Avery Dennison Q1 2026 Earnings Call - Navigating Inflationary Shifts and Strategic Intelligent Label Ramps

Deon Stander, President and Chief Executive Officer, Avery Dennison2: 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.

Deon Stander, President and Chief Executive Officer, Avery Dennison4: Thank you, William Gilchrist, and welcome to Avery Dennison’s first quarter 2026 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 A-4 to A-8 for 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 Deon Stander, President and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer. I’ll now turn the call over to Deon.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Thanks, Gilly. Hello, everyone. We delivered a strong start to 2026, with first quarter organic sales up 1%, driven by mid-single digit volume mix growth and adjusted EPS up 7% year-over-year. These results once again demonstrate the benefits of our diversified portfolio and our strong productivity and cost control management. Our performance this quarter was a clear display of our resilience as stronger Materials Group results offset a softer Solutions Group performance, and growth in our base label materials business more than compensated for temporary softness in certain high-value categories. As we have seen in past cycles, geopolitical uncertainty has triggered a significant shift in raw material inflation. While we do not know how long this inflationary pressure may last, we are responding proactively, implementing price increases and driving material reengineering where necessary to offset these pressures.

Our history of successfully managing through inflation cycles gives us high confidence in our ability to protect our profits. Furthermore, our proven ability to manage security of supply to meet customer demand remains a distinct competitive advantage, helping to ensure we remain the partner of choice for our customers if supply chains were to tighten. We continue to take decisive actions to drive both earnings growth and business resiliency by leaning into our proven playbook. Firstly, our focus remains on investing in innovation and service-led differentiation to drive growth through share gains and expand new business opportunities. To this point, we recently signed an agreement to invest an incremental $75 million in Wiliot, a move that deepens our long-standing partnership and strengthens our enterprise-wide Intelligent Labels platform. This investment includes a dedicated joint go-to-market team to accelerate adoption across retail, food, and logistics.

It also positions us as the preferred inlay commercial partner, leveraging our leadership in design and manufacturing to bring commercial scale to Wiliot’s complementary technology. Secondly, we are maintaining our commercial and operational agility by taking swift commercial procurement and cost actions to stay ahead of inflationary pressures. Thirdly, we’re extending our scenario planning, a strength of ours, and driving greater productivity and disciplined cost management to protect our bottom line through a wide range of scenarios. Turning to our segment results, Materials Group delivered reported sales growth of 11% over the prior year. On an organic basis, sales grew approximately 2%, driven by mid-single digit volume and mix growth that was partially offset by deflation-related price reductions. The quarter’s performance once again highlighted the strength of this business.

We saw strong growth in our base categories, which grew mid-single digits and provided a critical offset to a quieter quarter for our high-value categories, which were down low single digits. Within our high-value platforms, Graphics and Reflectives declined mid-single digits, and Performance Materials were down low single digits, reflecting a combination of difficult year-over-year comparisons, customer order timing, and softer auto end market sales. We anticipate these high-value categories to return to growth as we go through the year. In label materials, we observed some customer pre-buying during March that has persisted into April. While it’s difficult to predict the exact amount and timing of the unwind, we currently expect this volume to largely unwind during the second half of Q2. Our teams remain focused on aligning production levels and cost structures with the shifting demand, utilizing our framework for managing stocking cycles.

From a profit standpoint, adjusted EBITDA was up low double digits and margin up 10 basis point increase compared to the prior year. This was a direct result of our team’s execution. We leveraged our operational rigor as well as contributions from raw material engineering initiatives. These efforts effectively countered the headwinds from a less favorable product mix and high employee-related costs, ensuring we grew the bottom line while continuing to serve our customers. In the Solutions Group, reported sales for the quarter decreased 3%, with sales down 1% on an organic basis. The quarter was defined by the steady performance of our high-value categories, which grew low single digits and continue to serve as the long-term growth driver of this segment.

Within the high-value categories, Vestcom and Embelex both delivered solid mid-single-digit growth, which was partially tempered by Intelligent Labels, which was down low-single digits. In our base categories, sales were slightly worse than expected, down mid-single-digits. From a profitability perspective, adjusted EBITDA margin for the quarter was 16.4%, down 80 basis points compared to the prior year. While we realized clear benefits from operational efficiencies and a net benefit from pricing and raw material costs, these gains were more than offset by high employee related costs, lower base category volumes, and our investments in future growth. We remain committed to these investments as they are critical to ensuring innovation-led differentiation, which translates to strong long-term growth and margin expansion. Turning to our enterprise-wide Intelligent Labels platform.

Sales were down low single digits compared to the prior year, a result that came in slightly below our growth expectation. However, this headline number really reflects a tale of two different dynamics across our end markets. In our largest category, apparel and general retail, we saw encouraging performance. Despite the high hurdle of a pre-tariff comparison from the first quarter of 2025, sales were up low single digits. This growth was fueled by successful program expansions, demonstrating that adoption in apparel continues to expand. Conversely, we saw a more pronounced headwind in logistics, where sales were down low double digits. This is largely a reflection of softer logistics customer demand and managing inventory during this customer’s transition to an updated chip.

We remain focused on the long-term adoption curve here, and as we navigate these varied market timings, we are continuing to position the platform for the retail and food rollouts we have planned for the back half of the year. Looking ahead, we continue to expect 2026 growth for our enterprise Intelligent Labels platform to outpace 2025, with performance more heavily weighted towards the second half of the year as major programs scale. In apparel and general retail, we expect to deliver full-year growth, while our food category is set for an inflection as our rollout with the largest U.S. grocery retailer across bakery, meat, and deli ramps up in the back half of the year. Finally, in logistics, we are lapping outsized volume and share in 2025 and proactively managing this by expanding pilots with new partners throughout 2026.

Turning to our outlook for the second quarter. We anticipate earnings growth at the midpoint of our guidance range with organic sales growth of 0% to 2%. Our performance will once again be driven by the levers within our control, scaling our differentiated solutions in both our high-value category and base businesses, accelerating pricing to offset increased raw material inflation, maintaining a relentless focus on productivity and cost management, and effectively deploying capital to drive earnings. In summary, our first quarter performance, as well as our ability to grow share and earnings, demonstrates our differentiation in a dynamic environment. We are focused on the underlying secular growth drivers that inform our strategy, as well as the business resiliency actions to manage through cyclical pressures and inflationary shifts with agility.

The proactive actions we are taking to ensure supply chain resilience and accelerate innovation-led differentiation, evidenced by our deepened partnership with Wiliot, further strengthens our competitive moat. Our proven strategies, market-leading resilient businesses, agile teams, and disciplined capital allocation approach drive confidence to continue to deliver growth in 2026 and beyond. I want to extend my sincere gratitude to our global team for their focus on creating value for all our stakeholders, their agility, and their continued dedication to excellence. Over to you, Greg.

Greg Lovins, Senior Vice President and Chief Financial Officer, Avery Dennison: Thank you, Deon, and hello, everybody. In the first quarter, we delivered strong adjusted earnings per share of $2.47, up 7% compared to prior year. Earnings growth was driven by higher volume, productivity, and favorable foreign currency translation, partially offset by higher employee-related costs and targeted growth investments. As Deon mentioned, the quarter benefited from customer pre-buys ahead of price increases, particularly in the last few weeks of March, which we estimate was an approximate $0.05 tailwind to earnings in the quarter. First quarter reported sales were up 7% over prior year, with organic sales of 1% as strong volume mix was partially offset by deflation-related price reductions. Reported sales also benefited from approximately five points of growth from foreign currency translation and one point of growth from the Taylor Adhesives acquisition.

Adjusted EBITDA margins were at 16.4% in the quarter and comparable to prior year. We generated strong adjusted free cash flow of $104 million in the quarter, primarily driven by an improvement in working capital compared to prior years, as well as continued disciplined capital expenditures. Our balance sheet remains strong, with quarter-end net debt to adjusted EBITDA ratio of 2.4. Our capital allocation during the first quarter remained consistent with our established framework, we returned $133 million to shareholders through a balanced combination of $72 million in dividends and $61 million in share repurchases, with the majority of the repurchases completed in March.

These actions underscore our commitment to returning capital while preserving the financial flexibility and balance sheet strength that define our capital allocation approach. Turning to the segment results for the quarter, Materials Group organic sales growth came in 2% higher year-over-year as mid-single digit volume mix growth was partially offset by low single digit deflation related price reductions. Organically, base categories grew mid-single digits, more than offsetting high value categories, which were down low single digits. Turning to label materials, we believe we successfully gained share during the quarter while also benefiting from customer purchase timing ahead of price increases. From a regional perspective, volume mix in North America was up mid-single digits, while Europe delivered approximately 10% growth. In emerging markets, Asia Pacific also grew approximately 10%, and Latin America grew high single digits.

Organic growth in our high value categories in Materials Group was down low single digits overall, with low single digit growth, especially in durable labels, which was more than offset by a mid-single digit decline in Graphics and Reflectives, and low single digit decline in Performance Materials, which includes our Performance Tapes and adhesives businesses. Regarding the Taylor Adhesives acquisition, the business continues to perform in line with our expectations. Materials Group adjusted EBITDA was up 12% compared to prior year, with margins up 10 basis points. The expansion reflects our continued strong execution on leveraging productivity, the net benefit of pricing and raw material cost, inclusive of material re-engineering and strong label volumes, partially offset by employee costs, mix and investments. Regarding raw material costs, we experienced low single digit year-over-year raw material deflation in the first quarter.

That deflation shifted to inflation as we went through March, and we saw impacts on commodities which are linked to petrochemical prices. Our teams are leveraging our proven playbook to navigate the inflation spike through strategic sourcing adjustments in the implementation of pricing. Overall, we are anticipating high single digit sequential inflation in the second quarter. Shifting to Solutions Group, organic sales were down 1%. While high value categories grew low single digits, base categories declined mid-single digits. This reflects continued softness in apparel demand as we lap a strong pre-tariff baseline in 1Q 2025, as well as ongoing inventory management from our customers. Within high value categories, Vestcom was up mid-single digits, driven by the continued benefit from new program rollouts. Embelex was up mid-single digits, driven by both the World Cup and industry growth.

Intelligent Labels fell low single digits on lower logistics industry and general retail. Solutions Group adjusted EBITDA margin was 16.4%, which was down 80 basis points year-over-year. We’re continuing to benefit from our productivity focus and net pricing in raw material costs, but these are more than offset by higher employee-related costs, lower base category volumes and ongoing growth investments. Turning to our outlook for the second quarter, we anticipate reported sales growth of 2%-4%. This sales growth includes organic growth of 0%-2%, approximately 1% from currency translation, and approximately 1% from the Taylor Adhesives acquisition. We expect adjusted earnings per share in the range of $2.43-$2.53, representing approximately 3% growth year-over-year at the midpoint.

This earnings growth is driven by benefits of productivity actions, which more than offset headwinds from wage inflation and growth investments. The anticipation of destocking, which is projected to impact label material volumes in the latter half of the second quarter, in the normalization of 2025 temporary savings, largely from incentive compensation expense, in a net benefit from combined currency, share count, interest and tax. We’ve also outlined key contributing factors for our full year 2026, which are largely unchanged from our prior outlook on slide 9 of our supplemental materials. We continue to expect an approximate $0.25 EPS benefit from the combination of favorable currency, which largely benefited Q1, into lower share count, partially offset by a higher adjusted tax rate and interest expense.

We’ve increased our expectations for restructuring savings, now anticipating greater than $55 million as we continue to lean into our productivity levers. We remain committed to strong adjusted free cash flow, targeting roughly 100% conversion for the year with fixed and IT capital spending at approximately $260 million. Assuming current economic conditions persist, we anticipate sequential increase in earnings throughout the year in line with our recent historical seasonal patterns and excluding the impacts of destocking from the pre-buy timing. In summary, we delivered a strong start to the year, achieving adjusted EPS growth of 7% compared to prior year. These results reflect our ability to drive volume and productivity while navigating a dynamic environment. We are well positioned to offset the latest round of significant inflation by leveraging our procurement excellence and proven pricing discipline.

We generated $104 million in adjusted free cash flow this quarter and returned $103 million to shareholders. We continue to operate within our disciplined capital allocation framework while maintaining a strong balance sheet. With that, we’ll now open up our call for your questions.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please raise your hand now using star one on your telephone keypad. If your question has been answered and you would like to withdraw your registration, please press the pound key. 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. Please stand by as we compile the Q&A roster. Your first question comes from the line of Ghansham Panjabi from Robert W. Baird. Ghansham, please go ahead.

Ghansham Panjabi, Analyst, Robert W. Baird: Yeah, thank you, operator. Good morning, everybody. On Intelligent Labels, how did that play out relative to your initial expectations for 1Q? Also, has that view, has your view on 2026 core sales for this business changed just given the events over the past couple of months or so?

Deon Stander, President and Chief Executive Officer, Avery Dennison: Hi, Ghansham. Yeah, Q1 played out slightly lower than we’d anticipated, mostly on kind of the logistics volume that we saw, both at the customer level and some changes that they were managing through inventory as in preparation for the new chip that they were having. While we haven’t given an outlook for the rest of the year, I still believe we’re gonna see growth through the whole of 2026 relative to 2025 overall, Ghansham. In particular, because we’re gonna see the second half of the year when we’re gonna see some of the new programs ramp, particularly in food. We talked about the Walmart ramp for us in the second half of the year. We also have a number of other apparel programs that are, were planned in, and a couple new ones that are also coming along as well.

Overall, while it’s difficult to know what the second half of the year will play out from a macro perspective, I feel good about our ability to drive those new programs and have them roll out, and hence we’ll start to see an expansion on growth rate as we go through the year.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from George Staphos from Bank of America Securities Incorporated. George, please go ahead.

George Staphos, Analyst, Bank of America Securities Incorporated: Thanks very much. Hi, everyone. Good morning. Thanks for the details. I wanted to peer into the revenue bridge for the quarter. Appreciate the detail again. You said sales growth is put at 2%-4%. Organic is 0%-2%. We have 1% from FX and 1% from Taylor. It suggests there’s not a lot of impact if we’re not misreading this from pricing. Can you talk about how the work you’re doing to offset cost pressure will materialize in terms of pricing in 2Q and perhaps more in 3Q given lags? Relatedly, any common denominator in terms of the weakness in volume we saw in the high value categories and materials? Thank you.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Thank you, George. I’ll start with the first question. I think you’re talking about the second quarter outlook. We look at the amount of inflation, I think I mentioned in the prepared remarks, that we’re seeing high single-digit sequential inflation in Q2, and we are implementing price increases pretty much across the globe to manage through that. We would expect sequentially from Q1 to Q2, kind of low to mid single-digit price impacts to offset that inflationary pressure. From a year-over-year perspective, we still have some carryover deflation, which is part of what drove pricing down as I talked about in the first quarter, down in low single-digits in Q1 versus prior year, really driven by carryover pricing with the deflation that we were seeing last year.

Some of that carryover deflation or carryover price down offset some of that price increase in the second quarter, but we would expect a slight overall net price increase in Q2 versus prior year.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from Jeff Zekauskas.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Sorry, we have one more.

Lucas, one second. Lucas.

My mistake.

George, the only other thing I’d add is that, you know, historically, when we talked about kind of price and inflation, we’ve always historically seen, you know, historically in the past sort of about a quarter gap. As we’ve gone through the last few cycles in this, we know now that our ability to manage pricing to offset inflation is really much improved. We don’t anticipate any really gap in the timing of how we manage inflation and as well the pricing we put through. In terms of your high value category question on Materials Group overall, there were some idiosyncratic reasons for it in the first quarter, particularly on Graphics and Tapes were down largely to do with a really strong comp in the first quarter of last year.

Some inventory, intra-quarter inventory dynamics with some distributors and some end market sales where we saw some softness in our Graphics business. Our anticipation is that we go through the year, we’re gonna see a return to growth for those categories, and overall volume to increase as we go through the year.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from Jeff Zekauskas from JP Morgan. Jeff, please go ahead.

Jeff Zekauskas, Analyst, JP Morgan: Yep. Thanks very much. You’re estimating flat earnings per share in the second quarter relative to the first quarter, normally the second quarter is seasonally stronger. I understand there’s a little bit of pre-buying, and you called that out as being $0.05, but usually the seasonality is stronger than that. Is what’s restraining second quarter earnings growth the timing of the raw material inflation that you’ll get back later? Then in the third quarter, you’re usually seasonally weaker than you are in the second, but you’ll have growth in Intelligent Labels, you’ll have a little bit more price. You know, in the third quarter, are we beginning to go up or flat or down? You know, where do we stand?

Greg Lovins, Senior Vice President and Chief Financial Officer, Avery Dennison: Thanks, Jeff. On your first question, as I mentioned, we had about a $0.05 benefit of pre-buying Q1, which then comes out of the second quarter, which creates really a $0.10 swing from the first quarter to the second quarter. Historically, we’ve had somewhere around, you know, $0.10-$0.15, depending on the year, sequential seasonal benefit as you mentioned, largely offsetting that. When we look at other factors, I would say we have probably a very slight price inflation lag impact, that largely offset by productivity increases as we’re moving through the year as well. Overall, it’s really the seasonal benefit offset by the pre-buy impact largely driving that.

When we look at the rest of the year, I think as we mentioned in our remarks, we do expect continued sequential earnings growth as we move through the year. Pre-buy impacts, as you said, would lower Q2. That should be a benefit from Q2 to Q3. Exactly as you mentioned, we expect continued improvements in things like high value category growth as we move through the back half of the year, continued earnings impacts from share buybacks as well, and continuing to drive productivity growth. We would expect to continue to see sequential improvements in earnings as we move through Q3 and Q4.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from John McNulty from BMO Capital Markets. John, please go ahead.

John McNulty, Analyst, BMO Capital Markets: Yeah, good morning. Thanks for taking my question. Maybe just dig a little bit more into the IL business. Logistics week, it sounded like on 2 things, customer volumes and then the chip change. I guess, presumably the chip change is a temporary thing and you get that back. I guess, can you help us to think about how much of it was just from general weakness in volumes first, that chip shift? Just as a secondary kind of related question, you know, the investment that you just made in Wiliot, if you can give us some thoughts on how you can leverage that opportunity and how that maybe brings that business potentially more meaningfully to you over time.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Yeah, John. The majority of what we saw in logistics softness was down to end customer demand, volumes, and I think you’ve seen that publicly announced today as well. I think there was some degree of impact on the chip timing, but it’ll largely be resolved by the time we get through the second quarter as well. I will say on logistics, you recall, what have we talked about in our call last time, is that we did really drive outsized growth and share in 2025, and this year we’re gonna be looking to lap that. That growth and share came because a large number of our competitors weren’t necessarily able to service the account in the way they anticipated, and we had to step in to sort of provide support in that.

Our planning and expectation is that will normalize in time as well. We have yet to see that in the first quarter, but that’s our planning and expectation as it stands at the moment. What we’re doing in logistics specifically is to make sure we’re content to accelerate when I’m seeing some very positive pilots in logistics with our other logistics providers at the moment as well. Turning to Wiliot, I’m really pleased with the investment in this complementary technology. They’ve been a partner of ours for a long time, and we’re deepening that relationship.

We’re specifically making sure that we’re effectively getting joint go-to market and our role in providing support for them as the largest manufacturer and designer from our scale and network, I think will be invaluable to both of us as we move forward. You know, Wiliot in itself is a technology that’s reliant on Bluetooth, so it’s not RFID in the way that you’d think about it, and it’s largely applicable, John, when you think about condition monitoring. When items need sensing as it relates to changes in temperature, humidity, and light, this is where the technology really comes to bear. We’ve always talked about having a portfolio of sensors that are applicable in each business case, really.

Think about this being really applicable in some sort of food, pharmaceutical, some logistics where at a case and pallet level, where you need more of that condition sensing technology to bring to bear. Our view as we move forward is that it does two things for us. It opens up the total addressable market further for our Intelligent Labels platform overall. We think that condition monitoring is probably another 75 billion units in the long term. At the same time, it gives us a position of strength as we think about our breadth of solutions that we can provide in partnership now to all of our customers moving forward.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from the line of Josh Spector from UBS. Josh, please go ahead.

Josh Spector, Analyst, UBS: Hi, good morning. I want to just clarify two things. Just one on the price cost side. I think, Greg, you talked about it being a slight negative in two Q. I’d be curious just, you know, is all the costs flowing through in two Q or do you have something else to deal with in three Q based on what we see today? Just in your answer to Jeff’s question earlier, just around your comments about sequential earnings growth through the year. I mean, you have that qualifier about with historical earnings seasonality, but I heard you answer that you think earnings would be up in three Q and then seasonally you’re normally up in fourth quarter. Is that the right way to think about it or would you characterize it differently? Thank you.

Greg Lovins, Senior Vice President and Chief Financial Officer, Avery Dennison: On the price cost, I mentioned a slight negative headwind I think you wanted to key to from price cost, just timing. We are continuing to see inflation increase as we move here into the end of April and early May. You know, we’re continuing to do price increases. Some regions are seeing higher inflation than others and are even entering a second round of pricing action. There may be a slight headwind, but overall pretty closely matching price inflation here as we go through the second quarter. I think there will be some carryover sequential inflation then based on that in Q3.

Inflation that we’re seeing, somewhat middle of the 2nd quarter will flow into the 3rd quarter as well. We’ll see a little bit of sequential inflation impact then, as well as sequential price benefit from Q2 to Q3. I think I was talking, I mean, we’re not giving 2nd half guidance. I won’t, I won’t comment specifically there. Our expectation is that, as I said, we continue to drive significant productivity. We increase our restructuring outlook as we gave in the slides here today. We continue to drive high-value category growth. We’re continuing to allocate capital in a way to hopefully continue to increase earnings as well. Our focus is continuing to drive sequential improvement as we move through the quarters.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from the line of John Dunigan from Jefferies. John, please go ahead.

John Dunigan, Analyst, Jefferies: Thanks for all the details, Deon, Greg, really appreciate it, and congrats on performing well in a pretty tough environment. I wanted to ask on the Intelligent Labels business, you talked about the headwind from the logistics share gains that you had last year, but I think you mentioned that you didn’t really see any of that give back in 1Q. I mean, how much should we pencil in for a headwind year-over-year here in 2026?

Deon Stander, President and Chief Executive Officer, Avery Dennison: John, overall, you know, we’re not necessarily forecasting what the remainder of the year will look like. My view is that we are anticipating and planning for some of that outsized volume, and share that we gained in 2025. We’ll lap against that if things normalize. The way we’re thinking about that is we’re gonna be working to make sure we’re offsetting some of that with an impact of additional pilots we’re expanding with some of our other logistics customers. The biggest part of our overall IL program during 2026 is really gonna be our food program as we roll out with Walmart during the second half of the year.

Just recall, what I said about that was we thought it’d be somewhere in the sort of high single-digit to low double-digit equivalent value across a 2-year period on our total 2025 IL revenue. We’re still planning to see the start of that significant ramp during the 2nd half of this year. Because of that announcement, we’ve also seen a lot more inbound from other food retailers and food supply chain players who are interested in understanding how they can leverage the technology. I’m quite encouraged by 2 pilots that are running, 1 in North America and 1 in Europe, with some large grocery retailers that I think will have a lot of impact, as well as a supply chain partner that does direct-to-store delivery for 1 of our retail customers as well, which is a different use case.

Overall, from a food perspective, we’re expecting that ramp, and then in apparel, we’re going to continue to see new programs roll out, a couple that are already in flight and two that will start later on in the second part of the year. The other piece that I’m really encouraged by is the sort of traction we’re seeing with some of our innovation technology that comes to bear in this as well, John. We spoke last year a lot about the rollout that we’ve done with the Inditex based on our loss prevention and visibility solution. We actually now have a second customer, another footwear brand that will be starting to use that as we go into the second half of the year. Not just new customers, but extending technology to be able to drive new use cases as well.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from Michael Roxland from Truist Securities. Mike, please go ahead.

Deon Stander, President and Chief Executive Officer, Avery Dennison1: Yeah. Thank you Deon, Greg, Gilly, for taking my questions. Deon, just to follow up on John’s question, it sounds like you’re expecting or pretty confident in Intelligent Labels ramping in the back half of the year relative to the first half. To the extent you can comment, you know, how do you think about the cadence of IL over the duration of the year? Certainly to hit your guide for 2026 in terms of growing beyond 2025, it implies some lofty growth, which it seems like it’s gonna be more 2H weighted than 1H weighted. Secondly, just, you know, relatedly, any update on your key logistics customer and deployment internationally?

Deon Stander, President and Chief Executive Officer, Avery Dennison: Yeah. Mike, you’re right. We are gonna be seeing a significant ramp in the second half of the year, and sequentially, our run rate of growth will improve as we go through from here through the second half of the year as well. That gets us to seeing our growth above 2025 by the time we exit the end of the year. As it relates to our logistics customer, we are continuing to work with them on the international expansion piece, and that’s going relatively well according to the plan that we have with them.

The secondary piece we’re also doing, you probably saw some commentary out in the press on this, is not only are we focused on what’s called the last mile fulfillment centers, where we’ve been very active over the last couple of years, but as they orientate and also start to think about first mile. This is the shippers themselves, their own, you know, franchise stores and other customers. We’re involved in providing support in that regard as well. Ultimately, I think in logistics, you’re gonna get a combination of business models that some people will choose to focus on last mile first, others will focus on first mile. We’re seeing that with two or three other logistics players as we go through some of the pilots as well, Mike.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from Matt Roberts from Raymond James. Please go ahead, Matt.

Deon Stander, President and Chief Executive Officer, Avery Dennison0: Hey, good morning, everyone. Thank you for the time. Gian, a couple times you have, you referenced the playbook for cost reductions and specifically for inflationary pre-pressures. I think given you all have a unique window into a wide range of end markets and into how your customers are thinking about pricing going forward, whether that’s in food, apparel or other categories, how are your customers looking to offset their own costs via price? What impact do you expect that to have on the volume outlook going forward? You talked about extended scenario planning. Maybe how far are we from reaching a threshold of consumer elasticity, if you will, following years of price increases at retail? Kind of a holistic general question there on inflation and customer elasticity. Thanks for taking the question.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Sure, Matt. Look, I think let me just start this saying, you know, relative to our assumptions at the start of the year, it’s clear that inflation certainly will be higher than we’d originally planned, and the economic indicators are lower than when we started at the beginning of the year. What’s very difficult for us is to estimate the impact, the timing and the consequence of how that may play out as we go through the second half of the year. As you pointed out, we are expanding our scenario plans and widening them further to make sure we’re really prepared for all eventualities in the volume environment that may or may not play out.

I think the biggest part, and Greg talked about this earlier on, why I feel confident in our earnings growth trajectory as we go through the year, just to reiterate again, is because we’re gonna continue to accelerate some of our productivity. You’ve seen we’ve updated our restructuring to $55 million. The largest part of it will play out as we go through the second half of the year. We know our high-value categories will continue to expand as we go through the year, not just because, for example, Materials Group had some idiosyncratic growth was challenged in the first quarter, and that will improve as we go through the year. Also our IL growth will ramp as we go through the second half of the year.

Finally, of course, you know, we are having the impact of share count reduction that’ll help us as we go through the second half of the year as well. I think when I look at our end markets overall, here’s what I see currently, and it is varied across end markets, varied within end markets as well. I’d say on our Materials Group, our labels side, customers have been, depending on where they are by regions where we’ve seen stronger inflation, they’ve been more cautious in the way that they’ve been thinking about the end outcome. Certainly, some of them have been doing some pre-buy. We particularly see that in Europe, some in Asia, a little bit emerging in North America as well. When you talk to customers over there, I think there’s twofold.

I think our end market retailers are really thinking and end market brands are really thinking about consumer confidence in that regard. Now, as you’ve known for last couple of years, CPG volumes have been really muted, and the encouraging thing, at least at the start of this year, we’ve seen at least a couple of CPGs starting to indicate they’re seeing some volume growth. That could be a positive benefit for us despite what’s happening from an inflationary perspective. I think when you look to apparel, certainly apparel sentiment has been pretty soft for quite a long time. It went through the tariff challenges during last year. Now we’re seeing apparel customers thinking about what it may mean from an inflationary perspective on end market demand. It is, after all, a discretionary purchase. That said, apparel imports are still continue to be very low.

you know, apparel inventory to sales ratios are at the lowest since they’ve been 21. As we go through the year, we may see some upside as things normalize in that regard. We continue to work with customers. We’re hearing different things about how they’re managing as they’re thinking about back to school sourcing and then ultimately into holiday as well. Our assumptions are if we don’t see any further deterioration in the macro environment from where it is now, I would anticipate sequential earnings growth as Greg called out as we go forward through the year.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from Anthony Pettinari from Citi. Please go ahead, Anthony.

Anthony Pettinari, Analyst, Citi: Good morning. Just following up on Intelligent Labels. You know, understanding the big ramp is in the second half of the year, I’m just wondering, was there anything notable in terms of the exit rate in the first quarter? Was that, you know, stronger or weaker? It seems like comps could get potentially easier in 2 Qs. I’m just curious if you saw any acceleration into March or April.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Nothing that stood out dramatically, Anthony. Certainly in the second quarter, we should see easier comps on our apparel and general merchandise, because if you recall, tariffs really took hold in the second quarter of last year when we saw, I think, a negative outcome during the second quarter then as well. No leading indicators which suggest there’s any difference. I will say that as I look into where we are now, you know, our current run rates, as we’re seeing in April, reflect on both businesses, just a continuity of what we saw during March, really overall. Apparel continues to be solid, from what we can see initially.

For our materials business, particularly our labels business, we continue to see some of that elevated activity, which Greg, as Greg spoke about, we’re anticipating unwinding as we get through the second quarter.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from Hillary Cacanando from Deutsche Bank Securities. Hillary, please go ahead.

Hillary Cacanando, Analyst, Deutsche Bank Securities: Hi. Thanks for taking my question. In terms of capital allocation, you know, you bought back 61 million shares this quarter. Given that your leverage is stable at 2.4 times leverage, how should we think about the pace of buybacks for the remainder of the year, you know, particularly balancing against your, you know, investment pipeline?

Greg Lovins, Senior Vice President and Chief Financial Officer, Avery Dennison: Yeah. Thank you, Hillary. You know, we continue to follow our playbook with I think we followed for a while on share buybacks, where, you know, typically we take a return-based approach, where we use a grid. In a, in a period where we’re seeing share price increase, we may pull back a little bit on the pace of repurchases. In a period like we saw in March, where we saw the share price decelerate, we increased our pace of purchases. The vast majority of our Q1 share buyback actually came in the month of March, and then April kind of continued at a relatively similar pace. You know, it’ll somewhat depend, of course, on how that plays out as we go through the year. We’ll continue to take a return-based approach on our share buybacks accordingly.

Overall, from an allocation perspective, you know, we feel good about the capacity that we have to continue investing in the business organically, of course, with CapEx, with innovation, related investments. Investments like Wiliot, it’s of course like, to help increase our future growth rates, as well as looking at opportunities for both M&A and continuing to do share buybacks. We feel good about our capacity across all of those fronts and we’ll continue to take the balanced, disciplined approach on all those as well.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Your next question comes from George Staphos from Bank of America Securities Incorporated. George, please go ahead.

George Staphos, Analyst, Bank of America Securities Incorporated: Thanks very much for taking the follow on. Two quickies here. First of all, Deon and Greg, can you elaborate further on how you’re expanding the scenario planning? Is it just pulling more levers on the productivity and maybe ramping the buyback as the market has allowed you, or are there any other elements that you can share here on the call in terms of how you’re expanding the playbook? Secondly, in terms of pre-buys, and recognizing at the end of the day, you know, you’re in business to serve your customers, what are you doing to prevent, if you will, too much pre-buying that gives you a bit more of a destocking that has to be managed 2Q and perhaps into 3Q? Thanks very much, and good luck in the quarter.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Thanks, George. Yeah, in terms of expanding our scenarios, you touched on the major drivers of those. We look to understand where there’s additional productivity opportunities for us in lower volume scenarios, or less if their volume continues to grow. I think the only other thing I’d say is we continue looking at what are we gonna do from an innovation perspective, and when we have new products or solutions in the pipeline, can we accelerate them even quicker to get to market? The final element that I will say is, you know, our teams have been really focused on thinking through what it takes to continue to win and to drive share with our customers, both new and existing customers as well.

Part of that comes down to our commercial excellence, backed up by the innovation that they are seeing that we’re delivering to the market and, of course, supported by our consistent quality and service delivery. Those relationships we have with customers, we see as an opportunity for us to continue to increase our share of wallet with them as well. Final point I’d make is, typically what we see in more uncertain environments, particularly inflation environments and where and if supply chains are more challenged, we normally see a migration from customers back to the market leaders because they trust the security that we can provide. That may represent another upside for us as we think through just in terms of expanding our playbook and scenarios for more share gain as well.

Greg Lovins, Senior Vice President and Chief Financial Officer, Avery Dennison: I think some of that addresses the question on pre-buy as well. I mean, there’s two primary reasons that customers do pre-buy. One is to ensure certainty of supply in materials, and the other is to manage price increases that they could see coming in the market. I think overall, as Deon said, you know, our global scale is a big competitive advantage for us when it comes to ensuring certainty of supply to our customers, leveraging our procurement excellence, our sourcing strategy. We learned a lot from the challenges of 2021 and 2022 from that perspective, expanded our supplier and sourcing strategies from there, and really feel good about our ability to ensure certainty of supply for our customers. I think that’s one way we help limit the impact of pre-buys getting too large.

I think, you know, what we’re seeing here is a much lower scale than what we saw in 2021, 2022, when we saw three or four quarters of inventory building before the destock happened in 2020, late 2022, early 2023. Right now it’s a month or so of inventory build. We’re gonna continue to manage that very closely, and we’ll see how that plays out as we move through the quarter. We’re gonna stay on top of that, of course, as we go.

Deon Stander, President and Chief Executive Officer, Avery Dennison3: Mr. Gilchrist, there are no further questions at this time. I will now turn the call back to you for any closing remarks.

Deon Stander, President and Chief Executive Officer, Avery Dennison4: Thank you, Lucas. On behalf of everyone at Avery Dennison, I wanna thank everyone for joining today’s call and for the continued interest in Avery Dennison. This concludes today’s conference call. Thank you.

Deon Stander, President and Chief Executive Officer, Avery Dennison2: 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.