The paragraph is an introduction to Avery Dennison's Earnings Conference Call for the Fourth Quarter and Full Year Ended on December 28, 2024. The call is hosted by John Eble, Avery Dennison’s Vice President of Finance and Investor Relations, and features presentations from Deon Stander, the President and CEO, and Danny Allouche, the Senior Vice President and Interim CFO. The call will discuss non-GAAP financial measures and forward-looking statements. Deon Stander highlights the company's positive performance, noting a 5% sales growth, a 130 basis point increase in adjusted EBITDA margin, and a 19% growth in adjusted EPS, aligning with the high end of their original guidance.

The paragraph highlights the strong financial performance and strategic progress of the Materials and Solutions Groups, with significant growth and margin expansion despite recent macroeconomic challenges. The company has a history of exceeding long-term financial goals, achieving 9% earnings growth in the current cycle by focusing on high value categories, which now constitute nearly half of the portfolio and contribute significantly to organic sales growth. The steadfast performance is attributed to the robust portfolio, market leadership, an agile global team, and effective strategy execution, providing multiple avenues for sustained earnings growth and value creation across business cycles.

The paragraph outlines a successful strategy for growth across the company's primary businesses, emphasizing five strategic pillars: growth in high-value categories, profitable expansion in base businesses, integrating physical and digital operations, effective capital allocation, and focusing on productivity and sustainability. The Materials Group achieved strong top-line growth in 2024, driven by market recovery and increased demand for high-value categories, especially in emerging markets. The company continues to leverage its strengths in quality, material science, process technology, and sustainable innovation to differentiate itself. With a focus on expanding its presence in high-value categories, the company achieved mid-single-digit organic growth and introduced innovations in 2024 that improve supply chain efficiency, enhance product performance, and support packaging sustainability.

The paragraph outlines the company's advancements and successes in various areas. Highlights include the introduction of a RecyClass-certified label for polyethylene packaging to improve recyclability and the expansion of linerless solutions for better productivity. The Materials Group focuses on reengineering and lean operations to enhance competitiveness and margins. The Solutions Group saw significant growth in apparel and high-value solutions like Embelex, driven by consumer personalization and sports engagement. Despite lower sales in the drugstore channel due to store closures, the company signed a partnership with CVS Health to implement Vestcom shelf-edge solutions chainwide by 2025.

The paragraph discusses Vestcom's anticipated strong growth in 2025, particularly through its enterprise-wide Intelligent Labels. In 2024, organic growth reached 9%, driven by increases in apparel and retail, despite a decline in logistics due to a large RFID rollout in 2023. Vestcom continues to maintain a majority share with key clients and has gained insights to aid future category expansion. Additionally, a collaboration with Kroger, starting in 2025, will introduce RFID tagging in bakery items to enhance inventory accuracy and reduce waste. Overall, Vestcom expects 10% to 15% growth in Intelligent Labels in 2025, boosting the company's overall growth.

The company is projecting a 15% growth, with 10% from existing customers and markets and 5% from pipeline conversions. Growth is expected to accelerate due to strategic program timings. The company believes in the importance of digital identities for physical items to improve efficiency, transparency, and brand-consumer connections. They claim leadership in UHF RFID technology and labeling materials, planning to leverage their innovation and market strategy to expand into new categories. The CEO, reflecting after five quarters, expresses confidence in maintaining strong earnings and returns, highlighting the company’s competitive advantages, diverse market exposure, strong cash flow, and growth potential in emerging, high-margin markets.

The company highlights its global team's culture of innovation and productivity, strong financial position, and disciplined capital allocation, which allow for investment flexibility and growth potential. They anticipate delivering strong earnings growth in 2025 with adjusted EPS between $9.80 and $10.20, a 10% increase excluding currency effects. Thanks are extended to the team for their resilience amid challenges, and a transition to Danny Allouche as Interim CFO is announced. Danny provides an overview of the successful fourth-quarter results and outlines the 2025 outlook, noting a 10% year-over-year increase in adjusted earnings per share, and a sales growth of 3.5% excluding currency impacts, driven by higher volumes and improved productivity.

In the fourth quarter, the company achieved a strong adjusted EBITDA margin of 16.4%, with adjusted EBITDA dollars increasing by 6% from the previous year. They realized $14 million in restructuring savings in the quarter and $63 million for the year, maintaining cost optimization while investing in growth. Adjusted free cash flow was robust at $280 million in the quarter and $700 million for the year, with a 100% conversion rate. The balance sheet remains strong, supporting investments, dividend growth, acquisitions, and strategic stock buybacks. In 2024, $525 million was returned to shareholders through dividends and share buybacks, with an accelerated share buyback in Q4. Materials Group sales grew 4% excluding currency, driven by mid-single digit volume growth but offset by price reductions due to deflation. Organic high-value categories saw high-single-digit growth, while label volume was slightly below expectations due to softer demand and customer year-end inventory management.

In the quarter, Label Materials saw organic volume growth with North America and Latin America up mid-single digits and Europe and Asia-Pacific up low single digits. Graphic and Reflectives sales increased slightly, while Performance Tapes and Medical sales remained flat. The Materials Group achieved a robust adjusted EBITDA margin of 17%, up slightly from the previous year due to increased volume and productivity, despite the impact of pricing and raw material costs, which saw slight deflation. In the Solutions Group, sales rose 3% excluding currency effects, with base solutions up significantly but high-value solutions, including Vestcom, declined slightly, although a rebound is expected in 2025 due to a new agreement. Intelligent Labels had a 9% annual sales increase but declined slightly in Q4, with significant growth in apparel and retail, but a drop in logistics offset those gains.

The Solutions Group achieved a strong adjusted EBITDA margin of 17.8%, slightly down from the previous year due to increased employee costs, investments, and product mix. Since 2012, the company has been engaged in a transformation strategy focusing on strengthening its foundation and profitability, and expanding its portfolio through organic growth and strategic acquisitions. Recently, they've emphasized connecting physical and digital aspects through both business segments. This approach, which includes disciplined capital deployment, organic investment, dividend growth, strategic acquisitions, and share buybacks, has resulted in robust sales growth, surpassing their 5% target to achieve 7% annually, despite ongoing challenges. This success is partly driven by high-value product categories, contributing significantly to organic growth.

In 2024, the company experienced a roughly 9% annual growth in adjusted EBITDA, with a margin increase of 110 basis points to 16.4%, surpassing targets. Adjusted earnings per share (EPS) grew 7.4% annually, and over 10% when excluding currency and acquisition-related amortization expenses. The return on total capital was strong at 16%. Looking ahead to 2025, the company expects continued growth, with adjusted EPS projected to rise 7% to 12% to between $9.80 and $10.20, excluding currency effects. Key drivers include 3% to 4% organic sales growth and mid-single-digit volume growth. They anticipate a $30 million currency translation headwind to operating income and $40 million in net restructuring savings. The company will shift from a fiscal to a calendar year, adding two extra working days in Q4 2025, and aims for 100% adjusted free cash flow conversion. In Q1, adjusted EPS is expected to slightly increase despite a significant currency headwind.

The paragraph discusses expectations for growth in 2025, highlighting an anticipated increase in earnings each quarter due to high-value solutions, rollouts, and productivity improvements. The company reports strong results in 2024 and aims to exceed long-term sales and margin targets with a 9% adjusted EPS CAGR, excluding currency effects, while maintaining top-tier returns. This positions them well to achieve their 2028 targets. During a conference call, George Staphos from Bank of America inquires about growth assumptions in logistics for 2025 amid news of a significant volume reduction by a customer. Deon Stander responds, noting a slight decline in logistics growth from 2024 to 2025, with the customer impact already considered in the 10% to 15% growth range for IL.

The paragraph discusses a partnership's plans for aligned volumes from 2024 to 2025, anticipating further adoptions in 2026. The experiences from initial adoptions are expected to aid in future pilots with logistics providers. During a call, Ghansham Panjabi asks about core sales growth for 2025 in the Materials segment. Deon Stander responds, indicating that assumptions for 2025 are based on macroeconomic factors, with minimal changes in GDP between 2024 and 2025. Retail volumes are expected to be slightly up in 2025. The company anticipates a 3% to 4% sales growth range, accounting for GDP growth, apparel cannibalization, and mid-single-digit volume growth in Materials, along with some price adjustments.

In the Q&A segment, Jeffrey Zekauskas from J.P. Morgan inquires about raw material cost trends for 2025. Danny Allouche responds, indicating a stable environment with slight deflation expected in Q4 and Q1, and stabilization anticipated afterwards. The impact of significant deflation at the end of 2023 is noted, with a time lag expected before price adjustments occur in Q1 and Q2 of 2025. Allouche emphasizes a neutral price-material relationship over the cycle, benefiting from cost-out activities. Next, Matt Roberts from Raymond James asks about acceleration in general retail and apparel trends. The response suggests a notable increase in general retail growth from 20% to 40% in Q4, and inquiries about the scenario for apparel growth in the first and second halves of 2025, given the current trends and previous comparisons.

The speaker, Deon Stander, discusses the acceleration of Intelligent Labor (IL) adoption across various markets, particularly in general retail and apparel. In general retail, IL volumes have increased due to a major retailer enforcing compliance, though it takes time for suppliers to adjust. In apparel, there was significant growth in IL volumes in 2024 following inventory destocking in 2023, with some timing shifts in key programs. Looking forward to 2025, strong growth is expected in both general retail and apparel, with low double-digit growth anticipated in apparel driven by existing customers and early adoption by new retailers.

The paragraph discusses the company's plans for customer adoption and volume growth, particularly in their apparel sector (referred to as IL). They expect a growth rate of 10% to 15% by 2025, with known programs currently contributing to the 10% and the remaining 5% expected to come from future, unknown programs. The timeline may vary, but there's confidence in achieving a 15% growth rate long-term. Danny Allouche notes that apparel IL growth is likely to accelerate throughout the year. John McNulty of BMO Capital Markets asks about volume declines for a logistics customer following a recent announcement. Deon Stander responds that it's difficult to predict the impact for 2025, but they have aligned volumes planned with the customer for 2024.

In the paragraph, a discussion takes place between an operator, Josh Spector from UBS, and company representatives, Danny Allouche and Deon Stander. Spector inquires about the Solutions division's margins, noting that despite a significant increase in sales, the EBITDA increase was relatively small. Allouche attributes the issue primarily to a negative sales mix during the quarter, highlighting a decline in high-value solutions and additional costs associated with a new plant in Mexico. However, he anticipates improvement in margins from 2023 to 2024 and further in 2025, driven by growth in high-value segments such as the Vestcom program. Stander adds that the mix expected next year might lead to a higher-than-average margin flow-through.

In the article paragraph, a speaker discusses the need for about 2% growth on the top line to cover general inflation and notes a typical 30% flow-through on volume after that. They also mention the potential for growth in high-value categories by 2025. Following this, Mike Roxland from Truist Securities asks about the reliability of logistics volumes promised by a customer, noting previous inconsistencies. He also inquires about delays in customer deployments initially expected in 2024, which are now pushed to 2025. Deon Stander responds, expressing confidence in the logistics volumes based on current knowledge.

In the paragraph, the speaker discusses the learnings from early adoption phases and how they impact future planning regarding volume, service priority, and innovation. They mention resolving issues with RFID-enabled packages and improving technology use in logistics, from fulfillment centers to delivery and back to the source. The speaker addresses delays, stating they are common and not significant, and highlights plans for incremental growth, acknowledging potential timeline shifts. They emphasize the franchise's strength and the successful pilots and trials conducted.

The paragraph discusses the company's growth strategy, highlighting that they have multiple high-value categories contributing to growth beyond just IL, including Vestcom, Embelex, and their Materials group. These segments are expected to grow significantly by 2025 with existing and new customers. The company also emphasizes a strong base business anchored in consumer staples, robust market positions, a talented team, and a strong balance sheet to drive earnings through disciplined leverage. They have successfully delivered double-digit earnings growth over the past decade by utilizing various levers within their franchise. Additionally, the paragraph briefly shifts to a Q&A where Michael Leithead from Barclays inquires about the company's capital allocation plans, M&A pipeline, and debt refinancing. Danny Allouche responds that their capital allocation strategy remains consistent with previous years.

The paragraph discusses the company's strategy of maintaining a strong balance sheet to pursue strategic acquisitions and take advantage of market dislocations. The company plans to continue this approach into 2025, focusing on mergers and acquisitions (M&A) at attractive valuations and share buybacks. Leadership emphasizes their focus on Economic Value Added (EVA) to optimize growth, margin, and capital efficiency. The company has €500 million in debt maturing in March, which will be repaid using funds from a recently issued €500 million of senior notes at a 3.75% interest rate, meaning no need for immediate fundraising. Net interest expenses are expected to rise slightly due to the refinancing at a higher rate.

In the paragraph, Bryan Burgmeier inquires about the potential impact of tariffs in the United States on Avery's operations, specifically regarding products shipped from Canada and Mexico. Deon Stander responds by stating that Avery's direct exposure to tariffs is minimal due to their strong scenario planning and global network. Avery generally procures, produces, and sells within the same region, and they have the flexibility to adjust production locations as needed. Regarding China, half of Avery's business there involves the Materials Group selling labels within China, while the other half involves adding tags and labels to apparel, which are then exported to the U.S. and Europe.

The paragraph discusses the company's ability to support brand migration of production between countries, such as moving operations from China to Vietnam or Honduras, thanks to its global network. It also mentions potential exposure to tariffs affecting apparel demand and highlights the establishment of a new facility in New Mexico for intelligent labels, with flexible capacity planning including the U.S. In a Q&A segment, George Staphos from Bank of America questions the projected growth in high-value categories, specifically in reference to the Vestcom and Materials divisions. He points out that expected growth in high-value categories doesn't seem to leave much room for growth in the Embelex or Vestcom segments, despite positive outlooks and new customer acquisitions for Vestcom.

In the paragraph, Deon Stander discusses the expected growth for Embelex and Vestcom. Embelex is anticipated to grow double digits this year, driven by strong performance in personalized and fan engagement industries, with a history of 15% growth over the past six years. The rollout of new customers, particularly in performance athletics and team sports, is expected to contribute to this growth. Embelex is also involved in providing customization facilities in professional sports leagues, exemplified by their work at the Intuit Stadium. While specific growth projections for Vestcom aren't detailed, the anticipation is a recovery and growth pattern over the year.

The paragraph discusses the preparation for the 2026 World Cup and its expected positive impact, particularly focusing on Vestcom's growth prospects. Vestcom is aiming for high single to low double-digit growth this year due to new customer acquisitions and progress in media solutions, impacting over 60,000 stores. The dialogue then shifts to a discussion on potential earnings growth, stating that at the upper end of the range, they expect a 12% earnings growth overall. The conversation wraps up with confidence in achieving long-term goals by 2025, emphasizing GDP-plus growth and high returns for strong value creation. The call is then concluded.

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