Avery Dennison Corporation (AVY) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary and Q&A highlight strong growth prospects in high-value categories, positive impacts from the Walmart partnership, and disciplined capital allocation. Despite uncertainties in the apparel market and cautious management responses, the company's focus on innovation and strategic partnerships is promising. The expectation of revenue and earnings growth, along with optimistic guidance, supports a positive outlook. However, the lack of annual guidance and some cautious responses temper the positivity slightly, keeping the sentiment from being 'Strong positive.'
Key Financial Performance
Adjusted EPS (Earnings Per Share) $9.53 for the full year 2025, with a 3% increase in Q4 to $2.45. The increase was driven by higher volume and productivity, partially offset by higher employee-related costs and targeted growth investments.
Adjusted Free Cash Flow $707 million for the full year 2025, with $303 million generated in Q4. This reflects strong cash flow conversion rates exceeding 100%.
Adjusted EBITDA Margin (Materials Group) 16.6% in Q4, down 40 basis points year-over-year. The decline was due to higher employee-related costs and the absence of one-time benefits from the prior year, partially offset by productivity actions.
Adjusted EBITDA Margin (Solutions Group) 17.8% in Q4, comparable to the prior year. This was achieved through productivity efforts and a favorable high-value mix, offsetting higher employee-related costs and growth investments.
Reported Sales (Materials Group) Increased by 5% in Q4, though organic sales were down slightly due to deflation-related price reductions offsetting low single-digit volume and mix growth.
Reported Sales (Solutions Group) Increased by approximately 1.5% in Q4, with high-value categories growing high single digits and base solutions down mid-single digits due to softer base apparel sales.
Enterprise-wide Intelligent Label Sales Grew mid-single digits in Q4, driven by high teens growth in food, logistics, and industrial categories, partially offset by low single-digit declines in apparel and general retail due to tariff-related pressures.
Free Cash Flow Conversion Rate Greater than 100% for the full year 2025, reflecting strong cash flow management.
Shareholder Returns $860 million returned to shareholders in 2025, including $572 million in buybacks and $288 million in dividends.
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Operating Highlights
Intelligent Labels: Delivered high single-digit growth in Q4 2025, with food, logistics, and industrial categories growing high teens. Apparel and general retail categories were flat for the year but showed low single-digit growth in Q4.
Vestcom: Grew more than 10% in Q4 2025, driven by new program rollouts.
Embelex: Delivered high single-digit growth in Q4 2025, partially driven by World Cup sales.
Cleanflake portfolio: Expanded to more packaging substrates to advance circularity.
Smart materials: Introduced to accelerate Intelligent Label adoption.
Food traceability: Adoption set to accelerate through a major fresh grocery rollout with Walmart, with revenues ramping in the back half of 2026.
Logistics: Focused on expanding pilots with new customers after a year of outsized growth with the largest customer.
High-value categories: Expanded to represent 45% of sales in 2025, up 12 points since 2019.
Productivity playbook: Helped maintain adjusted EBITDA margin of 16.4% for 2025, despite higher employee-related costs.
Digital capabilities and AI: Expanded to enhance operational productivity, fixed cost innovation, and data-driven solutions.
Restructuring savings: Expected to save approximately $50 million in 2026.
Portfolio shift: High-value categories now represent 60% of the Solutions Group portfolio and 38% of the Materials Group portfolio.
Sustainability objectives: Achieved 2025 goals, including reducing energy intensity and enabling more sustainable products. Progressing towards 2030 objectives.
Capital allocation: Returned approximately $860 million to shareholders in 2025, including $572 million in buybacks and $288 million in dividends.
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Risk or Challenges
Trade policy changes and tariff-related uncertainty: Ongoing trade policy changes and tariff-related uncertainty have negatively impacted the company's base apparel business and general retail sales, leading to softer customer volumes and inventory adjustments.
Softer consumer sentiment: Weaker consumer sentiment has created headwinds for the business, affecting demand and contributing to lower-than-expected sales in certain categories.
Higher employee-related costs: Increased employee-related costs have pressured margins, requiring the company to implement productivity measures to partially offset these expenses.
Deflation-related price reductions: Price reductions due to deflation have offset volume and mix growth in some segments, impacting overall revenue growth.
Cyclical challenges and slower organic revenue growth: The company has faced cyclical challenges that have slowed organic revenue growth, prompting the need for decisive actions to improve growth trajectories.
Tariff costs and raw material deflation: Tariff costs and modest raw material deflation have required strategic sourcing adjustments and pricing surcharges to mitigate financial impacts.
Dependence on high-value categories: The company's reliance on high-value categories to offset declines in base categories poses a risk if growth in these areas slows or fails to meet expectations.
Macroeconomic uncertainties: Key economic indicators remain consistent with 2025 levels, with no anticipated macroeconomic tailwinds, creating a challenging environment for growth.
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Guidance & Outlook
Growth in Intelligent Label Platform: Sales in the Intelligent Label platform are expected to grow above the pace achieved in 2025, with stronger growth anticipated in the second half of 2026. Apparel and general retail are expected to return to growth, while food adoption will accelerate through a major rollout with Walmart, and logistics will expand pilots with new customers.
First Quarter 2026 Financial Guidance: Adjusted earnings per share are expected to grow approximately 6% at the midpoint, with organic sales growth projected at 0% to 2%. Reported sales growth is anticipated to be 5% to 7%, including contributions from currency translation and acquisitions.
Full Year 2026 Financial Projections: The company expects sequential earnings growth throughout the year, targeting roughly 100% free cash flow conversion with fixed and IT capital spending of approximately $260 million. Restructuring savings of approximately $50 million are anticipated, along with normalization of temporary savings from 2025.
High-Value Categories Expansion: The company plans to expand high-value categories, which have been growing at a mid-single-digit CAGR over the past six years, to new customers and end markets. This includes innovations in Intelligent Labels for food traceability, Vestcom Storelink software, and Embelex's Custom Studio Fanzones.
Productivity and Innovation Focus: The company will continue to focus on productivity and innovation, including the use of automation and AI to enhance operational efficiency, shorten innovation cycles, and provide data-driven solutions. This is expected to strengthen market positions and drive growth.
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Shareholder Return Plan
Dividends Paid: $288 million in dividends were paid to shareholders in 2025.
Share Buybacks: $572 million was spent on share buybacks in 2025.
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Key Q&A
Q:What caused the 40 basis point drop in margin in Q4 compared to the previous year?
A:The drop was due to several factors: soft base volumes, wage inflation, small one-time items from the prior year, extra calendar days with fixed costs but low shipping activity, and historical seasonality. Sequential margins from Q3 to Q4 were in line with historical trends, with a typical 60 basis point drop due to holiday impacts and mix changes.
Q:What is the growth outlook for Intelligent Labels (IL) in 2026 and other high-value categories?
A:Growth for IL in 2026 is expected to exceed 2025 levels, driven by adoption in apparel, general merchandise, and loss prevention. High-value categories like Vestcom and Embelex are anticipated to grow at mid-single-digit rates, assuming no major environmental changes. New customer rollouts and innovations like Storelink software and in-arena execution for Embelex are expected to contribute to growth.
Q:Why is the company providing only quarterly guidance instead of annual guidance?
A:The company cited a dynamic environment with limited visibility due to factors like the pandemic, inflation, supply chain issues, destocking, and tariff consequences. These short-term cycles make long-term guidance challenging. The company plans to continue providing quarterly updates for the foreseeable future.
Q:What is the margin differential for high-value categories compared to the core business, and has it changed since 2019?
A:High-value categories have higher variable margins than the core business, contributing to margin expansion. Gross profit margins have increased by a couple of points since 2019, driven by the shift to high-value categories, productivity actions, and innovation.
Q:Has the Walmart partnership led to more inquiries from other grocery sellers?
A:Yes, the Walmart partnership has catalyzed interest from other grocers, particularly in bakery and protein categories. The pipeline has grown domestically in the U.S. and in Europe, with more pilots and trials expected in 2026.
Q:What is the size of the headwind from temporary savings, including incentive compensation, in 2026?
A:The headwind from temporary savings, including incentive compensation, is similar in magnitude to the $50 million restructuring actions highlighted for 2026.
Q:What is the outlook for the apparel market in 2026?
A:The apparel market faces tariff uncertainty and cautious consumer spending. Q1 is expected to be challenging due to tough comps, but growth is anticipated later in the year, assuming no major changes in tariffs or consumer sentiment. Retailers are focusing on protecting margins rather than chasing volumes.
Q:What is the status of compliance rollouts and logistics pilots in non-apparel Intelligent Labels?
A:Compliance rollouts in general retail are expected to return as tariff issues stabilize. In logistics, the company is fully automated in last-mile fulfillment centers and is exploring international operations and first-mile opportunities. Pilots with other logistics companies are expanding in scope and use cases.
Q:What is the quarterly cadence of restructuring benefits and Walmart sales rollout in 2026?
A:Restructuring benefits are expected to be balanced across the year, with carryover savings from 2025 and new programs in 2026. Walmart sales are anticipated to ramp up in Q3, accelerate in Q4, and continue growing into 2027.
Q:What steps is the company taking to drive growth in high-value categories and innovation?
A:The company is focusing on new customer acquisition, accelerating innovation outcomes, leveraging digital and AI technologies, and automating processes. Examples include reducing inlay design cycles with AI, automating manual tasks, and enhancing digital capabilities.
Q:What is the company's inventory strategy and CapEx allocation for 2026?
A:Inventory levels are being managed with a focus on productivity and balancing mix pressures from high-value categories. CapEx is set at $260 million, with investments in productivity initiatives, capacity expansion, and cloud technology.
Q:Will customer acquisition costs impact margins in high-value categories?
A:No, customer acquisition costs are not expected to increase or impact margins. The company is leveraging existing go-to-market teams and automation to improve efficiency.
Q:Are there any concerns about paper supply for 2026?
A:No, the company has diversified its paper supply sources and established strategic partnerships to ensure capacity and mitigate risks.
Q:Will wage inflation be factored into pricing strategies in 2026?
A:Wage inflation is currently being offset by productivity initiatives like material reengineering. Pricing strategies remain focused on raw material input costs.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the size of the headwind from temporary savings, including incentive compensation, and the exact quarterly cadence of Walmart sales rollout. Additionally, responses on apparel market growth and logistics pilots were cautious and lacked precise data, reflecting uncertainty in these areas.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI productivity
Avery Dennison
Cleanflake portfolio
Custom Studio
Dennison Full
Deon hello
Fanzones venue
Full Conference
GDP quartile
Graphics Reflectives
Group example
Group innovation
Group portfolio
Officer Deon
President Investor
Reflectives digit
Slide strategy
Slide value
Studio Fanzones
Vestcom digit
Walmart revenue
action
base category
category base
differentiation
focus productivity
food
point employee
policy change
position
productivity playbook
segment portfolio
shift value
sustainability objective
tailwind
tariff policy
trajectory
uncertainty
AVY Transcript
Avery Dennison Corporation (AVY) Q4 2025 Earnings Call Transcript
Positive2-4
The earnings call summary and Q&A highlight strong growth prospects in high-value categories, positive impacts from the Walmart partnership, and disciplined capital allocation. Despite uncertainties in the apparel market and cautious management responses, the company's focus on innovation and strategic partnerships is promising. The expectation of revenue and earnings growth, along with optimistic guidance, supports a positive outlook. However, the lack of annual guidance and some cautious responses temper the positivity slightly, keeping the sentiment from being 'Strong positive.'
Avery Dennison Corporation (AVY) Q3 2025 Earnings Call Transcript
Positive10-22
The earnings call summary and Q&A session highlight several positive aspects, such as the Walmart partnership, which is expected to drive significant growth, and improvements in Intelligent Labels and Embelex. Despite some concerns about margins and macro uncertainties, the overall sentiment is optimistic, especially with the strategic importance of new partnerships and technology advancements. The company's resilience and growth strategies, along with optimistic guidance, suggest a positive stock price movement in the near term.
Avery Dennison Corporation (AVY) Presents At Jefferies Mining And Industrials Conference 2025 Transcript
Neutral9-3
Avery Dennison Corporation (AVY) Q2 2025 Earnings Conference Call Transcript
Positive7-22
The earnings call summary highlights strong growth in high-value categories, solid margins, and promising performance in emerging markets. The Q&A reveals optimism about growth in food and grocery, IL, and Embelex, despite some concerns about tariffs and apparel demand. The company's strategic actions, such as share buybacks and innovation, further bolster a positive outlook. Overall, the combination of strong performance in key areas and strategic initiatives suggests a positive stock price movement.
AVY Slides
AVY Report
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