The operator introduces the call and explains the format, while John Eble, the Vice President of Finance and Investor Relations, provides a reminder about non-GAAP financial measures and the Safe Harbor statement. Deon Stander, the President and CEO, then discusses the company's performance in the fourth quarter, including sequential earnings growth, volume growth, expanded margins, strong free cash flow, and significant growth in Intelligent Labels.

Despite facing unexpected market conditions in 2023, Avery Dennison successfully protected margins, improved service for customers, and shifted towards high-value categories. They also leveraged their strengths in productivity, cost management, and capital stewardship to minimize the impact of low volume. The reduction of excess inventory is seen as a positive for the industry and the company expects to see a return to growth in 2024, especially in their Intelligent Labels platform. Customers are increasingly turning to Avery Dennison for help with complex challenges, and the company is well-positioned to provide solutions with their expertise in connecting physical and digital worlds. However, they remain cautious in the near term due to mixed economic indicators and geopolitical risks.

The author is confident that 2024 will see strong earnings growth due to the completion of inventory destocking in the label business and a rebound in apparel volumes. The Materials group saw improved margins and volume throughout the year, with label volume in North America and Europe steadily improving. The Solutions group also saw growth in high-value solutions and acquisitions, offsetting a decline in base solutions. Volume and margins improved in the back half of the year, especially in intelligent labels and as apparel destocking slowed.

Apparel imports are down in North America, but there are signs of improvement in Q4. Retailers and brands are taking into account muted sentiment and shipping issues, which may lead to a normalization of industry volumes in mid-2024. Enterprise-wide intelligent labels saw low double-digit growth in 2023, with non-apparel categories such as logistics and food seeing significant growth. This was partially offset by a decline in apparel, but the company is targeting 20% growth in their Intelligent Labels platform in 2024. They are also investing to address industry challenges and capture the significant opportunity ahead.

The company is constantly improving their strategies and setting high standards for themselves to ensure superior value creation for stakeholders. They have a strong team that is able to adapt to changing environments and are making progress towards their long-term sustainability goals. The company is confident in their strategies and their ability to generate value and strong earnings growth in the future. The CFO will provide more details on their fourth quarter results and their outlook for 2024.

In the fourth quarter, the company delivered strong financial results, with adjusted earnings per share in line with expectations and a 31% increase from the previous year. Sales were up 3% and adjusted EBITDA margin was strong at 16%. The company also generated strong adjusted free cash flow and made strategic investments in high-value categories. The balance sheet remains strong and the company is continuing to execute a disciplined capital allocation strategy. In terms of segment results, Materials group sales were down due to deflation related price reductions, but label volume in North America and Europe showed improvement.

In the fourth quarter, the organic volume trends for label materials in North America were slightly down due to destocking by customers and retailers. However, Europe saw an increase in sales as they began to recover from destocking in the previous year. Asia Pacific and Latin America also saw increases in sales compared to the previous year. Graphics and reflective sales were up, but performance tapes and medical sales were down. The Materials Group had a strong adjusted EBITDA margin, driven by productivity and pricing benefits. Raw material costs saw deflation, but this was mostly passed on to customers through price reductions. In the Solutions Group, sales were up 19% and 14% on an organic basis, with high-value solutions up more than 20% and base solutions up mid-single digits. Intelligent label sales grew by over 30%.

The non-apparel categories, particularly logistics and food, saw significant growth in the past year, while apparel categories remained comparable to the previous year. The company's adjusted EBITDA margin also improved, driven by higher volume. The company has consistently met or exceeded its long-term financial targets and expects to continue delivering GDP-plus growth and top quartile return on capital. Sales growth has been above target, driven by higher prices and volume, and adjusted EBITDA and EPS have also shown steady growth. The company anticipates making progress against its targets in the coming year.

In 2023, our return on total capital was 12%, but we expect it to increase to the mid- to high teens in 2024. Our outlook for 2024 includes similar adjusted earnings per share in the first quarter, but improvement throughout the year due to increased label and apparel volume, growth in intelligent labels, and productivity actions. Overall, our adjusted earnings per share for 2024 are expected to be in the range of $9 to $9.50, a 17% increase from the previous year. This is driven by organic sales growth, productivity savings, and higher employee costs.

The company expects to make strategic investments in high-value solutions and predicts that non-operational items, tax, interest, currency, and share count will remain neutral. They are confident in their ability to continue delivering value through long-term growth strategies and disciplined capital allocation. The company reported slightly stronger volumes in Europe in Q4 and expects this trend to continue in early January. They also anticipate a recovery in their labels business as inventory destocking ends in both Europe and North America.

The company saw growth in intelligent labels in the second half of the year, driven by apparel destocking and muted sentiment. Non-apparel categories also saw significant growth, particularly in logistics and food. The company targets a 20% growth rate for 2024, with new programs launching in various segments and the normalization of apparel volume in the second half of the year. A bakery trial with a large U.S. grocery retailer has shown potential for reducing food waste and improving labor efficiency.

John McNulty asks about the potential for margin improvement in the material space for Avery in 2024. Greg Lovins responds that the company is focused on making progress towards their long-term target of 17% EBITDA, which they expect to achieve in 2025. The next question, asked by Bryan Burgmeier, is about Avery's ability to maintain positive margins as prices come down in line with raw material costs. Greg Lovins explains that they have been passing through deflation with pricing since the second quarter of 2023.

The company expects to see some deflation in Q1 but anticipates most of the price decreases to be carried over from the previous year. They plan to pass on most of the deflation through pricing and maintain their productivity benefits. When looking at the midpoint of their earnings and revenue growth, they anticipate about 130 basis points of margin expansion in 2024. The margin lift will likely be split between solutions and materials.

The speaker discusses the expected improvement in margins for both of the company's businesses in 2024. They also mention disruptions in shipping, particularly in the Panama Canal and Suez, but do not believe it will result in higher volume as retailers are rethinking their shipping methods. Some pull forward of orders may occur in the first quarter, but it is expected to normalize in the second half. Retailers are taking action to ensure continuity of supply.

The speaker responds to a question about the growth of intelligent labels in the logistics and food category. They mention a 110% increase in this area and clarify that this is due to a new program being rolled out in 2023. They also mention that there could be continued growth in 2024 due to increased adoption of the technology by other segments. The speaker also addresses a discrepancy in the numbers reported for intelligent labels in the slides and clarifies that the correct number is 32% of the solutions group.

The company is discussing with logistics providers around the world to help support their supply chain efficiency goals. They expect to see growth in the logistics sector in the second half of the year and anticipate continued growth in apparel and other segments due to new programs launched. Intelligent labels revenue for 2023 was around $850 million, but this includes some revenue from the materials segment. The overall business grew low double digits in 2023 and the company expects continued growth in 2024.

Deon Stander and Greg Lovins discuss the current state of retail and apparel imports. They anticipate a normalization in the second half of the year due to uncertainty at the retail and brand level, as well as geopolitical issues. They expect retail volumes to be down compared to 2019, but see a potential for improvement in late 2023 and 2024. They also note that apparel imports have been declining for the past four quarters, but anticipate a turnaround in mid-2024.

The speaker discusses the expected performance of the company in the second half of 2023, stating that Europe is expected to be slightly worse but overall, there will be a mid-plus teens growth rate. They anticipate a trend of improvement in the first half and a stronger back half. In response to a question about hitting a $10 run rate in EPS, the speaker reiterates their confidence in achieving this in 2024, but notes that the timing is uncertain. They also mention that the 20% growth rate in intelligent labels is dependent on factors such as accelerating existing programs, rolling out new programs, and a rebound in apparel volumes. They estimate that half of this growth will come from logistics and food, a quarter from the apparel rebound, and the rest from general retail and other programs.

The speaker is responding to two questions about the company's margins. They mention protecting margins in the materials segment, which is related to volume challenges and actions taken to offset them. They also mention maintaining or growing share in various business segments, such as label and apparel. They note a margin uplift in the solutions business in the fourth quarter due to a large logistics player coming in.

Deon Stander, from Avery Dennison, discusses the company's margins and investments in ensuring industries adopt their platform. They expect margins to expand in 2024 due to increased volumes and a mix of high-value segments and base solutions. Stander also mentions the strong performance of Vestcom, a business acquired by Avery Dennison, and their confidence in the outlook for IL adoption and usage in the apparel industry.

In 2023, the company saw expected growth and margins, and in 2024, they anticipate even more growth due to a pilot program with a large retailer in the US. IL is expected to slowly recover in the first half and accelerate in the second half as the apparel industry recovers. This is due to both new programs and the recovery of base volumes in apparel. Examples of the company's technology being used for more than just inventory accuracy include loss prevention for Inditex, supply chain efficiency for a large European brand, and improved customer connection.

The company has worked with professional sports franchises to embed digital triggers and sensors into their garments in order to engage with consumers and drive fan equity. They are also addressing issues of efficiency, waste, circularity, sustainability, and consumer connection. The company is confident in their ability to grow and will be hosting an Investor Day in September for a strategy update.

This summary was generated with AI and may contain some inaccuracies.