The paragraph is an introduction to Avery Dennison's earnings conference call for the first quarter of 2025, featuring key company executives. The Vice President of Finance and Investor Relations, John Eble, introduces the call, mentioning the use of non-GAAP financial measures and forward-looking statements. Deon Stander, the President and CEO, highlights the company's strong first-quarter performance, noting a 4% increase in earnings per share, volume growth in both business segments, and expanded margins. The Materials Group, particularly in high-value categories, contributed significantly to this success, showcasing effective productivity strategies.

In the first quarter, the company achieved high single-digit organic growth with strength in graphics, reflective solutions, and industrial tapes. North American label volume increased compared to the previous year and improved sequentially, while European volume was slightly down but up sequentially. Emerging markets, particularly the ASEAN region, showed solid volume, with China comparable to the prior year. The Solutions Group experienced strong top-line growth and margin expansion, driven by the base business and low single-digit growth in high-value solutions. Apparel growth was robust, and the VESCOM platform saw strong growth with the CVS Health rollout. However, the Embellix platform saw a mid-single-digit decline due to weaker sales in US performance brands but is expected to improve with upcoming events like the 2026 World Cup.

The paragraph discusses the performance and strategy of a company involved in enterprise-wide intelligent labels, reporting mid-single-digit organic growth in the first quarter, driven by strong performance in the apparel and food sectors, but offset by expected declines in logistics. The company is collaborating with Kroger to improve inventory management in food and is engaged in large-scale grocery and logistics projects that enhance routing accuracy and labor efficiency. They do not anticipate another large rollout in logistics for 2025. In apparel and retail, their RFID technology is being adopted for loss detection, self-checkout, and supplier compliance. The company emphasizes its competitive advantages in labeling and RFID technology, highlighting over 350 billion units of opportunity as the industry grows. They are focused on capturing this opportunity through investments in their Solutions and Materials Groups.

The company experienced a strong first quarter, but faces heightened macroeconomic uncertainty due to evolving trade policies and reduced global GDP growth forecasts. Although direct impacts from tariff changes on materials are expected to be minimal and manageable, the broader impact on macro demand, especially in discretionary categories, is uncertain, complicating full-year forecasting and prompting quarterly guidance. The company is prepared for a potential decline in volume with a scenario planning strategy to maximize opportunities and protect earnings. Actions such as temporary cost-cutting and exploring growth opportunities are being initiated to handle possible economic slowdowns. With a strong franchise, industry leadership, and a competitive advantage in large, diverse markets, the company is well-positioned to sustain growth through various cycles, leveraging its durable portfolio and agile global team.

The paragraph highlights the resilience and strategic positioning of the Materials Group and Solutions Group, noting their ability to perform well across economic cycles. The company's strong balance sheet and disciplined capital allocation allow for investment flexibility, driving earnings growth. The CEO acknowledges the efforts of the team and welcomes back Greg Lovins as CFO after his recovery, thanking Danny Allouche for his interim role. In the first quarter, the company reported adjusted earnings per share of $2.30, a 4% increase excluding currency translation, with a 2% organic sales growth. Despite some negative free cash flow, the adjusted EBITDA margin improved to 16.4%, with both business segments performing well.

In the first quarter, the company's free cash flow was historically negative due to the timing of customer rebates and employee incentives, but they maintained a strong balance sheet with a net debt to adjusted EBITDA ratio of 2.3, after paying down 500 million euros of matured debt. They executed a disciplined capital allocation strategy, returning $331 million to shareholders through share repurchases and dividends, reducing the share count by 2.3 million shares from the previous year. The Materials Group saw a 1% increase in sales, driven by low single-digit volume and mix growth, even as deflation-related price reductions partially offset gains. High-value categories grew significantly, including intelligent labels, after reclassifying $10 million of sales to reflect their advantage in RFID materials. Regional volume growth varied, with North America and Asia Pacific up, Europe down due to a strong Q1 2024 comparison, and Latin America up slightly. Both graphics and reflective, and performance tapes and medical sectors showed strong organic growth. The Materials Group achieved an adjusted EBITDA margin of 17.7%.

The paragraph discusses the company's financial performance and outlook, highlighting a sequential increase of 70 basis points in certain metrics while experiencing a 60-basis-point decline compared to the previous year. Productivity and higher volumes were offset by the impact of pricing and raw material costs, with modest deflation in Q1 and expected inflation in Q2. To address rising costs, surcharges are being implemented where applicable. The Solutions Group saw a 5% increase in organic sales, with variations in growth across its segments. The group achieved a strong adjusted EBITDA margin of 17.2%, up 110 basis points from the previous year. The company is activating strategies to manage the impact of recent tariff announcements, which affect less than 10% of global material purchases.

The paragraph discusses the impact of trade policies and costs on a company's imports and exports between the US, Canada, and Mexico, emphasizing compliance with the USMCA. The company anticipates low single-digit inflation in raw material costs and is making sourcing adjustments and pricing changes to mitigate this. While the company mainly deals in consumer staples, it also serves discretionary markets like industrials and apparel. Concerns are raised over apparel sourcing from China, where $350 million in labels are sold for garments exported to the US. The company expects strong visibility for Q2 2025, with adjusted earnings per share forecasted to rise to $2.30-$2.50 despite a decline in apparel sales. This growth is attributed to seasonality, strong performance in high-value categories, and currency benefits, though it will be partly offset by wage inflation and apparel tariffs. Additional insights into full-year results are available in their supplemental materials.

The paragraph details financial updates from a company, noting a $7 million impact on operating income from currency translation, which is an improvement from the previously expected $30 million. They now project restructuring savings of over $45 million, up $5 million from earlier forecasts. The company anticipates strong free cash flow and delivered a strong quarter amid dynamic conditions. They expect sequential earnings growth in the second quarter and aim to continue providing value to stakeholders through strategic growth and capital allocation. The call opens for questions, with Ghansham Panjabi from Baird inquiring about the impact of tariff pre-buying on the first quarter and variations in apparel sales between quarters.

In the paragraph, Deon Stander addresses Ghansham's question about the impact of tariffs on RFID and the outlook for 2025. He explains that, despite the tariff announcements and adjustments, they didn't see any significant impact in the first quarter. However, following the 20% tariff announcement on China, some retail and apparel brands began reassessing their sourcing and pricing decisions, leading to slightly muted demand. For the second quarter, they anticipate mid-single-digit declines in apparel, but so far, they've observed high single-digit declines. Brands and retailers are focusing on three main actions to mitigate high tariffs: adjusting sourcing decisions, leveraging their global network, and strengthening supplier partnerships to offset increased costs.

The paragraph discusses the company's pricing strategy in response to supply chain considerations and market conditions, highlighting a slowdown in decision-making that affects sales projections. Despite this, they anticipate a mid-single-digit decline in apparel sales for the quarter but expect order volumes in North America to be elevated due to discussions on price surcharges. The company has not seen significant impacts from tariffs or changes in order patterns for the first quarter. For the second quarter, the RFID business remains on track despite macroeconomic uncertainties. Apparel continues to be a major part of the company's sales, prompting a focus on the second-quarter outlook. Other growth programs across segments remain unchanged and are planned to scale throughout the year.

In the paragraph, John McNulty from BMO Capital Markets asks about the notable increase in working capital, questioning whether it relates to repositioning products or building up inventory in anticipation of tariffs. He also asks about strategies to handle a low single-digit tariff impact, such as pricing adjustments or efficiency improvements. Gregory Lovins responds by stating there are no major factors affecting working capital, with only slight changes in DPOs, DSOs, and inventory purchases. He mentions some inventory purchases in the fourth quarter aimed at gaining future rebates, which influenced inventory and payables, but not significantly. He also notes higher incentive compensation payments in Q1 compared to the previous year.

The paragraph discusses the company's financial strategies amid recent challenges. It highlights that 2023 saw significant destocking and increased customer rebates, impacting incentives. For 2024, improvements are expected, but tariff uncertainties may cause low single-digit impacts on the company. To mitigate tariffs, the company is considering pricing surcharges and adjusting sourcing strategies. Inventory in the second quarter should cushion immediate impacts, with effects manifesting mid-second quarter. Additionally, a question is raised about a shift in apparel demand from positive to negative, attributed to either economic or tariff events, particularly in China and other Asian countries. The paragraph ends with a query regarding the company's substantial stock buyback in the first quarter amounting to $260 million, despite a cloudy earnings outlook for 2025, questioning the rationale behind this decision.

In the paragraph, Deon Stander discusses the financial impact of the China tariff issue on their company, noting a shift from mid-single digit growth to negative mid-single digits. He mentions efforts to assist customers with sourcing changes and pricing adjustments to offset costs. The tariffs affect about $350 million, or 4% of the company's revenue, specifically related to apparel tags and labels exported to the U.S. Stander points out that while tariffs could affect consumer volumes, this issue concerns only a small part of their business. He highlights the company's strong franchise and significant growth opportunities in other high-value categories outside of the apparel sector in China.

The paragraph discusses the company's approach to capital allocation, particularly focusing on share buybacks. The company has maintained its strategy of buying back shares when their price is perceived to be below the intrinsic value, aiming for strong returns. In recent months, they increased their buyback activity coinciding with a decline in share price, reflecting their confidence in the company's value. Although uncertainties for 2025 have emerged due to tariff changes, the company plans to continue its disciplined, grid-based approach to capital allocation. They remain committed to their long-term strategies, although they do not guarantee a fixed amount of buybacks, like $250 million per quarter. The paragraph ends with the transition to the next question from George Staphos of Bank of America.

The speaker discusses the potential shift of apparel sourcing from China to other countries due to various factors and whether existing infrastructure can handle the change. They mention that over the past decade, their company has developed a robust global network to support such transitions, with operations in countries like Bangladesh, Vietnam, Cambodia, Thailand, Latin America, and Eastern Europe. The speaker highlights that while China remains a significant source due to its efficient and vertically integrated supply chain, their company's established network gives them an advantage in adapting to changing sourcing needs. Additionally, there's a mention of expected growth targets for IL, amidst uncertainties causing delays in related pilots.

The paragraph discusses challenges and strategies in the garment manufacturing industry, emphasizing that some countries lack a full domestic value chain, necessitating exports. The company can manage shifts in production demands by improving productivity and shift management, and predicts that approximately 10% of production in China may be redirected elsewhere, particularly affecting the U.S. market. The text highlights uncertainties about the industry's capacity to absorb these changes, given the time required to establish new manufacturing facilities. Additionally, the company is confident about 10% growth in existing programs and anticipates an additional 5% growth from new planned programs, with a significant portion of their production still focused on apparel.

The paragraph discusses volatility and uncertainty in the apparel sector due to tariffs, emphasizing that the underlying Intelligent Label (IL) business remains on track despite these challenges. The company reports increased interest from the food sector following the successful rollout in 25% of Kroger stores, and continued pilot expansions in food channels. Although there's growing interest in logistics, significant developments in that area are anticipated in 2026 rather than 2025. Retailers are showing high interest in compliance, leading to the establishment of the Materials Group channel program to facilitate industry adoption, benefiting the company. The paragraph ends with a question from Mike Roxland regarding competitive challenges in the logistics vertical, asking what measures Deon is taking to prevent further market share erosion in logistics.

In response to a question about potential deployments in 2026, Deon Stander emphasized the company's leading position in various aspects of the ILUM competitive landscape. The company excels in integrating chips into specialized inlays for various sectors, such as food and logistics, and managing data on these devices. They also have strong capabilities in hardware, software, and applications that interpret data for ERP systems and other uses. Typically, they are the primary supplier during large-scale rollouts, though competitors may enter the market later. This pattern has been observed in sectors like apparel and logistics, and is expected to continue in other segments.

The paragraph discusses the company's strategy to maintain its majority market share by focusing on three key areas: innovation, process engineering, and value creation support. The company plans to introduce proprietary innovations to access new market segments, leverage its manufacturing capabilities for cost leadership, and emphasize the value its technology provides across various sectors. Additionally, the company is actively engaging with logistics partners, including major firms like UPS, in extended pilot programs aimed at improving labor efficiency and routing accuracy. The outlook for these pilots is positive, with potential progress anticipated in the coming year.

The paragraph is part of a financial earnings call where Mike Whitehead from Barclays is asking about raw material costs and inflationary impacts, specifically mentioning chemical prices like propylene. Gregory Lovins responds by stating that their raw material costs have been relatively stable with low single-digit inflation from Q4 to Q1, mainly due to paper and some impact on films and chemicals. He notes a potentially stable outlook for Q2 with slight deflation in raw materials, which could be offset by tariffs affecting the company mid-quarter. Most cost dynamics have been on the paper side rather than chemicals or films. Then, the operator introduces Matt Roberts from Raymond James, who addresses Deon about confidence in a new program rollout.

The paragraph discusses potential cost impacts and tariff exposures in the RFID supply chain that could increase costs for end retailers. Deon Stander explains that substantial tariff impacts are not anticipated for the majority of the RFID supply chain components, excluding semiconductors from China, which aren't primarily used by the industry. Although there may be small cost increases due to hardware manufacturing in Asia and limited tariffs on certain chemicals or substrates, these impacts are expected to be minimal. Companies, including theirs, are taking steps to mitigate significant cost increases, and any small cost rise is unlikely to deter investment in RFID technology, which typically offers a quick return on investment.

The paragraph discusses the strong returns from current plans and indicates that customers have not shown signs of pulling back. Some apparel customers are reviewing their sourcing strategies but still see the value in proceeding. The situation might change in the next 60 to 90 days, and updates will be provided if needed. Chris Prella, speaking on behalf of Josh Spector from UBS, asks about capital spending flexibility when relocating customers and any increase required for shifting production or serving new regions. Deon Stander responds that they do not foresee a significant increase in capital spending since there is available capacity and ongoing productivity improvements. They continue to invest based on returns. When asked about US demand, Stander notes there is no change in overall US demand for materials.

The paragraph discusses the current slowdown in apparel orders from China, while orders from other sources remain steady. During a conversation between Anthony Pettinari of Citi and Gregory Lovins, the topic shifts to pricing expectations. Lovins indicates that they experienced price reductions and deflation in the previous year, and this trend will continue into the first and second quarters, though prices are expected to stabilize afterward. Despite the impact of tariffs, which may require adding surcharges, they anticipate a relatively stable pricing environment from Q1 to Q2. Overall, the implementation of surcharges may help manage the effects of tariffs, leading to some price benefits in Q2.

The paragraph discusses the logistics market's stability in the current economic environment, particularly focusing on the intelligent labels platform and its impact. John Donegan questions the perceived stability of the logistics exposure, and Deon Stander explains that the intelligent label side shows less variability despite potential economic impacts. This is due to pre-aligned shipment volumes with a significant customer, resulting in a largely secure position. Economic fluctuations affecting logistics shipments may impact volume, but the company's alignment with customer expectations mitigates these risks.

The paragraph discusses the impact of economic conditions on the business segments of a company operating in the United States and internationally. Specifically, it mentions that the VI label growth will be slightly affected but is a small part of the overall business, so the impact is manageable. Gregory Lovins emphasizes the stability of their materials business during recessionary periods, noting they have been able to maintain or grow this segment during downturns. During the first quarter, the Intelligent Labels (IL) segment saw low single-digit growth in the general retail category. The company initially projected high single-digit growth for the IL segment in the second quarter, especially in apparel.

The paragraph discusses the apparel industry's impact on business, predicting mid-single-digit declines but potential mid-single-digit growth for IL. It highlights that excluding the apparel segment, other programs are on track. George Staphos from Bank of America asks about trigger points for structural actions and sourcing strategies in China. Deon Stander responds by confirming plans to move about 10% of their volume from China due to current tariffs and considers capacity adjustments in response to potential changes in tariff regimes.

The paragraph discusses the potential impact of tariffs on the supply chain, particularly in the apparel and shoe manufacturing sectors. It notes that past tariff increases did not immediately disrupt operations but caused slow changes over time. The ability of supply chains to adapt depends on the availability of manufacturing capacity in other countries. The speaker emphasizes the need to monitor how tariffs evolve, especially regarding potential negotiations or reductions, which could affect GDP projections and the economic environment. They plan to closely watch these developments to gauge their influence on business operations and overall market conditions.

The paragraph discusses how the company is navigating current economic challenges, particularly in the apparel sector with influence from China. They are monitoring various economic indicators and following strategies used in past downturns, such as reducing discretionary spending and considering restructuring to achieve savings. The company believes it has an advantage in anticipating changes in the macro environment due to its position in the supply chain, allowing it to use its established playbook effectively. The resilience of their franchise, as demonstrated in past down cycles, is expected to help maintain margins and emerge stronger in both market share and overall market position.

The paragraph discusses the company's strategic positioning and resilience amidst economic fluctuations. It highlights the growth of high-value categories, such as Vespom, which tend to thrive even during economic downturns due to increased promotional activities. The company believes it is well-equipped with innovative solutions and a strong foundational business to handle various macroeconomic scenarios. They have a robust strategy to protect earnings and seize market opportunities. In closing remarks, John Eble notes that the company delivered strong first-quarter results and anticipates sequential earnings growth in the second quarter. The company aims to continue providing superior value to stakeholders throughout the economic cycle.

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