Summary of Avery Dennison's Q3 2025 Earnings Call

1Key Financial Results and Metrics

Adjusted Earnings Per Share (EPS):: $2.37, up 2% year-over-year and above midpoint expectations.

Reported Sales:: Increased by 1.5% year-over-year; organic sales were flat compared to the prior year.

Adjusted EBITDA Margin:: 16.5%, up 10 basis points from the previous year.

Free Cash Flow:: Approximately $270 million generated in the quarter.

Net Debt to Adjusted EBITDA Ratio:: 2.2 at quarter-end.

Shareholder Returns:: $670 million returned through share repurchases and dividends year-to-date.

2Strategic Updates and Business Highlights

Materials Group:: Margins improved by 50 basis points year-over-year due to operational excellence, despite a 2% decline in organic sales. Growth in specialty durable labels and adhesives was noted.

Solutions Group:: Organic sales grew by 4%, driven by high-value categories, particularly VESCOM and Embellix, both exceeding 10% growth.

Intelligent Labels (IL):: Sales grew approximately 3% year-over-year, with mid-single-digit growth in apparel and food segments. A significant partnership with Walmart was announced to leverage RFID technology in fresh grocery categories.

Acquisition:: The $390 million acquisition of Taylor Adhesives was completed, expected to strengthen the high-value category adhesives franchise.

3Forward Guidance and Outlook

Q4 Expectations:: Anticipated sales growth of 5% to 7%, with adjusted EPS guidance between $2.35 and $2.45. Growth is expected to be constrained by ongoing trade policy uncertainties, particularly in apparel and general retail.

Long-term Growth:: The company remains confident in the long-term growth potential of its high-value categories, which now represent 45% of total business.

4Challenges and Points of Concern

Trade Policy Uncertainty:: Ongoing changes in trade policies continue to impact business, particularly in apparel and general retail segments.

Volume Declines:: The Materials Group experienced modest declines in high-value categories due to customer inventory adjustments and lower retail demand.

Employee Costs:: Higher employee-related costs and network inefficiencies have pressured profitability in the Solutions Group.

Market Conditions:: Soft consumer demand in North America and Europe, along with muted growth in emerging markets, presents ongoing challenges.

5Notable Q&A Insights

Volume Trends:: Management indicated that while overall volumes were positive, they were below expectations, particularly due to lower retail demand and tariff impacts.

Walmart Partnership:: The rollout of the Walmart collaboration is expected to begin in Q4, with significant growth anticipated over the next few years.

Intelligent Labels Pipeline:: The pipeline for Intelligent Labels is growing, with continued interest from various market segments despite tariff-related challenges.

Deflationary Pressures:: Deflation in materials, particularly in paper and chemicals, was noted, with modest price reductions impacting overall sales.

Capacity Planning:: Management does not anticipate needing additional capacity for Intelligent Labels in the near term but will reassess as demand grows. Overall, Avery Dennison reported solid performance amidst a challenging macro environment, with strategic initiatives in place to drive future growth, despite facing headwinds from trade policies and market conditions.