prior year. This reflects the impact of high employee-related costs and some one-time benefits in the prior year fourth quarter, which our team worked diligently to partially offset through the benefits of our on-game productivity actions. In Solutions Group, sales increased roughly 1.5%. This segment continues to lead our portfolio shift with high-value categories now representing 60% of the Solutions Group portfolio. This proved critical this quarter as our high-value categories provided a necessary offset to our base solutions, which continue to be impacted by tariff-related uncertainty. Specifically, our base apparel business was below our expectations. down roughly 7% as customers balance inventory positions with the impact of post-tariff pricing decisions. Within our solutions group high-value platforms, Vestrom grew more than 10%, Embellex delivered high single-digit growth, and Intelligent Labels, tempered by the consumption trends in apparel and general retail IL, grew low single digits. From a profitability perspective, our disciplines focused on our productivity playbook and a favorable high-value mix allowed us to deliver an adjusted EBITDA margin of 17.8%, which was up nearly a point sequentially and comparable to prior year, successfully offsetting high employee-related costs and our continued investments in future growth. Turning to our enterprise-wide intelligent label platform, sales grew mid-single digits compared to prior year, in line with our expectations for a sequential improvement in the rate of growth. This was driven by our key growth market segments and a partial recovery in apparel, which grew low single digits this quarter. While apparel and general retail sales have been impacted by tariff policy changes resulting in flat full-year sales, our food, logistics, and other categories delivered outsized performance with high teens growth in Q4 and approximately 10% growth for the full year 2025. Looking ahead to 2026, We continue to anticipate growth in this platform above the pace we achieved in 2025. We expect the pace of growth to be stronger in the second half than the first half as we lap a stronger first quarter 2025, which was largely unaffected by tariffs and as new programs roll out. In apparel and general retail, we expect to return to growth as we continue to navigate the impacts of tariff policy uncertainty. In food, adoption is set to accelerate through our major fresh grocery rollout with Walmart, with revenues ramping in the back half of 2026. Finally, in logistics, we are focused on expanding pilots with new customers, following a year of outsized growth with our largest customer. Pivoting back to the enterprise level, while I am pleased with our ability to protect margins and earnings in this environment, I am not satisfied with our organic revenue growth. While much of this is due to cyclical challenges we are taking decisive action to inflict this growth trajectory. As you can see on slide 10, our high-value categories, which have secular tailwinds, remain a key enabler of enterprise growth and portfolio strength, growing at a mid-single-digit CAGR of the past six years and expanding to roughly 45% of our sales in 2025, a 12-point increase since 2019. Expanding these solutions to new customers and end markets will add to our growth trajectory. Accelerating innovation outcomes in both high-value categories and the base categories is also key to changing our growth trajectory. This allows us to expand our opportunity with existing customers and to grow into new markets. Within our solutions group, we're advancing this through examples such as our Intelligent Labels fresh solutions for food traceability, the expansion of Vescom's stalling software platform for centralized retail execution, and the growth of Embellex's custom studio fan zones to drive in-venue fan engagement. Similarly, in materials group, new innovations such as the expansion of our clean flake portfolio to more packaging substrates to advance circularity and the introduction of smart materials to accelerate intelligent label adoption throughout the channel. Additionally, to further enhance our differentiation, we're also expanding our digital capabilities, use of automation, and leveraging AI to enable additional operational productivity and fixed cost innovation, strengthen our service and quality, shorten our innovation cycles, and provide more data-driven solutions that our customers require to address their fundamental challenges. Stepping back, as you can see on slide nine, executing on all our key strategies with proven business resilience enables us to deliver GDP plus growth and top quartile returns across cycles. In addition to investing in innovation to drive growth in our high-value categories and base businesses, and positioning ourselves to lead at the intersection of the physical and digital, we will continue to relentlessly focus on productivity to strengthen our market-leading positions in both our businesses. We will also continue to be disciplined in capital allocation to deliver returns and improve our portfolio. I'm pleased to report that we achieved our 2025 sustainability objectives, which we laid out in 2015. These include reducing our energy intensity and enabling more sustainable products and solutions for our customers. Similarly, we're making good progress towards our 2030 sustainability objectives we set in 2020. Now moving to the outlook for 2026. In line with our recent practice of providing a quarterly outlook, We will be continuing this approach for the foreseeable future. As such, for the first quarter of 2026, we expect adjusted earnings per share to grow approximately 6% at the midpoint on organic sales growth of 0 to 2%. Given key economic indicators remain largely consistent with 2025 levels, we are not planning for any macroeconomic tailwinds in the near term. Our performance will instead be driven by the levers within our control, scaling our differentiated solutions in high-value categories, returning our base business into profitable growth, maintaining a relentless focus on productivity, and effectively deploying capital to drive earnings. In summary, we have exited a dynamic and challenging year, not just more resilient, but structurally stronger to deliver longer-term value creation. Advancing our strategic priorities underpins our confidence in returning to stronger growth and delivering top quartile returns. We are entering 2026 with the right playbook, the right team, and a path to return to growth in line with our long-term targets. I want to extend my sincere gratitude to our global team for their dedication to excellence and their unwavering focus on executing our strategies. With that, over to you, Greg.