Release Date: April 23, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Avery Dennison Corp (AVY, Financial) delivered a strong first quarter with earnings per share up 4% ex-currency, in line with expectations.
- The company experienced strong growth in high-value categories, particularly in graphics, reflective solutions, and industrial tapes.
- The Solutions Group saw strong top-line growth and margin expansion, driven by growth in the base business and high-value solutions.
- Enterprise-wide Intelligent Labels grew mid-single digits on an organic basis, with strong growth in apparel and food categories.
- Avery Dennison Corp (AVY) maintains a strong balance sheet with a net debt to adjusted EBITDA ratio of 2.3, providing investment flexibility.
Negative Points
- Macro uncertainty is elevated due to an evolving trade policy environment and reduced global GDP growth outlooks.
- The company faces potential impacts from recent tariff changes, which could affect material purchases and macro demand.
- Apparel growth is expected to decline mid-single digits in the second quarter due to tariff-related sourcing and pricing challenges.
- Free cash flow was negative $50 million in the first quarter, in line with historical patterns but still a concern.
- The logistics segment experienced a decline, partially offsetting growth in other areas, and no large-scale rollouts are expected in 2025.
Q & A Highlights
Q: How did tariff pre-buying impact the first quarter, and what is the outlook for RFID in 2025?
A: Deon Stander, President and CEO, noted that there was no significant pull forward due to tariffs in Q1. Apparel brands are adjusting sourcing and pricing strategies due to tariffs. For RFID, the underlying business is on track, but apparel, which constitutes a large portion of sales, faces uncertainty due to tariffs. The company is focusing on Q2 guidance due to these uncertainties.
Q: Why was there a significant increase in working capital in Q1, and how will the company handle the low single-digit impact from tariffs?
A: Greg Lovins, CFO, explained that the increase in working capital was due to higher incentive compensation and customer rebate payments. The company plans to mitigate tariff impacts through pricing surcharges and sourcing adjustments, with surcharges expected to be implemented soon.
Q: What caused the change in apparel demand from positive to negative mid-single digits in Q2, and why did the company buy back so much stock despite a cloudy outlook?
A: Deon Stander attributed the change to China tariffs affecting sourcing and pricing decisions. Greg Lovins stated that the stock buyback was due to confidence in the company's intrinsic value, despite recent tariff-related uncertainties.
Q: How is Avery Dennison managing the increased supply of Intelligent Labels and potential share erosion in logistics?
A: Deon Stander emphasized the company's leadership in innovation and process engineering to maintain competitive advantage. He noted that logistics pilots are expanding, with potential deployments expected in 2026.
Q: What is the outlook for raw material costs in Q2, considering recent price trends?
A: Greg Lovins indicated a relatively stable raw material cost outlook, with potential modest deflation offset by tariff impacts. The company is implementing surcharges to manage these costs.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
