The operator introduces the conference call and provides information on accessing the replay. John Eble, Avery Dennison's Vice President of Finance and Investor Relations, speaks about the use of non-GAAP financial measures and forward-looking statements. Deon Stander, President and CEO, discusses the company's strong second quarter performance and raises their full-year guidance. The Materials group showed resilience during the quarter.

The company has seen significant volume and margin expansion in the second quarter, with strong growth in the Solutions group and retail apparel channel. Intelligent labels have also seen mid to high teens growth, driven by a rebound in apparel and adoption in new categories. Sales growth is expected to continue in the third quarter, but may be lower in the fourth quarter due to the timing of customer rollouts. New customer rollouts can be uneven, especially in new categories.

The company has high confidence in the long-term growth of their intelligent labels platform and is focused on accelerating adoption in key verticals such as food and logistics. They continue to invest in order to capture the significant opportunity ahead and maintain their leadership position at the intersection of the physical and digital. The company has strong fundamentals, exposure to diverse markets, and clear strategies for long-term growth. They are confident in their ability to generate superior value creation through a combination of growth and top quartile returns. Overall, the company delivered a strong quarter and raised their guidance for the year.

The company has increased its outlook for the year, but the uncertain environment requires some caution. The team is thanked for their resilience and commitment. In the second quarter, the company delivered strong earnings and sales growth, with adjusted EBITDA margin also increasing. They have a strong balance sheet and continue to execute their capital allocation strategy. In the materials group, sales were up due to volume growth, but partially offset by price reductions.

In the second quarter, the mature markets showed significant growth compared to the previous year due to rebounding from customer inventory destocking. Europe and North America both saw growth, with Europe up more than 25% and North America up high single digits. Emergent regions also showed strong growth, with Asia up mid-single digits and Latin America up mid-teens. Graphics and reflective sales were up low single digits, while performance tapes in medical saw a decline due to inventory destocking. The Materials group had a strong adjusted EBITDA margin of 17.9%, driven by higher volume and productivity benefits. Raw material costs saw low single-digit inflation, primarily due to higher paper prices in Europe. The company is addressing these cost increases through product re-engineering and pricing actions. However, they expect materials group margins to moderate in the third quarter due to seasonality and continued inflation.

In the Solutions group, sales have increased by 11% organically and 14% when factoring in currency. The high-value solutions have seen a low double-digit increase, while base solutions have seen a mid to high teens increase due to normalized apparel volume. Year to date, intelligent label sales have increased significantly, particularly in logistics and general retail. The Solutions group's adjusted EBITDA margin has improved by 100 basis points, driven by higher volume and productivity. The outlook for 2024 has been raised, with adjusted earnings per share expected to be between $9.30 and $9.50, representing a 19% growth from the previous year. This increase is due to a strong second quarter and expected growth in the second half. The outlook includes four key drivers of earnings growth, including the normalization of label and apparel volume, growth in intelligent labels, and productivity actions. The updated outlook also reflects a 4.5% organic sales growth, 50 basis points higher than previously anticipated.

The company expects high single-digit volume growth but anticipates a headwind from currency translation. They expect a mid-single-digit decline in EPS in the third quarter compared to the second quarter. The company remains confident in their ability to deliver value and will share more about their long-term objectives at their Investor Day in September. The first question from an analyst is about the solutions business, specifically the intelligent label side. The company has lowered its revenue contribution for the year due to timing of rollout, but it is unclear if this is due to a delay or slower progress in pilot programs. The analyst asks for more information on this.

The speaker is responding to a question about the company's expected solutions margin and revenue growth. They mention that the original outlook for the year called for lower revenue growth, but they are now targeting 20% volume growth and mid-teens revenue growth. They also mention that revenue growth in the fourth quarter will be lower than previously anticipated due to customer rollout timing, mix, and deflation-related pricing impacts. They clarify that their margin profile is still above the segment average. Finally, they mention that there are ongoing rollouts with existing customers and anticipated rollouts from pilots that have been slightly delayed.

Deon and John discuss the recent timing issues and volume impacts on existing customers, particularly in the logistics sector. However, they also mention that customers are seeing significant value and returns on investment from the technology, leading to a strong pipeline and long-term growth opportunities. In terms of margins, they expect improvements in the apparel segment to continue and to reach previous levels of 18% or higher. Ghansham Panjabi asks a question about this and the operators relay the question.

In the second quarter, the variances that drove the upside for the company were largely in the labels business in Europe and in apparel, where there was sooner than expected normalization. The macro environment remains uncertain and consumer sentiment is not robust, but there are signs of improvement in import volumes. There is also a range of performance among apparel customers, with some doing well and others not as well.

Gregory Lovins and Ghansham discuss the drivers of the beat in Q2, including better performance in materials Europe and improved apparel sales. George Staphos asks about potential tariff-related issues and if there has been any pull forward in sales. Deon Stander addresses this, saying there has not been any visible signs of pull forward, but there is discussion among retailers about potential future tariffs. Staphos also asks about the reduction in ASPs and if it is due to improved manufacturing economics or other factors. Stander responds, saying he will address this in relation to IL (industrial lubricants).

The second quarter showed a slight pull forward in volume and revenue, possibly due to the Red Sea shipping crisis. However, there has not been a significant pull forward overall. In the past, ASPs have declined, but this has helped accelerate new segment adoptions and unlock new opportunities. Moving forward, there may be a moderation in these declines due to previous gains and the company's competitive advantage in innovation and manufacturing. Pricing is an important factor in the market.

Deon Stander clarifies that the delays in customer deployment in the fourth quarter were not due to logistics, as the rollout had been largely completed. The delays were a result of softer parcel demands across the market. He also mentions that the company is focusing on creating value for customers and capturing more value through a broader solution. There was also a discussion on deferrals and deflation, with plans to offset the deflation through cost reduction and productivity improvements.

The company has seen the most variation in timing in new pilots and newer segments, such as apparel. The timing can be affected by factors like customer returns and cultural adoption. Deflation has been a core strength of the company, as they are able to drive productivity and leverage their Materials business for the Intelligent Labels platform. The company is constantly focused on reducing manufacturing costs.

The company plans to use its innovation in material science, processes, and solutions to stay ahead of the competition and provide further value in the market. They are seeing growth in the RFID industry and are focused on maintaining their leadership share through their investments in innovation and activating industries like logistics and life food.

The speaker discusses their company's role in the logistics industry and their plans to expand into the food and QSR sectors. They believe their experience and capabilities make them a leader in the industry and they expect to maintain or expand their market share in the coming year. They also mention their long-term growth potential in the logistics sector, citing the large number of units and their current penetration rate.

The company's food platform has potential for growth in the coming years and they are currently engaged in discussions with logistics providers and conducting trials and pilots. They will provide more information on their strategic plans and outlook in September. In terms of SG&A expenses, there was a 17% increase compared to last year, mainly due to higher incentive compensation accruals.

The paragraph discusses the performance of Vestcom, a business owned by the company. It mentions that the business has been performing well and has contributed to the company's overall success. The paragraph also mentions that the business operates in a high-value segment with above-average margins. Additionally, the paragraph briefly touches on the potential impact of a move towards a bigger digital shelf environment on Vestcom's business.

The Vestcom business has helped the company gain access to new food customers and has also been beneficial in their initiatives for intelligent labels and consumer media promotions. The company has recently signed a significant U.S. retailer for a multiyear deal and is anticipating adding a new large U.S. retail banner to their customer portfolio. The trend of digitization is seen as a tailwind for the company, and their Vestcom business is currently involved in both analog and digital shelf-edge labeling. The strength of the Vestcom business lies in its data composition engine, which takes in a large amount of data and outputs it to either analog or digital labels.

The speaker discusses the strengths of their business and how electronic shelf labels will play a role in the future of retail. They also mention that their Vestcom business is well-equipped to handle the mixed estate of stores. The following question asks about the margins in the Materials segment, and the speaker explains that it was a combination of strong top-line performance, cost reduction programs, and pricing effects that contributed to the higher margins. They also mention that they have raised their expectations for restructuring savings and continue to drive ELS productivity.

The company has been meeting its targets and expects to continue doing so in the future by focusing on balancing top-line growth, margins, and capital efficiency. They have successfully implemented cost-saving initiatives, with a slightly higher focus on cost of sales. In the last quarter, there was a negative price mix in both Solutions and Materials, but it was slightly higher in Materials.

The company experienced high single-digit to double-digit deflation in the Materials business, while the solutions side saw similar or slightly higher volume and revenue growth. The call ended with the speaker expressing confidence in the company's position and ability to deliver strong growth and returns in the long term.

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