The paragraph is a transcript from Avery Dennison's Earnings Conference Call for the third quarter ended September 28th, 2024. The operator introduces the call, stating it is in listen-only mode with a question-and-answer session afterward. The call recording will be available for replay. John Eble, Vice President of Finance and Investor Relations, emphasizes references to non-GAAP financial measures and forward-looking statements. Deon Stander, President and CEO, reports strong earnings of $2.33 per share for the quarter, exceeding expectations, and raises the full-year earnings guidance to $9.35 to $9.50 per share, anticipating roughly 20% earnings growth compared to the previous year.

In the third quarter, both Materials Group and Solutions Group achieved significant bottom-line growth. Materials Group showed solid volume growth and strong margins, despite slight delays in Europe due to seasonality and soft macro retail volumes influenced by inflation. Solutions Group experienced strong sales and margins, aided by growth in the base and high-value solutions, with a strong apparel category indicating that retailers and brands are recovering from destocking. Challenges in the apparel industry due to unrest in Bangladesh were largely managed. Intelligent Labels continue to see robust top-line growth, with a long-term target of over 15% sales growth driven by ongoing adoption in apparel and new segments such as food, logistics, and retail.

The paragraph discusses a strategic collaboration with Kroger to implement RFID technology in their bakery department, marking an industry first in item-level digital identification to improve inventory accuracy, reduce waste, and enhance the customer and associate experience. The initiative is part of a broader strategy to expand the company's Intelligent Labels business, which has seen sales increase in the mid-teens year-to-date. The company anticipates double-digit growth for the full year despite uneven customer rollouts. Their solutions address industry challenges like labor efficiency and waste, supporting broader adoption across logistics, retail, and food sectors. The company remains well-positioned for long-term growth, investing in emerging markets and innovations that integrate physical and digital solutions.

The article emphasizes the company's leadership in its core businesses, highlighting its competitive advantages in scale and innovation and evolving strategies that support long-term success. The company raised its earnings growth forecast for 2024 to nearly 20%, despite acknowledging ongoing economic uncertainties. They expect to achieve 10% earnings growth across various scenarios. The third quarter saw a 9% increase in adjusted earnings per share to $2.33, driven by higher volume and productivity, with sales up 5% excluding currency impacts. The adjusted EBITDA margin improved to 16.4%. The company generated strong free cash flow of $420 million in the first three quarters, improved its balance sheet by reducing debt, and maintained a net debt to adjusted EBITDA ratio of 2.1.

In the first nine months of the year, $315 million was returned to shareholders through share repurchases and dividends, with $71 million in dividends and 300,000 shares repurchased in the third quarter. The Materials Group saw a 4% sales increase, excluding currency effects, driven by organic growth and offset by price reductions due to deflation. North America and Latin America saw mid-to-high single-digit increases in Label Materials organic volume, while Europe and Asia-Pacific experienced moderate growth. High-value segments like graphics and reflective sales, as well as Tapes, also grew. The Materials Group maintained a 17% adjusted EBITDA margin, despite increased employee costs and the net pricing impact. Globally, low single-digit raw material cost inflation was observed, largely due to rising paper prices in Europe, which were addressed through product reengineering and pricing actions. Paper prices began to stabilize as the quarter progressed.

The paragraph discusses the financial performance and expectations for the Solutions Group, highlighting stable raw material costs, a 6% organic sales growth, and notable growth in intelligent labels despite some setbacks in logistics and drugstore channels. The collaboration with Kroger is seen as a testament to industry leadership. The Solutions Group achieved a strong adjusted EBITDA margin, benefiting from higher volumes and productivity, despite increased employee costs. Looking ahead to 2024, the company has raised its guidance for adjusted earnings per share to $9.35-$9.50, anticipating nearly 20% growth, driven by four key factors of earnings growth that are progressing as planned.

The paragraph discusses a company's financial outlook and performance. It mentions that early in the year, label volumes normalized, followed by apparel volumes midyear. There was strong growth in Intelligent Labels as apparel rebounded and new programs were rolled out. The company has undertaken productivity and restructuring actions, expecting more than $55 million in savings, an increase of $5 million from the previous forecast, some of which was achieved in the third quarter. The company estimates 4.5% to 5% organic sales growth, targeting the high-end of the prior outlook and anticipates high single-digit volume growth, though affected by deflation-related price reductions. Currency translation is anticipated to be a $5 million headwind in operating income, slightly better than previously expected for the third and fourth quarters. The company aims for roughly 100% adjusted free cash flow conversion and expresses confidence in its strategies for long-term profitable growth and capital allocation. Following a strong quarter and outlook for earnings growth, they open the floor for questions, beginning with Ghansham Panjabi from Baird, who inquires about the Materials segment and the potential plateauing of volume rebound in 2024 due to past destocking impacts and current consumer weakness.

In the paragraph, Gregory Lovins and Deon Stander discuss the factors affecting Intelligent Labels' performance in the logistics sector for 2024. They note that while there is a decrease in forecasted volumes, this is largely due to price adjustments and seasonal fluctuations in Europe rather than significant changes in volume trends. The broader macro-environment remains uncertain, particularly in Europe, where retail volumes are softer. Despite these challenges, they express confidence in achieving a growth target of over 15%, highlighted by strategic developments such as the Kroger announcement.

The paragraph discusses the company's strategic focus on expanding and validating its business operations across various sectors, including apparel, logistics, and food. It mentions the successful establishment of logistics proof points and ongoing efforts in the food sector. The immediate priority is increasing adoption and effectively creating and meeting demand. Specific to logistics, a major variation was attributed to prior-year inventory issues and customer transitions affecting RFID volume, which have been largely resolved. The conversation shifts to a Q&A session with John McNulty from BMO Capital inquiring about the Kroger opportunity and potential growth, especially in the fresh bakery segment and QSR market's food safety initiatives. Deon Stander responds, emphasizing the company's long-term growth target of over 15% through increased adoption.

The paragraph discusses the impact of technology on the logistics and food industries, highlighting a significant partnership with Kroger. This collaboration is expected to demonstrate the value of the technology in improving returns on investment, particularly in the grocery sector, with potential for expansion beyond the bakery channel into areas such as protein and fresh produce. The relationship with Kroger, built over many years, is pivotal, and the innovation and execution approach will contribute to achieving a 15% growth target. Additionally, there's mention of existing rollouts with quick service restaurants (QSRs), focusing on food safety.

The paragraph discusses the rollout of Intelligent Labels at Kroger, beginning with the bakery section and gradually expanding over several quarters to nearly all of its approximately 2,800 stores. The implementation involves both front-end and back-end processes, though specific details are not disclosed. The speaker, Deon Stander, addresses questions from George Staphos of Bank of America regarding the progress of this initiative and also briefly mentions a slowdown with Vestcom, acknowledging it while noting that overall earnings guidance for the year has still been raised. The context is within a broader discussion on how new FSMA regulations may drive the adoption of technologies like RFID for improved food safety transparency.

The paragraph discusses a phased rollout strategy for a bakery collaboration with Kroger, highlighting that most execution will take place in-store rather than through the supply chain. It also addresses issues faced by Vestcom in the third quarter, including a decline in volume due to drugstore channel softness and a customer's bankruptcy. Additionally, a hurricane in Southeastern states led to a temporary price freeze on food items, reducing price ticket changes. However, these challenges are expected to improve in the fourth quarter, with Vestcom anticipated to grow. Vestcom is regarded as a significant, high-value segment with promising growth prospects, especially in the drugstore channel.

In the third quarter, Intelligent Labels saw strong growth in the apparel and general retail sectors but faced challenges in logistics, reducing year-to-date growth from mid-to-high teens to mid-teens. Regarding drugstores, the weakness is seen as temporary, influenced by factors like hurricane pricing recovery. Deon Stander does not view this as a permanent shift, despite some drugstore closures, as there is still significant growth potential. Vestcom aims to enhance labor efficiency and consumer connection in drugstores through discussions with major drugstore players, emphasizing productivity and media solutions at the point of purchase.

The paragraph discusses the performance of different segments within a company, particularly focusing on the Solutions Group and Intelligent Labels. Jeff Zekauskas from JP Morgan questions about the growth rates and shrinkage in specific areas such as Vestcom and Embellishments. Gregory Lovins responds by explaining that while there is overall low-single digit growth in high-value segments excluding currency impacts, Vestcom experienced a decline due to effects in the drugstore channel, and Embelex was also soft, influenced by unrest in Bangladesh and softer performance in apparel. Intelligent Labels, despite decelerating growth, continue to drive growth in both the Solutions and Materials segments, leveraging a strong converter base and expanding in general retail categories. Additionally, Jeff highlights calculations on the potential value of tags for Kroger's baked goods, suggesting a significant annual value.

The paragraph discusses the impact of technology on perishable items in retail, particularly in bakery sections at Kroger, emphasizing its role in improving labor effectiveness and associate experience, which are crucial for retailers. The technology aims to enhance efficiency and reduce waste. While specific program sizes are not disclosed, it's considered an important industry tipping point that could accelerate further adoption similar to changes seen in apparel and logistics. Additionally, Josh Spector from UBS inquires about the margins and financial implications of the RFID technology in the food sector, and Gregory Lovins responds, although his full answer is not provided.

The paragraph discusses the potential growth opportunities for their Intelligent Labels (IL) platform, specifically in the food sector. The company highlights that the food category is the largest opportunity for IL adoption, with an addressable market of 200 billion units, far exceeding the markets for logistics and apparel. Matthew Roberts from Raymond James asks about milestones for rolling out IL in the food sector, specifically referencing Kroger's bakery rollout and its timelines. He also inquires about whether the company's 2025 financial framework, projecting 5% topline and 10% EPS growth, will remain unchanged despite potential impacts from 2024. Deon Stander responds by emphasizing the significant, long-term opportunity in the food sector for IL application.

The paragraph discusses the company's phased rollout strategy starting with bakery items, followed by proteins and leafy greens, emphasizing that it will take time and experience uneven progress across categories, similar to previous rollouts in apparel and logistics. The focus is on driving adoption, building demand, and execution. Gregory Lovins addresses a question about 2025, referencing a financial framework targeting 10% annual growth in adjusted earnings per share, driven by factors like Intelligent Labels growth, normalized apparel growth, and better margins in solutions. While optimistic about achieving this target, the company remains cautious due to an uncertain retail environment. Anthony Pettinari from Citi is then introduced as the next questioner.

The paragraph features a Q&A exchange where Deon Stander discusses the performance of their label and Intelligent Labels (IL) business. He mentions that their label volumes are generally in line with the industry, with some slight market share gains across global markets. For the IL business, while there was volatility due to last year's significant logistics rollout and some current softness, they are performing in line with the market. They anticipate maintaining majority share in the long term due to competitive advantages. He attributes the weaker third-quarter IL performance primarily to specific comparisons and transitions, with no fundamental industry impacts. Following this, Michael Leithead from Barclays inquires about pricing trends in the third quarter for both businesses, noting rising European input costs and softer price and demand.

In the paragraph, Gregory Lovins responds to a question about approaching the European market in 2025 by explaining that they're currently experiencing low single-digit inflation in Europe, particularly in the paper sector. They implemented pricing actions that provided some price benefit from Q2 to Q3, but the overall impact in the quarter was negligible. Looking ahead, they expect a stable materials environment in the near term. John Eble concludes the Q3 earnings call by reiterating the company's objective of achieving GDP plus growth and top-quartile returns for long-term value creation, expressing confidence in their strategies to meet these goals. The call is then officially concluded.

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