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 Fourth Quarter and Full-Year Ended December 31, 2016. This call is being recorded and will be available for replay from 10 AM Pacific Time today through midnight Pacific Time February 4th. To access the replay, please dial 800-633-8284 or 402-977-9140 for international callers. The conference ID number is 21820264. I'd now like to turn the call over to Garrett Gabel, Avery Dennison's Vice President of Finance and Investor Relations. Please go ahead sir.

Thank you, Kama [ph]. Today, we'll discuss our preliminary unaudited fourth quarter and full-year results. The non-GAAP financial measures that we use are defined, qualified and reconciled with GAAP on Schedules A-4 to A-8 of the financial statements accompanying today's earnings release and Appendix B of our supplemental presentation materials. We remind you that we'll 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. On the call today are Mitch Butier, President and Chief Executive Officer; and Anne Bramman, Senior Vice President and Chief Financial Officer. I’ll now turn the call over to Mitch.

Thanks, Garrett, and hello everyone. I'm pleased to report another year of excellent progress towards our long term goals. We delivered strong organic sales growth and double-digit growth in earnings per share with return on total capital expanding the 17%, all while increasing our pace of investment to drive future growth. Our Label and Graphic Materials business continues to outperform, Retail Branding and Information Solutions is now on track to achieve its long-term margin goals, and the newly created Industrial and Healthcare Materials segment while down in the near term is well positioned to create significant value. 2016 marked the fifth consecutive year of solid organic sales growth and double-digit adjusted earnings per share growth. This consistent performance speaks to the resilience of our market positions, the depth of talent in the Company and the strategic foundations we’ve laid. We continue to make great progress and accelerating growth in high-value categories such graphics, tapes and RFID, both by capturing share organically and through acquisitions. And our constant focus on driving productivity and instilling more pricing discipline have improved the organic growth rates as well as significantly increased margins in our base businesses such as pressure-sensitive barcode labels and department stores apparel tags. These strategies have further reinforced our already strong foundation, which we are beginning to leverage through the disciplined execution of our M&A strategy. Now, let me describe how these strategic priorities are playing out within each of the segments. Label and Graphic Materials effectively the former pressure-sensitive material segment excluding performance tapes had another outstanding year of solid organic growth and margin expansion. Our strategy to expand our position high-value categories is working. These categories which include specialty Label, Graphics and Reflective Solutions were approximately 10% for the year. I'm especially pleased with our progress in graphics. We’ve…

Thanks, Mitch. I'll provide additional color on the quarter and year, and then I'll walk you through our outlook for 2017. In Q4, adjusted earnings per share increased by 17% compared to the prior year above our expectation due to higher than expected organic sales growth of approximately 5%. Acquisitions lifted sales by 2.7% while currency represented a headwind of approximately 1%. Adjusted operating margin in the fourth quarter improved 70 basis points to 9.4%, driven by the impact of higher volume and productivity initiatives. Restructuring savings net of transition expenses were approximately $14 million in the quarter and $82 million for the year in line with our expectations. Our adjusted tax rate for the fourth quarter was 32% and approximately 33% for the full year in line with both our expectations and the prior year. Free cash flow was $139 million in the quarter. For the full year, free cash flow was $387 million driven by higher income and working capital productivity. As expected, we increased our combined spending on fixed and IT capital projects, and restructuring this year, as we continue to invest for profitable growth particularly in our high-value categories and in emerging markets. Our balance sheet remains strong and we had ample capacity to continue funding acquisitions as well as returning cash to shareholders. As Mitch stated, we are committed to the disciplined return of cash to shareholders. We've repurchased 3.8 million shares in 2016 at a cost net of proceeds from stock options of $191 million and paid $143 million in dividends. Before I provide commentary on segment performance, I want to point out that we have provided a bridge for a previous segment to the new segment, for both the fourth quarter and full-year in Slide 7 and in Appendix A in our supplemental…

Thank you. [Operator Instructions] Our first question comes from the line of Ghansham Panjabi from Robert W. Baird. Please proceed.

This is actually Matt Krueger sitting in for Ghansham. What were the major factors that led to your core sales growth out performance in Q4, relative to your initial expectations? And which, if any, of these factors are sustainable moving into the 2017 year?

So, well, we had a really solid quarter with 5% organic growth which really exceeded our expectations, and we saw this both in the LGM and the RBIS particularly RFID that was strong in both divisions. So, from a margins perspective, we saw this coming in slightly better due to higher volumes and then the impact of our transformation efforts in RBIS. As we talked about the guidance for 2017, and while we assume was on the top line is, if you look at our sales growth over the last couple of years, we've delivered anywhere from the 3% to 4.5% organic growth. I mean, it really depends on what you see both from a retail apparel market as well as the broader economic market, and so that's why we gave the range of the 3 to 4.5. As far as on the margin side, what we believe on the margin for the guidance is that, we'll see productivity improvement in RBIS and it really depends on the degree as well as the volume flow through pickup. So, on the high end, we would expect to see more coming from top line growth from RBIS. Certainly on the high end of our guidance from a LGM perspective, we would expect to see a modest improvement in margins particularly coming up from really strong 2016.

And just to build on that Matt, looking just in Q4, high level I'd say little bit stronger coming in from Materials in Europe. And I'd say the pace with which we were able to reverse the trend in materials North America beat our expectations. And then China for both Materials and RBIS came in bit stronger than we expected, and we think some of that maybe due to the timing of Chinese New Year being earlier in '17 than usual. So those are the key headlines for the beat. Overall though it reinforces the strategy that we've been laying out about wining in all categories and really speaks with resilience and strength we have our broad-based market positions in each geography.

And then, can you provide a breakout of your expected 2017 cost savings by segment? And can you provide any specifics about the timing of these cost savings as they flow through the year?

Yes, as we mentioned, we have some carryover savings coming into '17, which we really that piece to be more frontloaded. For additional new actions that we're taking, we really see those being more back loaded about I would say roughly 75% of the savings will be flowing through SG&A, and the bulk of the vast majority of those are going to be related to RBIS.

Thank you for your question. Up next, we have a question from the line of Scott Luis Gaffner from Barclays Capital. Please proceed with your question.

Question is more on the margin expansion. You talked about volume leverage you also talked about growth in the higher margin businesses. Just specific to 2017, it sounded like it more focused; let's say we get to the high end of 50 that's the margin improvement. Is that more focused on volume leverage? Or is it more focused on actually growing in the higher margin businesses?

You can tease out any single component that you want. I think what you see is just it's a combination of volume leverages as well as driving productivity, is what we've lead out in our guidance for 2017, Scott. If we talk about the comments over the last couple of years, we've seen improved margins from the improved mix, but the biggest driver was actually instilling more disciplined within the base business that we've been talking through both from driving productivity, but also enabling us to drive more profitable growth and get volume leverage even within that category as well.

So when you look at the incremental margins in RBIS. I mean is it -- are you able to generate incremental margins at a lower sales volumes figure now? And what is a typical incremental margin in that business nowadays?

So, I think Q4 was really a good representation that when you get growth in this business, it flows through, it's a very high variable margin business. As we continue to accelerate our strategy, our business transformation, we would expect to see the contribution margin continue to hold up in this business despite a microenvironment with the retail piece to it. So, it's really about volume in this. When we look through this and look at our general rule of thumb, you do need a couple of points to have it start flowing through a top line growth. But in general really trying -- we're positioning this business to be able to achieve the profitability goals even in the low growth environment.

Okay. And are you generating positive economic value within the RBIS segment now at these margins rate?

Yes. So, the margin rates that we are going into for 2017 and 2018, this business will be positive EVA. Yes.

Thank you. Continuing on, our next question comes from the line of Anthony Pettinari from Citigroup Global Markets. Please proceed with your question.

In the past two quarters, you have cited price net of cost as negative for the PSM business. I wondered how that trended in Q4, and what raw material trends you're seeing currently and how we should think about balancing price cost maybe in the first half of the year?

Yes. So, overall, we’re seeing a relatively stable environment on raw materials, but it's different by component. We buy a lot of specialty both chemicals as well as paper products. But within that seeing a little bit of modest headwinds in chemicals pretty broad based across regions, and seeing some specific inflation relatively modest but still enough within China that we’re looking at a price increase there. So, the key message here overall relative stability, little bit modest headwind. But I’d say it's relatively negligible overall.

And then looking at RBIS, I guess the apparel important data that we see in North America has been a little bit more positive in recent months. Just curious what kind of demand you’re seeing in January? And I guess a related question, we have a new administration and there is been a lot of discussion around border adjustment tax and potential impact to apparel and retailer some of your customers. I'm just wondering, if you had any broad thoughts on that as well?

Sure. So, just overall your first question about what we’re seeing within the first quarter, first few weeks of shipments within our RBIS. So, it's tough to read, few weeks data is never a great read for a quarter or year is going to play out, and it's particularly challenging here because of Chinese New Year. With the Chinese New Year moving earlier, we really need to cycle through the first two months to every year to get a good read on it. First couple of weeks, we're positive and now it's off because we’re in the middle of the Chinese New Year, which we haven't come through yet. So, as far as the broader tax, we’re in close contact and working with our retailers and brands to understand how they're thinking this through. The key message here is just way too early to tell what the impacts of that maybe and whether would even be implemented in its current form or even any other form. So, there is quite a few questions on it, we’re close to this. I think as if anything related to this we’re implemented, I think what you would expect is that retailers would have to get much more efficient in managing their supply chain, reducing inventories and so forth. And that would play to our strength as far as the capabilities that we bring both in brand management and information solution business, not just help elevate brands, but also to help accelerate the supply chain.

And then just maybe one last housekeeping question. In terms of the guidance for 2017, is there any pension expense or cash contribution that we should be modeling for 2017 versus last year?

So, on the pension expense side, we do see it going up about a $0.06 EPS impact in 2017 primarily due to foreign pension discount rates declining, which increases the pension expense. So that is a headwind for us in 2017. As far as the cash contributions, we did make the required '17 payment. We didn’t make that at the end of the 2016. It was offset by some favorability and cash taxes. So, from a free cash flow perspective that kind of washed out, but for '17, we would expect to make about a $50 million payment, normal payment that we would see for some of the foreign cash taxes foreign pensions.

Thank you very much. Our next question comes from the line of George Leon Staphos from Bank of America Merrill Lynch. Please proceed.

Mitch and Anne, congratulations on the quarter and year. Certainly better than we would have expected in the quarter. One question I had, just to maybe piggyback on Anthony's question on order deductibility, would you expect supply chains to be disrupted, are your customers at all talking about maybe needing to move the needle so to speak, back towards the U.S.? And aside from following your customers, how would you contend with that?

So, George, I'd say it's far too early to say what the impact would be. As I think about it, if you think of the shared numbers, it's a labor intensive industry, the shared number of people engaged in this industry globally. I'm not sure we have the labor force in the U.S. to be able to accommodate tax. So, I think that if you think about and then you consider couple of that with the fact of the lower wages outside the U.S. where these things are manufactured today even a tax hit, but still be relatively lower cost. I think the impact would be more on what it would do to end demand, if my assessment. Again given the implications of all of these things, it's essentially consumption tax is what it would mean in the end. I think this question whether it would even be adopted anything close to its current reform, but we're looking to be well positioned regardless of what the outcome is and work with our retailers and brands to customers to make sure that they are successful relative to whatever happens on the horizon.

Fair enough, Mitch. A related question on RFID growth continuing at 20%, can you provide a bit more color in terms of launches, new adoptions? I remember the comparison being also very, very challenging versus last year's quarter. Can you give us a bit of color on that, and what the comps are in the first half of '17 for RFID?

Sure. So, just overall looking at the pipeline for the growth for the year and including within the quarter, you got a couple of customers that were already in active rollout, ramp-ups that will rollout and actually moving quicker than we expected them to and they were basically were hitting their more aspirational targets for rollout. And so we knew it was within the realm of possibility for Q4 specifically, but we weren’t banking on it. We make sure that we have the right capacity to ensure that we could fulfill the orders that they've come through and ended up coming through in hitting. In addition to that, there was a couple of key customers that went out or moved out of pilot and started that into the early adoption phase and that it is also as contributing to the growth within the year. And then there is a quite few, I'm talking that about major customers here, quite a few midsized and smaller retailers and brands that are also going through adoption right now. So that was what was the positive of the upside, looking forward 2017 or beyond, we continue to expect RFID to be at 20% plus growth business.

Mitch, not to get too pedantic, maybe, but do you expect 20% pretty linearly over the course of 2017, and can you remind us what the some of the comparisons look like first half? I remember first quarter being a tough one for RFID.

Yes, we had a big surge in Q4 of '15 and Q1 of '16, and you've seen another surge within Q4. I think that message here George is that we've talked about it being relatively choppy in the past towards as far as when the exact timing of these programs will come whether it would somebody an active rollout accelerating the next phase the rollout or just new customer suddenly just want decide they want to move, takes the long time to make the decision. Once, they decide they want to move, they want to move quickly. So, except some choppiness quarter-to-quarter, the key thing I'd focus on is just the growth trajectory and focus on 20% on an annual basis going forward.

Understood. My last question and I'll turn it over. Can you give us some guidance on depreciation and amortization for this year, remembering that you have some roll off occurring in RBIS related to Paxar from years gone by, and what that adds to earnings if anything this coming year? Thank you.

So, the Paxar piece to it, the amortization is roughly $8 million this year and about $7 million in '18. You would get over the next two years of at a point of favorability in RBIS from that amortization.

8, this year, 7 in 2018; correct Anne?

Correct, yes.

And thank you sir. Continuing on, our next question comes from the line of Jeff Zekauskas from JPMorgan Securities. Please proceed.

Thanks very much. Just one more question on border taxes. Do you import much raw materials that you turn into products? Or is your import intermediate products relatively low?

Very low the import of our products. So, Jeff, we work with the retailers and brands principally in the mature regions of the Western Europe and the US. And spec our products and basically set pricing and so forth, and then our direct sales are to the apparel manufacturers that are distributed globally around the world. And so, we actually don't -- our sales are not in the U.S. even though the end markets are the U.S. or Western Europe.

So in theory, your own tax rate from border taxes might be and reform might be more advanced, if this were to go through leaving aside what happens to your demand?

Yes, given the current contract it's not impact to our tax rate. Overall, I think that the -- the border tax if you think of is what does it do to retailers and how they're thinking through the supply chains. We are working with them to make sure they can go through any transition that happens. I have my own questions on well that would and what reform. And then the broader tax adjustment that they're working through, I think you've highlighted this in one of your reports, we would expect would be a benefit to us and how they're talking about it from tax rate perspective.

But I just want to emphasize that as you know this is still very early stages with not a lot of concrete, we're seeing very close to this obviously. But anything we did, be interchanged or reduced our tax liability we would change our guidance accordingly.

Yes, I think for this is baked into our guidance right now given the global uncertainty.

Can you talk about price mix trends in the fourth quarter for your two main segments? Were the price mix up or down or did they stay the same?

So, the net impact of price in raw material cost within the material segment was relatively neutral. As I mentioned, we're starting to see a little bit of on the sequential basis raw material input cost trends going up. We constantly work to within this level, use our material reengineering, innovation capabilities to be able to hope reduce the material content of our products to offset that, so net-net between all of them relatively neutral, between price raw material input and material reengineering productivity that we have. Within RBIS, so we’ve been -- as we talked through focused on maintaining our high degree of variable margins within that business, but reducing the direct material cost input cost in that business and getting more price competitive. So, we have prices down in this business, but Q4 was the quarter we have predicted where we cycle through and where we wouldn’t on an net basis no longer have a hit from that perspective and that’s out played out and that’s stabilize that we expect we can see be stable going into 2017.

Do you expect core RBIS volume to grow in 2017 that is exclusive of RFID? Or it's too early to tell?

We expect it to grow.

Thank you for your question sir. [Operator Instructions] Our next question comes from the line of Adam Josephson with KeyBanc Capital Markets. Please proceed with your question.

This is actually Michael Boink [ph] sitting in for Adam, thanks for taking my questions. Just a quick one for me. Can you just talk about what FX rates your guidance assumes this year?

Sure. So for the euro, we’re assuming around 1.045ish and the RMB was another piece to our currency basket is 0.1437.

Thank you, sir. Mr. Butier, there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Well, thank everybody for joining the call today. Just want to highlight again our consistent performance we’ve had over the last few years speaks the resilience of our market positions, the depth of talents in the Company and the strategic foundations we’ve laid. I really just want to thank our teams globally for their continued creativity and commitment in delivering phenomenal results. And I would just want to highlight that we are committed to continuing to deliver exceptional value for our customers, our employees and our shareholders. So, thank you.

Thank you, sir. Ladies and gentlemen, that does conclude the conference call for today. We thank you all for your participation. And ask that you please disconnect your lines. Thank you once again. Have a great day.