Welcome to Avery Dennison Earnings Conference Call for the Second Quarter ended July 1, 2017. This call is being recorded and will be available for replay from 11 AM Pacific Time today through midnight Pacific Time, July 28. To access the replay, please dial 800-633-8284 or 402-977-9140 for international callers. The conference ID number is 21820266. [Operator Instructions] 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, Pemma. Today, we will discuss our preliminary unaudited second quarter 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. 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 Greg Lovins, Senior Vice President and Chief Financial Officer. Also joining us today is Cindy Guenther, how has recently picked up responsibility for the treasury function for the company and will also be resuming her former role as IRO, while I take on the Divisional CFO role for the Label and Graphic Materials segment. I’ll now turn the call over to Mitch.

Good day, everyone. And Garrett, congratulations on your new role as Head of Finance for LGM, you've done a great job leading Investor Relations and FP&A over the last few quarters. And Cindy, welcome back. Greg and I and the rest of the investment community we're looking forward to partnering with you again.

Thanks a lot. It’s good to be back.

Now focusing on our results. Q2 was another strong quarter with excellent progress on many strategic fronts in each of our operating segments. Adjusted EPS was up 20% for the quarter, and we raised our earnings guidance to also reflect the 20% increase for the year, reflecting both strong operating performance and a sustainably lower tax rate. Our continued strong performance speaks the strength of our market positions and the strategic foundations we have laid. LGM, our largest business continued to exhibit strong profitability and solid sales growth. The transformation in RBS is clearly resonating with customers and delivering solid sales growth, while we accelerate the pace of margin expansion as promised, and we are building a stronger position in IHM, which offers great promise for long-term value creation as we leverage LGM’s strength to target attractive end markets where we are underpenetrated. As you know, M&A is becoming a more important part of our story as we use it to accelerate our strategy to expand in high-value segments. To that end, we completed two acquisitions in the quarter Yongle, an industrial tapes business in China that serves global markets, and Finesse, a small supply of advanced wound care products in Ireland. These acquisitions are consistent with our stated strategy, expanding our position in high-growth segments to offer above average profitability and leverage our core capabilities. Now let me give you the headlines for the last quarter for each of the segments. LGM delivered nearly 7% sales growth ex-currency including the benefit of the Mactac and Hanita acquisitions. Consistent with our strategy, LGM’s high value product lines continue to grow faster than the base business with broad-based strength in specialty and durable labels with modest growth in graphics. We also had modest growth within our base businesses in the quarter.…

Thanks Mitch, I appreciate that, and I’m really excited to be in the role and I’m looking forward to continue in partnering with you and the rest of our leadership as well. And hello to everybody in the call, and with that let we jump into the quarter. As Mitch mentioned, we delivered another solid quarter with earnings coming in ahead of our expectations. We grew sales by 7%, excluding currency and 3% on an organic basis and we delivered a 20% increase in adjusted earnings per share. Strong operating performance and a lower tax rate both contributed to the year-on-year change. Currency translation reduced reported sales by about 1% in the second quarter, was an approximately $0.02 negative impact to EPS. Our adjusted operating margin in the second quarter of 10.8% was up slightly versus the prior-year, as productivity and higher volumes more than offset higher employee related costs and a modest headwind from the net impact of pricing and raw material costs. Productivity gains this quarter included approximately $15 million of net restructuring savings, most of which benefited the RBS segment. Our adjusted tax rate was 26% in the quarter, down from 30% in the first quarter and reflective of our revised expectation of 28% for the full year. The reduction to the full-year tax rate is driven by continued favorable geographic income mix and a net favorability from discrete items. We now expect our sustainable tax rate to be in the upper 20s large reflecting that continued favorable geographic mix. Year-to-date we’ve generated free cash flow of $93 million, $59 million less than the same period last year as 2016 included a significant improvement in our working capital ratio. While we’ve largely sustained last year’s working capital efficiency gain, the cash flow benefit from that improvement doesn’t…

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

I'm not really sure who to congratulate first. So congratulations to all of you in your new roles, Cindy welcome back. I guess first off, what's driving the confidence between the expected 3Q rebound in LGM and given that you historically have not had a ton of visibility on volumes in that segment. Maybe you can give us a cadence of core sales growth during the second quarter and maybe what you’re seeing in July more specifically?

So, specifically there is a number of factors that Greg talked about, one is around the holidays that are impacting thing, so Easter had a negative impact in Q2, benefited Q1. We saw that in Q1. We talked about the impact of the pull forward from the price increase in China, what benefited Q1 and we anticipate that would hit the Q2. And then between Q2 and Q3, the move forward of Ramadan has an impact in Middle East, North Africa as well as South Asia, that should benefit Q3 and it didn't hurt Q2. And then combined with just what we’re seeing and our business is trending through, June was better than the other months as we went through the quarter. And our shipments first three weeks, we have very limited forward visibilities, first three weeks were up mid single-digits across LGM as well. So, a combination of factors trends within the quarter, discrete holidays and timing matters that we can point to around pricing or holidays is really what's driving us to that Ghansham. Now that's - I think your overall point we have limited forward visibility is spot on, that’s why the full range of our guidance we still have a full point of topline growth range, built into our model reflecting that but we wanted to communicate what we’re seeing within the quarter and going into Q3.

And just on RBIS, the margins - the volumes came in much higher than we forecasted for the quarter, did margins come in where you thought they would? Wondering why there was not even more operating leverage on there, on the quarter?

Yes, operating margin did come in where we expect them to be relative to the growth and the growth is coming in strong both RFID, as well as strength within the base. Now if you’re looking for more operating leverage on year-over-year comp matter, comparisons that is, we do have more compensation accruals - incentive compensation accruals built in this year than we did last year. So, again the normal flow through and we’re incentivizing the management to hit the aggressive stretch targets that we built within this business, and so we have more compensation expense in the quarter than we otherwise would.

And just one final one in terms of Europe, I'm not sure if you commented on how Europe progressed for LGM during the quarter, and then also RBIS? Thanks so much.

Yes, during the quarter, as Mitch mentioned overall Europe also picked up as we move through the quarter, overall our growth rate in Europe was in the low single-digit range similar to North America. But Europe was impacted a little bit more by the holidays with the Easter timing as well as, as Mitch mentioned some of the Muslim holidays at the end of the period as well. So we do expect to see that return a little bit closer to where we have been previously as well.

Our next question comes from the line of Scott Louis Gaffner from Barclays Capital. Please proceed.

First question was a bit of a follow-up, just Greg I think in your prepared remarks I couldn’t hear, but I think you said either $0.05 to $0.10 better on the guidance relative to operations, and with that, so if you could just clarify that? And then, if I look at it, obviously the volume is the same as it was before from an organic perspective, is that - so that leads me to think that it’s margins that have gotten - the margin outlook has gotten a little bit better, is that more around price cost or mix or how should we think about the improvement there within the guidance?

Yes, so overall, our guidance increased to $0.25, roughly $0.10 of that is due to operations, and the other $0.15 again is the net impact of tax currency and share count. Overall, I think it is a little bit of mix improvement, and a little bit of productivity improvement. We did range or did raise the outlook on restructuring, as we continue to execute very well on the restructuring initiatives, particularly within RBIS. We continue to drive productivity as we always do in the LGM business as well. So overall, we feel good about the margin outlook and the trends that we’ve been seeing.

And anything on the input cost side that would make you think that you might able to have different price cost spread as we move into the back half of the year and into 2018?

We're not really seeing any real material moves in across different - across the overall in our commodities. As we mentioned a quarter ago, we were seeing some increases in chemicals going into Q2 that we expected to be somewhat short-lived, and it looks like those will be somewhat short-lived. We do see some increases in paper and pulp as we go into the back half, and there’s a couple of areas or regions where we see that, and in those areas we'll be increasing prices accordingly, but overall relatively immaterial impact across the different commodity categories.

And last one from me, Mitch. When you look at the M&A environment, there've been some decent sized acquisitions within the labels space recently. Any thoughts around maybe getting a little bit more aggressive on M&A and focusing on some larger scale purchases rather than just bolt-on technologies and geographies?

So our M&A pipeline is robust and we continue to work it and calling the exact timing of when things may or may not happen is always difficult. As far as our strategy, our strategy is bolt-on acquisitions of the size that you've seen with Mactac and Yongle, as well as capability building acquisitions similar to what you've seen within Finesse and Hanita. So that is the overall focus. And part of that is just a result of the reality of the markets which we’re in and our position within them as well. So that’s as far as general size, we don’t say overly limit ourselves, that’s generally how we think about it as far as what you should expect and what we’re focused on.

And our next question comes from the line of George Staphos, Bank of America/Merrill Lynch. Please proceed.

Good morning. Thanks for the details. Again, congratulation to everybody. Cindy, we thought you were sick of us, you’re back for more, so...

I missed you.

Hopefully, congratulations, and first condolences, but now you've had. There you go. I wanted to come back to the extent that we can talk about this and I realize and Ghansham brought it up as well. You don’t have that much visibility on your business given the very, very short lead times that you have. So if you were in our seat, trying to track Avery through 3Q and trying to determine whether that pick-up in volume in LGM has sustained itself, which parameters, which data points in the public domain would you have us watch recognizing there’s not going to be anything that’s particularly good in terms of that effort? And then, I had a couple of follow-ons obviously.

George, we track a lot of the - some of the broad indicators. But the thing is that, a lot of the indicators you will look at are U.S.-denominated in U.S. market isn’t where we’ve seen some of this volatility of growth or impact from holidays and so forth, and quite as much. So, I think, reading the headlines on the impacts within India, specifically, as far as the what’s going on around inventory levels that was - we expected as - that one to press both Q2 and some of Q3 and seeing what the headline are on that would be one way to track that. The impact of the shift of Ramadan is just moves forward a little bit every year. And so, we’re seeing - going to see that move. So that one - I guess, just - it’s hard for you to tell exactly what the impact would be for us. And then, generally, just everything else you track, let’s say lot of external indicators people look at are not - are tend to be U.S.-centric and that’s not really where we’ve seen the volatility. And then, on the RBIS side focusing on apparel imports both in the U.S. and Europe would be key indicators to watch as well.

Now, one thing, if we consider where you seem to have some volume deceleration in the quarter, which was in emerging market. Traditionally, I would think that, that would’ve been uneven greater effect given the margin on EBIT. So if that’s the correct assessment that you have traditionally had a little bit richer mix there, how did you offset that in the quarter or was there anything that you did to offset that in the quarter? And then, I want to come back to the question on RBIS incrementals as well. Should we still maintain the historical rules of thumb that after you cover 2% volume growth - you get to the incremental margins you’ve advertised and discussed in the past in that business or are those figures no longer applicable?

Yes, let me start with the question on the emerging markets, I think the LGM emerging markets, overall we did continue to see growth in most of Asia. We did have a little bit of a - we still continue to see single-digit or high single-digit growth in India despite the GST implementation we’ve talked about, a little bit lower than our previous pace had been but still continue to see good growth, and we continue to see growth in China year-to-date basis in the high single-digit range. So overall, I think we do continue to see the growth there, a little bit lower than I have been previously - certainly in Q1 where we had the impact of the price increase prebuy as well. But overall we did continue to see growth in the emerging markets, which are typically higher margin from that perspective and that enable us to - to be able to keep that overall margin impact.

As far as on the RBS side, I think that rule of thumb is a good one. It may shift down a little bit as the mix of business shifts more to RFID, those have high gross profit dollars per unit, but the variable margins, especially at the pace that we’re investing in business development that the variable margin might be somewhat lower, the absolute margins are higher than the average, but that would be one subtle shift over time, and I’m talking about over coming years. As far as what we’re seeing within the business, within the margin profile that incentive comp element is a - would make up the difference for what you’re looking for year-over-year George.

And my last question, I’ll leave it here. Can you comment, put a number on, however you would have us to think about it, to what benefit you might receive from again increasing e-commerce and what that means for your business? And I’ll leave it there. Thank you.

That's - increasing e-commerce has been a trend that has helped to support our growth both in variable information labels within materials as well as to some extent within RBIS. In the quarter, it was a little bit slower, VI relative to everything else, but these growth rates can jump around, I mean, it was upper single digits for a quarter and then lower, so these can jump around quarter-to-quarter. So they’re a little bit slower specifically within the quarter, but general - the general thrust is that that will continue to be a tailwind and be a growth driver for us going forward as it has been in the last couple of years.

Our next question comes from the line of Adam Josephson from KeyBanc Capital Markets. Please proceed.

So, just a couple, one on - Mitch or Greg, just on the tax rate being sustainably lower, I assume that just lower expected growth in the U.S. long-term and continued, appreciably higher growth in emerging markets. But can you just elaborate on that a bit?

Yes, I think the geographic mix is driven largely by the growth in emerging markets as well as the good growth that we’ve seen in Europe over the last number of quarters. And as we continue to do acquisitions, much of that is based outside of the U.S. at this point, with a lot of it being in Europe and some of it being in Asia as well, which typically have lower overall corporate tax rates as well. So, some of that all contributes to the favorable geographic mix that we’ve seen so far this year and that we expect to continue to see going forward.

Thanks, Greg. Just one on margins in the label business, obviously there is substantial margin expansion. In the last couple of years margins have flattened out, this year, obviously the top line growth has slowed a bit, and I think ROS have largely stabilized. How would you characterize the margin performance this year and just differentiate between the margin performance this year compared to the past couple of years? And what do you think is - think is sustainable, obviously, you’ve given a longer-term guidance, but just can you elaborate on the margin performance year-to-date versus what you’ve seen in the last couple years?

I think year-to-date - I mean, our margin performance continues to be driven by a number of things. Some of which Mitch mentioned is well around the growth in higher value categories. So, we have higher single-digit growth in specialty and durables, which typically - as we’ve said, with our higher value product categories have typically higher margin for us as well. So, that continued mix benefit we saw in the first or in the second quarter, and that’s part of where we expect to continue driving growth and improvement in our margins overall in the LGM side as well. As we said, we had a little bit of a net headwind from pricing raw material cost in Q2, but overall, relatively modest and relatively modest going forward at the back half of this year. But I think, longer-term, it’s really driven by the strategy around focusing on higher value categories as well continue to get more disciplined in the base and continue to drive productivity in our base business. Both of those things in combination and what - continue driving our margins in LGM.

Just a couple other, you might have mentioned this. And forgive me if I didn’t hear it properly. But for resin and paper for the balance of the year, what exactly are you expecting?

Overall, relatively flat in balance of the year sequentially. As we said, we saw a little bit of pickup in chemical costs in the second quarter. We expect that to moderate a bit at the kind of tail end of the Q2 and into Q3. And we are seeing a little bit of a paper increase and really dependent on the region. In Europe, we’re seeing a little bit more of an increase in paper than maybe some of the other regions. But overall, relatively flat in total. But again, chemicals are coming down a little bit, paper going up a little bit.

And just one last one just on capital allocation, I know, you’ve been doing some deals, your buyback activity has slowed quite a bit. Can you just remind us of buybacks versus M&A and the timing of the buybacks?

Overall, I guess, I will start. We continue to have with where we are in our debt ratio as I mentioned ample capacity to continue to fund M&A and to continue returning cash to our shareholders. On the M&A front, as we said on capital allocation, we do look at the pool of funds for M&A and share buybacks somewhat fungible, and we had a little bit more M&A in the quarter than we obviously did in the previous couple of quarters. But overall, we did continue buying shares back in Q2 and we’ll continue doing so in a disciplined manner. Overall, I think, our approach isn’t changing, our strategy isn’t changing there. We’re going to continue both being disciplined on the M&A front as well as on the share buyback front. But our strategy is not changing towards continuing to return cash to shareholders overall.

Our next question comes from the line of Anthony Pettinari from Citigroup Global Markets. Please proceed.

Hi, this is Bryan Burgmeier sitting in for Anthony. Understanding there were some timing issues in LGM, key competitors still pointed to mid-single digit volume growth. Do you believe Avery lost any share throughout the quarter and if so was part of the price had a cost impact you guys pointed to driven by getting a little more competitive on price?

If you’re just speaking specifically about LGM, what we see around the globe, I would say in the mature regions, we don’t believe we’ve lost share. If anything, we potentially expanded share, and now you recall in North America, we said, we thought maybe we ceded some share late last year and we’re making adjustments to recover and we do believe we’ve recovered there. Within Asia, we’re not - we don’t believe we’ve seeded any share over the cycle, I will say specifically in Q2. One of the things, we’re looking at, we’ve raised prices in China, and we’ve talked about the importance of our leadership position within the market, and leading out with price when there is inflation. And we sometimes have near-term share challenges for a couple of quarters, but we usually within a couple of quarters of that, we adjust and cycle that through, and that’s something that we just - traditionally, we’re seeing, when we do price increases, we got to be - have the courage to push it through, and sometimes it has near-term share consequences. We haven’t completely worked that through yet, because we’re still only a few couple months after that price increase. So, generally no, but you’ve really got to look at market-by-market. Latin America, we continue to take shares, our position. Europe, it looks like we continue to take share. North America, we reversed the share loss. And China, we may have some share deterioration, but we will see that as near term.

And then just a follow-up. RBIS' organic growth was a little bit stronger than we thought, are you guys starting to lap some of the pricing initiatives, and without - like a small headwind during the quarter or is pricing still a headwind? And then what’s your outlook for pricing in the second half?

So, when we’ve taken about pricing and the strategic pricing adjustments, we’ve started talking about a-year-and-a-half ago. We saw an opportunity to dramatically reduce our variable costs, particularly the raw material components that we were using, and moving more to local sourcing. And so, we started adjusting our pricing before we had localized that raw material sourcing, and then that was having a negative impact on the bottom line. We’ve cycled that through, I believe we cycled through that in Q4 of last year from a margin perspective. Now this business is a custom business, so we’re always pricing the various components where they need to be relative to the specifics - the specs that the retailers and brands need. Our variable margins remain high and we’re growing in the base business. So price, because it’s a custom business, it’s hard to compare a 2x4 tag that is three color with a 3x1 tag that is four color across cycles if you will. But generally, it’s competitive market, we actually think that this new strategy we have enables us to grow profitably and meet more what the customers need are.

And our next question comes from the line of Jeff Zekauskas from JPMorgan Securities. Please proceed.

In the quarter, were your raw materials and Label and Graphic Materials up by a mid-single digit rate or a low-single digit rate?

Overall relatively flat to low-single digits year-over-year.

And you spoke yourself is being squeezed a little bit in the second quarter. Do you expect to be squeezed in the third?

Generally no and our impact in Q2 is relatively modest sequentially Q1 to Q2 largely driven by the chemical inflation we started to see in the back half of the first quarter. But again most of that we expect to have been moderated. We are seeing some pockets as I mentioned before in paper in particular, but we’ll look to manage that through productivity and/or pricing where necessary.

Jeff it's really a region by region story. So it’s tough to give you global perspectives on it. It is modest overall. But just going around the regions, Q1 we had been seeing inflation. In China, we raised prices and that was going in Q2 having a positive price impact in Q2, but negative volume impact because a lot of the volume was pulled forward as talked about. In North America, we’ve put out several warning letters that if the inflation we are seeing from Q1 to Q2 continued, we would raise prices that has abated, so we did not raise prices, so that did have some downward pressure on margins in the quarter that should abate. But now we’re seeing paper inflation as Greg mentioned in a couple of regions including Europe, where we are going out with the price increase. So, you really have to look at it region-by-region and this is just something managing these levels of moves of inflation is just part of the day-to-day focus of the leadership and deciding when to raise prices and when not to, and that’s really the kind of environment we’re in. We’re not in a big inflationary, deflationary environment right now, it’s very modest as Greg said.

How much is RFID up in the first half?

It’s up in the mid-teens or so and more than 20% in the quarter. If you recall Q1 was growing sub 10%, as a result of tough comps the previous year.

In the Label and Graphic Materials Industry in Europe or the United States, when you look at industry capacity additions over the next year or two, do you think the capacity additions are greater than industry growth or less?

Yeah, the capacity additions have - they come in, in waves and so there was a very little capacity addition in North America for quite some time, and yes, the pace of capacity adds has - if you look at just a very short couple of year horizon has outstripped it. Now, the key thing to understand within our industry, capacity that’s added can still be scaled up slowly, starting with one shift, two shift and so forth, and that’s what we’ve traditionally seen, that’s what we do, that’s what we see happens within the market. Also capacity adds tend to precede potential planned capacity reductions as well. And so when you look over the long run, you’ll see ads coming in and then assets taken offline. Very similar to our own expansion a few years ago within graphics, we expanded graphics line in one side, and then reduce some capacity another couple of years later. So, this is larger - we’re going through a wave of capacity additions right now Jeff. When we look over the long run, this seems to be what you would expect for an industry that’s growing like ours is.

[Operator Instructions] And our next question comes from the line of Chris Kapsch from Aegis Capital. Please proceed.

So, I had a follow-up on this notion of e-commerce being - e-commerce related sales being a little bit weaker in the quarter. You mentioned RFID’s growth actually accelerated, so presumably you’re talking primarily about the variable information in the LGM segment. So, just wondering, if you can provide any color as to why the demand for shipping labels would be weaker during 2Q, particularly against this notion that you feel like you gained share - market share in most regions?

It falls within the normal variability that we would often see within a particular product line. So, nothing specific to call out a broader trend that we’re seeing. It was growing - grew faster than we expected within Q1. We often don’t give the product line outlook by region, I share that because, but if you look at the puts and takes of the various product lines this falls right within the normal variation. If it were to continue for another quarter or two then that would be a different discussion, but this is part of the normal choppiness we see within our product lines.

And then if I could just follow up on sort of the raw material discussion and the idea of potentially, I think you said putting out a price increase at least in Europe, because of inflation in paper. Just curious what you’ve seen over time, maybe you could talk about, I don’t remember since we’ve kind of seen a deflationary environment since late 2014, I don’t recall the industry really going after pricing? And you did characterize most recently even though paper costs are higher, you have deflation suddenly in some petrochemical costs. So, are you - what’s the dynamic and what’s the discussion with the customer base when you’re talking about price increase on the basis of higher pulp when you have on the other side of the ledger you have raw materials petro to drive raw materials being lower. Can you just describe how you see that playing out? Thank you.

So we share what’s going on within the market, and when we do a price increase we lay out the basis and the reasoning and that’s why some of the price increase tend to be focused on the paper categories because that’s where we’re seeing, where we’re not talking about films right now and price increases. So, we show the impact of the inflation that we’re seeing and a lot of that is to help the converter layer then be informed so they can go further on to the end users to work through price increases that they may need as well. So that’s the environment we’re in, and that’s what we’re working through right now, and these - you got to keep perspective in that, these are relatively modest at the total company level, where we’re going out as target price increase, where we’re seeing inflation for certain components where we need to pass on price increase to particular customers that are affected by this inflation and this is going on every year. Over the last few years, Latin America, it was raising prices because they had a lot of inflation in local currency and we’re constantly raising prices that was just part of the MO down there. So this I would say is part of normal doing business and what we’re working through right now.

I think there is also variation by region as we’ve talked about before as well. Some of the chemical costs are part of what led us to the price increase in China in the first quarter and to a lesser extent some increases in North America for chemicals weren’t is a bigger factor, it’s small overall anyway but not a bigger factor in Europe, where Europe we’re seeing paper go up. So it is different by region and by commodity across the regions as well.

And we now have a follow-up question from the line of George Staphos, Bank of America/Merrill Lynch. Please proceed.

Maybe to taking back on Chris's question and it didn’t sound like you had a much more offer on this, other thing it's subject to normal variation you see in the business, but with most of the end market discussion on e-commerce in the trade press seemingly positive, the box state has been quite strong, which we think is being driven by e-commerce. Mitch, what would drive less consumption of VI-related material other than maybe some destocking from previous purchases in the quarter?

So I think destocking, we have talks about often being as far back in the supply chain as we are destocking offerings what can drive moves for a couple of months and I would say that would be the primary thing to focus on. The overall general trend within e-commerce would be - expect it to be a continued driver for variable information and intelligent labels at large.

And then, secondly, working capital in the quarter was pretty normal when you look back historically over second quarter, it was down versus last year. And I think, you called out directionally there were something that were benefiting last year’s performance versus this year. Could you put perhaps a finer point on what some of those variances were? If you had already done, then I apologize for having missed them. And what would your expectations for working capital be both this year and to extent, do you have any kind of directional view into 2018?

So I think, comment I made earlier was more about where we had ended the year before - year-to-date last year, our levels of working capital are relatively similar. And in Q2, we’re relatively similar to where we’ve been over most of the last year or two. It’s just the starting point for this year. At the end of last year it was a little bit lower than it had been the year before, which led to a different free cash flow impact year-over-year. I think overall when we continue to look at working capital, we do have some pressure some of the acquisitions we’ve made typically have higher working capital ratios than what we have. Such part of the improvements, we’ll be looking to drive from some of the acquisitions as well as we go through the back half of this year and into next year also. But overall, not much - I wouldn’t expect much significant change one way or another in terms of our overall working capital ratios as we go across the next number of quarters.

So Greg, just to put a bow on that, so you actually think the acquisitions given the opportunities that you have there will actually drive some positive of the working capital for the next few quarters even though, you're starting at a higher-level of working capital intensity in those businesses. Is that correct?

Yes, I think, we’ll start out at a little bit higher level, and then over the course of a few quarters, we’ll be continuing to working to bring those levels back down towards what more like what our average would be. It really depends on the business as well. Certain businesses have different levels of inventory, depending on the type of business, but overall, we’re continuing to drive inventory in other working capital components more towards our average.

Two last ones from me, and I’ll turnover. First in terms of broader trends that you’re seeing here in the LGM business, what could you share about what you’re seeing in terms of adhesive technologies, requirements specifically being placed upon label and here what I’m thinking about is to the extent that again, we’re seeing shifting in channel from traditional retail to online, is that bringing about any kind of change in the label that’s applied on the primary package, and if there is anything that you see as being discernible there would be interested? And then, switching gears entirely in terms of IHM, are you seeing any, I don’t know, more intense competition from your peers as you’re trying to grow into those markets relatively to what your expectations would have been? And if you could provide any color even if there’s been no change in your view that would be helpful? Thank you and good luck in the quarter.

So two questions there George, so within LGM specifically, I think, what you’re asking is broader trends specifically and as things moved to e-commerce, was that having effect on labels? And we’ve talked about one of the big advantages of our products are the shelf appeal. But if you think about household and personal care and so forth, one of things just pure e-commerce companies are looking for, to still have that moment of truth and people having some type of attachment to the brands that they’re buying. And so the physical decoration of the product is still an important aspect and we’re actually working with some of the e-commerce companies for how to further improve that moment of truth, so it’s not just a dirty poly bag being thrown on your porch, when you’re buying something that - a brand that you’re trying to connect with. So, those are works in progress, but overall we’re not seeing a big shift or impact on the branding side of labels, variable information labels, we see this is a tailwind and will continue to be a growth driver for us as we we're talking about earlier. Then industrial and healthcare materials, like many of our business is competitive, the difference is within that segment, it’s large, we're Tier 2 player and it’s growing well ahead of GDP, and it tends to be specified category. So, when you get specked in, you’re specified on your own or you’re one of two that are qualified for a particular program. And that - I wouldn’t say there is, it’s a competitive environment as every industry that we’re in is, but I wouldn’t specifically call that, I’m seeing some large competitive response. This is a type of industry where we still see lots of niche players even as an industry is growing like this, these ones are that we’re going after, you tend to still have new entrants and a number of companies, but there is plenty room for everybody to win, so that’s more how it characterize that broader space.

Mr. Butier, there are no further questions at this time. I’ll turn the call back to you. Please continue your presentation or your concluding remarks.

Well, I just want to thank everybody for joining the call today. A lot of great things going on within the company and we’re looking forward to continuing to execute our strategic priorities and delivering for everybody including our investors over the long run. Thank you very much.

Thank you. 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.