Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions]. Welcome to Avery Dennison's earnings conference call for the third quarter ended October 3, 2015. This call is being recorded and it will be available for replay from 9:00 A.M. Pacific time through midnight Pacific time November 1. To access the replay please dial 800-633-8284 or 402-977-9140 for international callers. The conference ID number is 21734747. I would now like to turn the call over to Cindy Guenther, Avery Dennison's Vice President of Finance and Investor Relations. Please go ahead, ma'am.

Thank you. Today we will discuss our preliminary unaudited third quarter results. The non-GAAP financial measures that we use for the quarter are defined, qualified and reconciled with GAAP on schedules A-2 to A-4 of the financial statements accompanying today's earnings release. We remind you that we will make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the Safe Harbor Statement included in today's earnings release. Making formal remarks today will be Dean Scarborough, Chairman and CEO and Anne Bramman, Senior Vice President and Chief Financial Officer. Mitch Butier, President and Chief Operating Officer is also with us today to participate in the Q&A portion of the call. And now I will turn the call over to Dean.

Thanks, Cindy and good day, everyone. We are again pleased to report another solid quarter of progress against our long-term financial objectives. We grew sales 5% on an organic basis, expanded our adjusted operating margin by 140 basis points and delivered double-digit growth in adjusted earnings per share and year-to-date we have generated nearly $200 million of free cash flow. The pressure-sensitive materials business once again delivered strong results on all fronts. And retail branding and information solutions is making good progress, both financially and strategically, delivering solid top growth and market expansion while charting a new path forward to drive long-term sustainable growth and improve its competitive position in the less differentiated segments of the market. We also made a key strategic decision impacting the course for Vancive, our medical technology business, positioning ourselves for improved profitability in this important growth market. So let's dive a little deeper in to each of the segments. As I said, pressure-sensitive materials had another strong quarter achieving organic sales growth of 5% at the high-end of our long-term range. Organic growth was positive in all major geographies, with mid single digit growth in both developed economies as well as in emerging markets taken as a whole. Our customers and end users look to us to bring innovation to this industry and our leadership in doing so continues to drive top line performance. One of my favorite ways to experience that firsthand is by attending Labelexpo, the labeling industry's annual trade show, which took place in Brussels last month. The focus of our innovations on display this year was clustered around themes that matter the most to our customers, productivity, shelf appeal and sustainability. We continue to benefit from growth in higher value market segments, which has been a key strategic focus for…

Thanks, Dean and hello, everyone. I will provide some additional color on the financial results for the company and segments. In Q3, we delivered a 13% increase in adjusted earnings per share on 5% organic sales growth. Currency translation reduced reported sales by 9.5% with an approximately $0.09 impact to EPS. Adjusted operating margin in the third quarter improved 140 basis points to 9.4% as the benefit of productivity initiatives and higher volume more than offset higher employee related expenses. We realized about $21 million of incremental savings from restructuring costs, net of transition expenses. The adjusted tax rate was 34% consistent with the anticipated full year tax rate in the low to mid 30% range. Free cash flow was $85 million, a decline of $68 million compared to last year's third quarter, due largely to the timing of working capital changes at quarter-end. Year-to-date, we have delivered nearly $200 million of free cash flow. In the first nine months, we repurchased 1.9 million shares at a cost of $109 million and paid $100 million in dividends. As Dean indicated, we are committed to returning cash to shareholders and have sufficient capacity to continue our share buyback program. Consistent with our stated philosophy and strategy, we continue to be disciplined and opportunistic with share repurchases, buying relatively more when the share price dips and relatively less when the share price is higher. Now looking at the segments. Pressure sensitive material sales were up approximately 5% on an organic basis. Label and packaging material sales were up mid single digits as were the combined sales for performance shapes and graphics. On a regional basis, North America and Western Europe were both up mid single digits, benefiting from above average growth in graphics and continued solid growth in labeling materials. Organic growth…

[Operator Instructions]. Our first question comes from the line of Jeff Zekauskas with JPMorgan Securities Incorporated. Please go ahead with your question.

Good morning. It's Shloka, for Jeff. How are you?

Hi Shloka.

If we look at your pressure sensitive growth this quarter, it was like 5%. I don't know, last quarter it was like 6%. And looking at the growth rate that your competitor reported a few days ago, those are relatively high numbers. And there's a lot of growth Northern Europe it seems and I was wondering what you attribute that to? And whether you think that's a reasonable rate over the next couple quarters.

Shloka, hi. This is Dean. One of the tough things in the comparison, we obviously watch our competitors when they report numbers, is that we don't know if that number is currency adjusted or not. They don't report organic sales growth. So that's a little bit tricky for us to dissect their numbers. It's always tough to call what the next couple of quarters look like in pressure sensitive materials because as you know we ship out about 80% of our products within two days or less. But our goal is to continue to drive growth in the business at that 4% to 5% range over the long haul and we are obviously feeling pretty good about this year. It did come a little differently in terms of really solid growth in mature markets with some slowdown in emerging markets.

Okay. In terms of cost reductions, will the majority of the cost reductions appear in your gross margin line? Or do you think it will show up as reduction SG&A? How do you think it will be represented in your income statement?

So for 2015, two-thirds of that will show up in the SG&A line.

Okay. Like I would have thought the SG&A reductions would have been even larger if that's true, given that there are probably also currency benefits that you would see.

So the currency is a benefit for SG&A and it's one of the largest pieces. If you look at the year-over-year, there's some favorability in SG&A and currency is the largest driver of the favorability.

Okay. Can you quantify how much the currency benefit may have been for the year or for the quarter on the SG&A line?

On the SG&A line, it was worth about, on a pre-tax basis, it was about $17 million.

For the quarter or for the year-to-date?

Yes. For the quarter.

That's helpful. And lastly, I was wondering if I look at the restructuring charges taken this year, I was wondering what the remaining cash outlays may be? Is it like a couple million have been reserved. What's still left to be paid out?

So generally that gets paid out over a couple of months or quarter time. So a little bit of a lag but in general for our free cash flow it shouldn't be an issue. We are still going to deliver for the year 100% plus conversion of income.

Okay. I will follow up on that separately. Thanks very much. I will get back in the queue.

Our next question comes from the line of Scott Gaffner with Barclays Capital. Please go ahead.

Thanks. Good morning.

Hi, Scott.

Good morning.

Hi, Dean. Hi, everybody. Just following up on pressure sensitive materials there for a minute. I realize you don't have a lot of forward visibility, but Dean you did talk about better growth in the mature markets, weaker in the emerging market. How is that? Because I think there's a lot of investors that I have talked to that have had some concerns around the growth in emerging markets with a lot of the PSM business coming from the growth in the middle class. Is there something you are seeing as far as your customers pulling back on their ability to grow that business and then in the develop markets where are you seeing that? Is it on the variable information side of the market or within the packaged goods? How can we think about that a little bit more?

Mitch, why don't you take that?

Sure. So as far as your first question from an emerging market standpoint, we have been taught by emerging markets collectively how they have been growing and this level of growth has slowed down. But we have been seeing some of the diverging paths what's traditionally been called a emerging markets with some markets slowing down dramatically such as Brazil and Russia, others like China slowing down but still growing. We have had modest growth within the quarter in China but that's well below what we have traditionally seen, but other markets such as South Asia and ASEAN still showing pretty healthy growth, high single digits to double digits. So diverging path overall is what we are seeing in emerging markets. And then your question about mature, we are seeing a good portion of our growth coming from our focus on accelerating growth in the high value segment. So areas like our graphics materials where we have a relatively lower market share and have targeted that market to go after growth and the team has successfully been executing that. As well as specialty labels such as durable products, tire labels and so forth has been a key area of focus for us as well. So we have been seeing outsize growth there but even in variable information as an example, we are continuing to see growth within that segment and it seems to be at a decent clip. Hard to tell how much of that's from underlying consumption, given lack of forward visibility and we don't have market data yet versus maybe inventory movements and so forth at our customers. So overall pretty broad based with higher growth going on in the higher value segments and we are continuing to see modest growth but good growth in the less differentiated segments.

Scott, this is Dean. In China specifically we have actually seen a slowdown in some markets now for about the last four quarters and I think that's indicative of a classical pressure sensitive view of the world where inventories are being reduced. So we expect that to continue for a period of time. It's really difficult for our end use customers in China to understand how much inventory is in the channel. So we have seen some of that slowdown but I still think as I always say when things slow down, people still wash their hair even in an economic slowdown. So I don't anticipate the overall demand for the types of products that get labeled in China to really slow down. We do expect to see a bit of a mix shift I think from an end user perspective. Local brands are getting more aggressive in China and I think some of the multinational brands have struggled. It's kind of irrelevant for us since we call on the whole market there.

Right. Okay. And then focusing on the margins in pressure sensitive, to me it looks like, I know we have asked this before, but it looks like you are going to be well ahead of the long term target by the end of the year within the segment. Is there something around raw material price cost that, what have you believe that sort of comes back a little bit in 2016, such that you wouldn't expand your operating margin target?

Yes. Scott, I think we probably wouldn't do it in the middle of a cycle. If we were going to revise our ranges, we are probably more likely do it at the beginning of the year and take a look at it. We would like to get, again, at least another quarter under our belt. And actually the deflationary scenario differs radically by market. We are seeing currency induced inflation in places like South America and Indonesia and even some of the ASEAN countries. And in Europe, we really haven't seen a lot of raw material deflation because many of these commodities are actually priced in dollars. So if anything, they have seen net increases. I really think a lot of this has come from a mix of productivity, focusing on higher margin products, driving the mix again. But I just think we will take a look at this as we prepare our guidance for 2016 and my guess is if we do it we will do it then.

Okay. And last question for me, Dean, is really on capital allocation and the share buyback. You guys have had the enviable position of having your stock go up for most of the year and share buybacks come in a little bit below expectations. Other than you buy when the shares are low and trim it a little bit when they are high, how can we think about if they do remain high, what else could you do with the cash? Or are you just going to wait for those opportunities where the stock pulls back? Thanks, Dean and congrats on the quarter.

Thank you. We did our share buyback actually did accelerate the third quarter, actually by almost 60%. I realize we are still below probably what folks thought we would do for the year. I think we are going to be disciplined and patient is how I would characterize our approach to capital allocation. That would include share buyback as well as opportunities in the M&A front. Do we have another question, operator?

Our next question comes from the line of Ghansham Panjabi with Robert W. Baird & Co. Please go ahead.

Good morning. This is actually Mehul Dahlia, sitting in for Ghansham. How are you doing?

Hi Mehul.

You called out a price cost benefiting the PSM business this year. Can you quantify how much price cost has contributed to EBIT so far? And what are your expectations going forward? Should we continue to see some more price cost benefits in 2016?

So the first question is, as far as what we have seen, if you look at the drivers of the margin expense, we have had the biggest single contributor has actually been around from productivity drivers that we have been pushing through and then followed by the volume benefits of variable flow through from growth that we have been driving and then we did talk about the modest benefit from price and raw material cost gaps, if you will. So that has been our reason for our margin expansion. The key driver is pretty consistent with what we have talked about in Q2. Sequentially though, there's essentially been no shift net between price and raw material costs from Q2 to Q3 and things overall while pretty different in individual markets where you see pockets of inflation, pockets of deflation, overall things have stabilized and we don't expect much impact this year going in to next year.

Got it. And your outlooks for $60 million in cost savings in the RBIS business implies basically a 50% increase of EBIT roughly. So what are the primary offsets? And second how are you orchestrating the execution to avoid the disruption for customers given the extent of the restructuring that you are going to be doing?

So from an offset perspective, we definitely have higher employee related cost in this business. It is much more employee intensive. So you have natural inflation in those costs that are an offset to that as well. And so I will let Mitch go through the [indiscernible].

The way to look at the overall, these are strategies we are putting in place to be able to compete and win in all market segments. This business has relatively high variable margins. So our focus here has to be both around driving growth as well as driving productivity to be able to hit our margin target that we have laid out. And we have identified the $60 million of savings in this business for next year. That is a means to an end of being able to achieve the 2018 targets that we have laid out. And what you should be thinking is, we are not planning to get and we don't expect to get in that range next year. But you will see a disproportional amount of expansion is what we are targeting in terms of in 2016 in this business relative to the rest of the cycle.

Got it. Thank you so much.

You are welcome.

Our next question comes from the line of Adam Josephson with KeyBanc Capital Markets. Please go ahead.

Thanks. Good morning, everyone. Anne, would you mind talking about what FX drag you might expect next year assuming current rates? And I don't know if you have gone through the budgeting process but it's a question that's coming up fairly frequently now. And related to that, are there any other above or below the line items next year that we ought to be mindful of that could lead to significant changes in profitability?

So in general we are just starting to go through the budgeting process with each of the positions. And so it's kind of hard to have a point of view as far as where we are going to land on this. I know we are going to be giving more guidance in the call after year end. So we will have a little bit more visibility in what we are seeing on that.

Overall I think it will be much more moderated from what we saw this year versus last year.

Sure, Mitch. Dean, back to the PSM margins for a moment, I know you just talked about that most of the margin expansion year-to-date has come from your productivity initiatives and the volume growth. So those sound like fairly sustainable sources of margin expansion and they have gotten you to this 12% level. Am I hearing you correctly there that you seem to think these 12% margins are in fact fairly sustainable I think based on what you are saying?

Yes. Adam, when we set the targets, I think we have talked about this before, we had set the targets at a 10% to 11% range. We had a lot of debate internally about should it have been 10.5% to 11.5%, 10% to 12% and when we set the targets, what we are communicating was we are shooting for the high end of the range. We don't necessarily have an upper limit. So the team's done a good job this year of managing, actually in a pretty challenging environment and executing the strategy probably a bit faster in terms of the mix and productivity than we expected. So I don't think we are putting a cap on anything here. I don't think investors should take the view that because we haven't changed it after a couple of quarters of over performance that we think there's a cap there. I think it's a matter of just us getting comfortable. Q4 is going to be a softer quarter for us. Number one because it just has, compared to last year and even compared to the third quarter, it just has much fewer shipping days because of the calendarization caused by the 53rd week last year. So that's a bit of a challenge. So I think we want to see how that all shakes up.

Sure. And just one more on PSM, Dean. Obviously many consumer companies domestically have talked about pockets of weakness that they have seen of late and obviously U.S. retail sales are growing fairly slowly at the moment. So can you just help us understand why your PSM sales domestically might be growing as robustly as they are and I guess the same question applies to Western Europe given the economy there?

Mitch, why don't you take that?

Sure, back to something I commented on earlier, one of the big drivers of us driving growth in the high value segments above what the market is growing in those segments. So areas like graphics and specialty labels, again, is a key area of focus for us and has been a key driver of our growth that we have seen in those regions. As well as I commented in the less differentiated segments, we have seen healthy, modest but healthy growth relative to what we usually see in those segments as well which is variable information.

Thank you, Mitch. Appreciate it.

You are welcome.

Our next question comes from the line of George Staphos with Bank of America Merrill Lynch. Please go ahead.

Hi, everyone. Good morning. Thanks for all the details. I joined the call late so I apologize if you have already answered some of these or covered it in your formal remarks. Relative to the RBIS realignment let's say, how much of the actions you are taking now contribute to the $70 million benefit you expect for next year? And is there further tail on the actions you are taking now in terms of benefit for 2017 and later, recognizing I forget to whose question you were answering, you said that disproportionate amount of benefit is going to happen next year.

Right. So we gave guidance that we expect $60 million in that transition cost savings for RBIS in 2016. So clearly of the total company carry-over, the significant portion of that is due to RBIS. When we look at the calendarization we are still going through, quite frankly, the calendarization of the savings in 2016 but we are, at least, preliminary seeing this spread pretty evenly among the year, among the quarters in 2016.

And is that also, I guess one thing I was asking, is there a tail on that in to 2017 and 2018? Again, if you mentioned already I apologize for missing it but if you have happen to have that and it hasn't been commented on I would appreciate some color.

Yes. So as I mentioned, we think the savings is spread pretty evenly across the year. So you would anticipate there will be some kind of a tail for 2017.

The other thing we commented on earlier, George you may have missed it, a disproportionate amount of what we are going to hit is going to hit 2016. And so the message here is just to enable us hitting the 2018 margin targets, enable growth within all segments of this business and you should see though, we don't expect to be in the targeted range next year but we will see a disproportionate amount of expansion in 2016 as we get there.

Yes. I had heard that Mitch. I appreciate the color. Let me drop that for now. In terms of the emerging market trends you were commenting to earlier, you mentioned there's been some bifurcation by region. Has there been any appreciable within those regions change from third quarter to second quarter or even as you are exiting the third quarter now to the fourth quarter relative to earlier in the third quarter period?

The only shift I would say from the trends we have been seeing is really in Russia where it's stabilized a bit. Everything else that I commented on earlier were themes we were seeing in Q2 as well.

Okay. Thank you for that additional color. Last thing and then I will come back in queue. Can you comment, if you haven't already, in terms of how the customer rollouts on RFID, this latest wave have been going and what kind of penetration, share gain, not yours but RFID and broadly you are seeing in the market? Thank you.

Yes. George, on RFID, it continues to be robust. We grew 20% year-over-year in the quarter. We have a couple of customers that are in the process of accelerating their rollouts. So I expect that to continue at least for the next few quarters. I was actually pleasantly surprised too on the number of customers that are buying RFID tags. So for me it's getting more broader based. And as brands start to service multiple retailers using RFID, we are starting to get the question out well, 50%, 60% of my products are now RFID marked, might as well just go the whole way, at least through having early discussions on that. So for me, this is specifically in the U.S. So that was a positive trend. Right now we think the apparel unit volumes is about 10% penetrated and we think pretty easily that could go to 20% by 2018. So that's really what we are looking at. But we are in a good phase right now and our team has done an excellent job of supporting customers during this rollout. So I feel good about that.

Dean, forgive me for jumping back in one last one, was the surprise that the tags are being used for products, garments that were lower price point? And so people are seeing the economics at a lower, if you will, point of sale price than you would have imagined? Or is it that they are saying they may increase from, using your figures, 50% to 100%? Thanks.

So, yes. Let me be clear on that. So if you are a brand, okay and you are selling your brand for multiple retailers, let's say Macy's, Walmart, Target, et cetera, et cetera and they start asking for the tags on their garments to have RFID enabled tags and that's a significant portion of your volume, all of a sudden you realize, now I have to have inventories that have both RFID tags on them and non-RFID tags on them. So I might as well go the whole way and by the way, start to extract some of the benefits myself in my own supply chain. So that's really what I was trying to communicate.

Thank you, Dean.

Our next question comes from the line of Anthony Pettinari with Citigroup Global Markets. Please go ahead.

Good morning. In RBIS you indicated that you were seeing decline in sales in less differentiated segments. I was just wondering when you would expect those volumes to inflect or be positive and then kind of on the flip side you talked about specialty products up 10% and accelerated rollouts in RFID. When you look at the higher margin parts of the business, are there regions or product categories where you are at all capacity-constrained or it's a bit challenging to meet customer needs?

Sure. So as far as the first part of your question around declines in the less differentiated segments, we have started to see a modest shift in the trends with those segments. And I expect it to take another couple quarters before we start to see that turn around. And that's primarily just given the lead times from when you win programs, if you will, to when you actually make the shipments for them. And I would say a couple of quarters but Q2 is really the key peak season for this business. So I think that's going to be the key quarter for us all to watch as we go forward. And as far as the growth that we are seeing in the more differentiated segments of the market, particularly asking about product lines, so RFID and external embellishments, these are spaces we are making investments, then we will continue to make investments so that we can continue to be the market leader and drive penetration of RFID across the entire market and continue to penetrate the external embellishments markets with our innovative solutions.

Okay. That's helpful. And then with regards to the positive trends that you are seeing and understanding that it's early days, are you seeing those positive trends in value and contemporary? And to the extent that you can, can you talk about Avery regaining share in those categories, what you have seen in Q3 going in to 4Q?

So we are not regaining share. The rate of decline has slowed and specifically if break it to value, we are seeing a bigger turn around in contemporary right now. But again, it's very early days given the cycle time from when you make shifts to when you would actually see a meaningful difference in the amount of volumes you are shipping in these various segments, it's just too early to give definitive information on that.

Okay. That's helpful. I will turn it over.

Our next question comes from the line of Chris Kapsch with BB&T Capital Market. Please go ahead.

Yes. Good morning. I had a couple of follow-ups on the pressure sensitive business. You parsed out the gross product line growths by region pretty well. But wondering, specifically you mentioned variable information also grew. Could you just like within the label stock materials business, did prime label materials and variable information label materials grow roughly at the same pace? The reason I ask is, I am just wondering if there's any variance there that also might have contributed to positive mix for the business.

So within the prime sector, film grew faster which is not unusual than what you saw on both prime paper as well as variable information labels.

Okay. So that might have contributed to mix but the key mix driver was really more about the growth in graphics and tapes it sounds like?

And specialty labels that we commented on. Specialty paper and then there's also graphics as well, as you have commented. Another key factor here to mention though around that, it's not mix improvement. We have been talking about having more discipline in the less differentiated segments and we have seen again this quarter expanded margins within those less differentiated segments such as variable information labels.

I see. So is that to imply that you actually ceded some share in that? And so one could argue this volume growth, organic growth that you are posting is even that much more impressive?

So if you recall in Q4, we did cede some share in Q4 in a couple of spaces and we commented on that earlier, in previous quarters. But since then you have normal exchanges you have in the marketplaces in these segments.

I see. And then just following up on the sustainability of the margin improvement, obviously you list the drivers in order of importance and productivity has been an important driver. So when I think of productivity and pressure sensitive and correct me if I am thinking of it wrong, but I think your ability to drive your coders at higher line speeds and also your ability to perpetually reduce the material content of your label materials and that's been up sort of a hallmark of your operational excellence over the years if not decades. I am just wondering how sustainable is your ability to continually drive productivity in that regard looking forward?

Yes. Great question. So Chris, one big driver in the productivity, recall last year we had a big restructuring program in Europe that cost us money both in the P&L and restructuring charges to improve our graphics business. We have lapped that this year. That's a big driver of the profitability. So we are now reaping the benefits of that investment in closing an older facility and putting a new coding line in an existing facility. So that continues to be a part of the productivity story in PSM, when we can add a new asset and close a facility to get rid of overhead. I would say that yes, it's pretty much in the company's DNA to drive material cost out through either chemistry or combination of chemistry and process technology and I guess every year we ask ourselves the same question about well, what's the lower limit? And actually the lower limit is zero but we have got a long way to go before we hit that number. In other words we buy by weight, we sell by area and we continuously drive less and less weight in our materials at equivalent or even sometimes better performance. So it is part of the magic of what we do in the business and yes, we are obviously going to keep doing that.

Got it. And then if I could just follow up on the strategic repositioning and RBIS. If I understand one of the comments about rationalizing the manufacturing footprint for that business. I guess historically there's been an awful lot of, I think they used to be called service bureaus, but little shops in the countries near the needle factories and I thought it was generally thought of to be important to be close to the needle to be able to service customers that were making the garments. So it sounds like you are going to be rationalizing a portion of that to drive some margin. And just wondering, can you do that without sacrificing the service levels to some of these needle factories in those various regions? Thanks.

Chris, the overall focus here is to increase our share in the market and service delivery times. The service bureaus you talked about is being a lot of localized service bureaus specifically to that end. Those are actually relatively low cost. Those aren't the areas of focus when we talk about the footprint reduction. It's the larger manufacturing hub and continuing to consolidate to having fewer large hubs but actually having these working on fast response units that have the service bureaus and maybe other smaller assets for quick cycle time deliveries. So that is an area of focus for us and as we talked about this business has relatively intense employee population. When we look at the rationalization and footprint that's overall a focus for us as well.

Got it. Thank you.

Our next question comes from the line of Rosemarie Morbelli with Gabelli & Company. Please go ahead.

Good morning, everyone. Obviously most of my questions have been answered but I was wondering as RFID grows 20%, what is the growth rate that it contributed to RBIS? Do you have a feel for how one impacts the other?

Well, over the long haul it adds two to three points of growth along with external embellishments, the two product categories that we have. So Rosemarie we think about the apparel market growing 1% to 2% probably closer to 1%. And our 4% to 5% target range, we see external embellishments and RFID adding two to three points their share gain. That adds another point that gets us within the target range of how we look at the business.

Okay. That is very helpful. Thank you. And do you have a feel for the upcoming Christmas season? Or is that too early?

Well, I think retailers, this is always a challenge for them. I hate to say this because most of you guys are in the Northeast kind of hoping for a polar vortex so we get a lot of sales of warm clothes for cold winter but it's the same thing every year. And if they can't move the goods, they will discount them. We hope they don't have to. I think retailers are generally pretty disciplined about inventories and now the real focus on them is to make sure they have accurate inventory so they can meet customer needs whether they are ordering online or online picking up at the store and all the other ways consumers can buy products.

So you are not seeing it here lower level -- I am sorry.

From what we are seeing, just in North America, we expect to see some modest growth coming out of that is what we would expect the market to do. Europe we would expect to be a little more challenged. And if you look at the import data you can see imports into the U.S. tracking above what we are seeing in Europe which makes sense given some of the currency headwinds they have as far as apparel unit cost and so forth.

Okay. Thanks. And then lastly you talked about bolt-on acquisitions and in the past you have talked about doing something in the graphics area. Anything new of the valuations lower than they used to be, do you have more opportunities?

Great question. So we have built up a pipeline of possibilities in I would say graphics, in tapes and even in the medical converting area. A lot of the companies are private. So it takes time and we are working on it. And again, we are disciplined about how we do it. So we feel good about the pipeline but these things take time. As I said before, we are going to be disciplined and patient. That's our strategy in M&A.

Okay. Thank you very much.

Thank you.

Our last question is a follow-up from the line of Adam Josephson with KeyBanc Capital Markets. Please go ahead.

Thanks. Dean, we appreciate your sentiments on hoping for a polar vortex. You can sit in 80 degrees and sunny weather and we will be snowed in here.

I am a native Clevelander so I remember those days.

Anyway, Mitch, back to the higher value added, the growth in higher value added areas in PSM that you talked about, specialty paper, graphics, tapes, can you help me understand what the primary markets for those materials are? And whether it's the end markets that are growing substantially? Or whether you are gaining share or both?

So if you look at graphics, the primary end market, think of signage. So these are very large pressure sensitive labels, if you will, that would go on the side of trucks, that would go on the sides of buildings and so forth or as you have seen in our materials, car wraps, which is the fastest growing area for cast films within the graphic space. So a lot of that is share gain with the exception of some of the cast films and car wraps. The whole market is actually growing from a very small base there. And then within the specialty labels area, we have traditionally had relatively high share in specialty labels and that's more application specific so it's going out and finding new opportunities to drive new application and adoption of pressure sensitive materials.

So it's a combination of all of the above, market growth, new markets and gaining share from some competitors?

Absolutely.

Terrific. Thanks a lot and best of luck in the quarter, you guys.

Thank you.

Okay. Well, first of all, just thanks again for listening. I want to thank our team at Avery Dennison for another solid quarter. We are pleased with our trajectory, especially given some of the headwinds that we faced this year, especially around currency and armed with the knowledge that we can do even better. Our overall strategy is working. PSM is delivering at or above the 2018 levels. The graphics business is now profitable and our strategy change in RBIS will get us back on track to hit those 2018 targets. The business continues to deliver strong free cash flow year-to-date and as I mentioned we are building a pipeline of small bolt-on acquisitions in the medical, tapes and graphics materials business. And we are going to continue to be disciplined and patient about our capital allocation. Thank you.