Avery Dennison (AVY) Q3 Earnings call transcript Oct 23, 2024

Avery Dennison Corporation, a leading materials science and manufacturing company, reported a strong Q3 performance, with earnings per share of $2.33, surpassing expectations and raising its full-year guidance. The company's Materials Group and Solutions Group both contributed significantly to the bottom line growth.

Materials Group's Resilience and Solutions Group's Growth

Avery Dennison's Materials Group showcased its resilience with solid volume growth and strong margins, even in the face of soft retail volumes. In North America and Asia, volume increased compared to the previous year and sequentially, while Europe's volume was slightly below expectations but still grew compared to the prior year. The group's focus on diverse and growing markets, clear catalysts for long-term growth, and its competitive advantages in scale and innovation are key to its success.

The Solutions Group, on the other hand, delivered strong sales growth and margins, driven by a robust apparel category and high-value solutions. Despite some interruptions in the apparel industry due to unrest in Bangladesh, the group was able to overcome the challenges, underscoring its ability to adapt and thrive in dynamic environments.

Intelligent Labels' Growth Opportunity

Avery Dennison is capitalizing on the multi-decade growth opportunity in intelligent labels, which connect physical items with digital identities. With a focus on apparel and new segments like food, logistics, and general retail, the company is well-positioned to capitalize on this trend. The recent strategic collaboration with Kroger, the first grocer to roll out item-level RFID tagging, is a significant step forward and highlights the company's leadership in this space. This collaboration, along with the focus on driving adoption and executing demand, positions Avery Dennison for long-term success.

Financial Performance and Outlook

The company's financial performance was marked by a strong balance sheet and disciplined capital allocation strategy, with $420 million in free cash flow generated through the first three quarters. The outlook for 2024 is optimistic, with a raised guidance of $9.35 to $9.50 per share, reflecting nearly 20% growth compared to the previous year. Despite some uncertainties, the company remains confident in delivering 10% earnings growth across a range of scenarios, demonstrating its resilience and focus on generating superior value creation.

In conclusion, Avery Dennison's strong Q3 performance and raised full-year guidance underscore its strategic focus, operational resilience, and commitment to innovation. The company's ability to navigate challenges and capitalize on growth opportunities is a testament to its leadership and strategic vision. With a clear path to GDP-plus growth and top quartile returns, Avery Dennison is poised for continued success in the evolving market landscape.