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 on December 28, 2024. This call is being recorded and will be available for replay after 4:00 p.m. Eastern Time today and until midnight, Eastern Time, February 05, 2025. To access the replay, please dial 1-800-770-2030 or 1-609-800 for international callers. The conference ID number is 5855706. I’d now like to turn the call over to John Eble, Avery Dennison’s Vice President of Finance and Investor Relations. Please go ahead, sir.

Thank you, Jeanine. Please note that throughout today’s discussion, we’ll be making references to non-GAAP financial measures. The non-GAAP measures that we use are defined, qualified and reconciled from 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 Deon Stander, President and Chief Executive Officer; and Danny Allouche, Senior Vice President and Chief Strategy & Corporate Development Officer and Interim Chief Financial Officer. I’ll now turn the call over to Deon.

Thanks John and hello everyone. I’m pleased to report another year of excellent progress towards our long-term strategic and financial goals. For the year sales grew 5%, adjusted EBITDA margin expanded by 130 basis points and adjusted EPS grew 19% at the high end of our original guidance. Both our Materials and Solutions Groups delivered strong top and bottom line results with our base businesses recovering from downstream inventory destocking in 2023 as expected, strong productivity driven margin expansion and our high value categories delivered strong growth once again demonstrating the strength of the overall franchise. Over the long-term, our overriding objective remains the same to deliver GDP-plus growth and top quartile returns on capital, a recipe for superior value creation. In this context, we continue to make strong progress against our 2025 financial targets despite multiple macro disruptions in recent years. Recall, this represents our fourth set of long-term goals after meeting or beating our previous three sets. As you can see on Slide 6, we have a proven track record delivering GDP-plus growth, margin expansion and top quartile returns across cycles including delivering 9% earnings growth excluding currency so far in this current cycle. Strategically, we continue to drive outsized growth in high value categories enabling us to shift the portfolio to become more differentiated with higher growth and higher margin. These categories now represent almost half of our portfolio and accounted for roughly 3 points of organic sales growth annually over the past four years. Our high value platforms excluding Intelligent Labels accounted for roughly 2 points and Intelligent Labels accounted for roughly 1 point. More broadly, our consistent performance reflects the strength and the durability of our portfolio, the resilience of our industry leading market positions, our agile and talented global team and the consistent execution…

Thanks Deon. And hello everyone. I will first provide some additional color on our fourth quarter results and our progress against our long-term financial targets, then walk you through our 2025 outlook. In the fourth quarter we delivered strong adjusted earnings per share of $2.38 in line with our expectations, up sequentially and up 10% compared to prior year, driven by benefits from higher volume and productivity. Compared to prior year, sales were up 3.5% ex-currency and 3.3% on organic basis as mid-single digit volume growth was partially offset by deflation-related price reductions. Adjusted EBITDA margins were strong at 16.4% in the quarter, up 40 basis points compared to prior year, with adjusted EBITDA dollars up 6% compared to prior year. Regarding productivity, we delivered $14 million of restructuring savings in the fourth quarter and $63 million of savings for the full year, continuing our track record of optimizing our cost structure, while investing to drive profitable growth. We generated strong adjusted free cash flow of $280 million in the fourth quarter and $700 million in the full year with solid working capital results resulting in 100% adjusted free cash flow conversion. As you can See On Slide 12, we continue to execute our disciplined capital allocation strategy. Our balance sheet remains strong with a net debt to adjusted EBITDA ratio of two at the end of the year. This enables us to continue to invest organically in our business, steadily and consistently grow our dividend, make acquisitions that help accelerate our strategies, and strategically buy back stock to maximize our returns. In 2024 we returned $525 million to our shareholders through the combination of dividends and share repurchases. In the fourth quarter, we significantly accelerated our pace of share buyback, purchasing roughly 700,000 shares, more than half of our…

Thank you. [Operator Instructions] Our first question comes from the line of George Staphos from Bank of America. Please go ahead.

Thanks, everybody. Good morning. My question, can you talk specifically about what your assumptions are for growth in logistics within IL for 2025. And just given the headlines today, there’s news about a large customer of yours seeing a large pullback in volume from one of their customers. What effect, if any, is that having on your IL growth plans, both in 2025 and longer-term? Thank you.

Hi George, this is Deon. Thank you for the question. We – our plan for particularly in Logistics segment, is that we would assume a slight decline between 2024 and 2025 and specifically as it relates to this customer, the impact that you mentioned, we have already factored that in, in discussion with our customer into our 10% to 15% IL growth range. As part of our partnership agreement, we have aligned volumes for 2024 – from 2024 to 2025, and we’re not assuming any further adoptions during the 2025 calendar year, as I pointed out, more likely that those adoptions will continue in 2026. I will say that the experiences that we’ve learned through this initial adoption in this first category and the taking – the earnout that we’ve taken from it are going to really provide impetus for us as we go to the pilot phase that we’re with it, all the other major logistics providers.

Thank you. Our next question comes from the line of Ghansham Panjabi from Baird. Please go ahead.

Yes. Hey guys, good morning. Danny, welcome the call, and that’s also great news, and that you shared on Greg as well. So I guess, first off, on the Materials segment, what are you embedding for core sales growth for 2025? And how does that breakdown between volume and price?

Hi Ghansham, yes. So our assumptions for 2025 and our guidance range are really based at the macro starting point, and we’re factoring in not much change in GDP overall between 24% and 25% based on the recent – most recent forecast. And actually, more particularly, if you look at the forecast for retail volumes globally, they are slightly up in 2025 versus 2024, but still roughly at that 1% level overall. Feedback from our customers actually and from end customers depending on, of course, of end segments largely mirrors this. And I suspect that reflects some of the degree of caution that is still out there, both at the macro level, some of the policy level, some of the geopolitical level as well. So our 3% to 4% range assumes GDP growth in the base business at the company level somewhat adjusted for apparel cannibalization in IL. And in the Materials business, we’re assuming kind of mid-single digit volume growth and a little bit of price within that.

Thank you. Our next question comes from the line of Jeffrey Zekauskas from J.P. Morgan. Sir, please go ahead.

Thanks very much. Can you talk about raw material cost inflation or deflation for 2025?

Yes. Thanks, Jeff. So overall, from a material inflation perspective, we’re seeing a stable environment. Slight, like I said in my prepared remarks, slightly – slight deflation in Q4, and we expect to be a slight deflation also in Q1, but overall stable environment into 2025. From a raw material price relationship, we think that the cycle is pretty much over, and so we are kind of caught up. That said, on a year-over-year basis, we still see some negative raw material pricing in our model for 2025. Given the time lag between the time we pass prices on a significant deflation we saw at the end of 2023. So if you think about it, we typically said there is one to two quarters lag between when we see deflation when we pass the pricing. And so we’re modeling some of that into Q1 and a little bit into Q2 of 2025. And after that, we see it stabilizing. Going forward, we’ll continue to manage kind of price raw material relationship in the way we’ve done it in the past. We’re over the cycle, we expect them to be neutral and us kind of benefiting from our cost-out activities.

Our next question comes from the line of Matt Roberts from Raymond James. Sir, please go ahead.

Good morning, everybody. Thank you for the time. Yes. I wanted to ask on apparel and general retail, so general retail accelerated in 4Q all the way from 20% to 40%. Maybe you could talk about what drove that acceleration and how we should think about that progression in 2025? And similarly, apparel decelerated, it seems you have easy comps on apparel in the first half. So how should we think about apparel growth in the first half versus the second half? Basically I’m just trying to get confident on the acceleration in each of those given kind of each end market in intelligent labor has some unique timing impacts? Thanks.

Thanks, Matt. Specifically, in general retail, we continue to see an acceleration for IL volume as we went through the year. And that’s largely on a very large retailer continuing to drive compliance in the various categories that they’ve laid out for IL adoption. And while they may announce them in time, it takes a while for those compliance to come through their supplier base. And we’re actively involved in supporting that supplier base as they drive through that compliance piece. On apparel, overall, we certainly saw significant volume in 2024, Matt, largely because of the comparison the normalization of volume in 2024 relative to 2023, when we saw the destocking. And particularly, in IL apparel, as we got towards the end of the year, we still had very strong IR growth in apparel. Not quite as strong as we’d anticipated in the fourth quarter, because there’s one or two key program pieces that just moved slightly from a timing perspective into this year. When I look into general retail for 2025, we’re going to continue to see strong growth as we move forward as that compliance both continues to accelerate, and new other general merchandise retailers are planned through the cycle for some degree of early adoption as well. And then we look at apparel overall, we’re expecting low double-digit growth in apparel in 2025 for IL. That’s based on the apparel core business, the market itself being somewhat around GDP to GDP minus typically as we see because of the cannibalization of the core business from IL. But in IL, specifically, that low double-digit performance is predicated on existing customers that we’re rolling out during last year and continuing into this year. And then we have on the upside in that 10% to 15% range I talked about for IL. We also have some new customers planned for adoptions we go sequentially through the year, and those can always be adjusted for timing. We’re real confidence in our apparel performance overall as we look at IL. I will make the point that when you look at our IL volumes overall for 2025 in this 10% to 15% range, this 10% range for us represents known programs rolling now, delivering volume right now, we have a real strong line of sight to that. The additional 5% growth as we go through that is unknown programs that are likely to adopt. But again, there may be some timing variances as we go through that. And this gives us the confidence that in the long-term, we’re going to continue to see that 15% plus growth rate over the long-term.

Yes. And I can just jump in, one, just to make sure – because I think your question was a little bit of our first half, second half post on apparel IL. So we do expect growth in Apparel IL to accelerate throughout the year as some of these programs that Deon mentioned kind of rolling out.

Our next question comes from the line of John McNulty from BMO Capital Markets. Please go ahead.

Yes, good morning. Thanks for taking my question. So maybe just a follow-up on that logistics customer with the announcement that was out today from them. Can you help us to think about the cadence of how those volume declines may roll through as we look through 2025? Is it lumpy? Or is it relatively smooth? Have you seen any of that impact already, whether it was in the fourth quarter or in early 2025? Thanks.

Thanks, John. From our perspective, it’s very difficult to call how that volume performance and that particular customer’s transition will happen during the year. They’ve given some guidance on that, I think more generally and thematically, our strength in the way we’re thinking about that partnership with them, we know what volumes we have aligned with them for 2024. We’ve built that into our guidance, and we’re going to – and their commitment to us is on that volume leverage, which – sorry, on that volume level, which continues to provide us significant majority share in that account as we move forward.

Our next question comes from the line of Josh Spector from UBS. Please go ahead.

Yes, thank you. Good morning. I just wanted to ask on Solutions margins. I know sequentially kind of messy, but sales were up a pretty decent amount, but the EBITDA increase was relatively small. So I don’t know how much you attribute that to mixed, cost or increased investments that you’re doing. So one will happen in the quarter. And then two, as you look over the next year with the rollouts that we’re talking about, what do you think the incremental margins look like in solutions?

Yes. Thanks, Josh. Yes, so I think you called the biggest issue, which was really mix in the quarter. As you heard, the high value solutions within solutions was down mid-single digits. And so that was a big impact. The other thing, there was also a small – relatively smaller kind of double cost on our Mexico plant that we’ve started in the quarter. And so that was another impact I would call out that margin year-over-year or for the full year have been up from 2023 to 2024. And to your last part of your question, we do expect margins to continue to expand next year as we accelerate kind of a high-value segment growth. For example, the Vestcom program that Deon mentioned earlier, IL, et cetera, all these elements should drive our margin higher in 2024 – in 2025, sorry.

And maybe just one quick thing to add, Josh. As Danny mentioned, the mix that we expect next year should potentially result in a higher flow-through than average. And I think you kind of know in this business, we tend to need about 2 points of growth on the top line to cover general inflation in most years, and then we tend to see about a 30% flow-through after that on volume. So depending on where the growth comes from and obviously with the expectations for better growth in the high-value categories, we could see a little bit above average in 2025.

Our next question comes from the line of Mike Roxland from Truist Securities. Please go ahead.

Yes, thank you, Dion, Danny and John, for taking my questions and happy to hear that Greg is doing better. I’m happy to hear that Greg is doing better. You mentioned – just want to flow up on the logistics customer. You mentioned that year – so just a customer is committed to those volumes for you this year. And as that – those volumes obviously include the adjustment that being made given one of your customers. But the volumes last year from that – from the logistics cost were also choppy. I’m sure they went into the year, maybe promise to you certain levels their business is a little choppy and they didn’t execute at the level that you expected it to. So what gives you the confidence that they’re going to be able to keep the volumes they promised you this year? And then just secondly, quickly, you met a couple of quarters that you mentioned a delay in some customer deployment is now getting pushed from 2024 to 2025. Do you have a better sense now when they should be deployed in 2025 communication lines where vertical being late to.

Yes. Thanks, Mike. On the confidence on the logistics volume, I think we have high confidence based on what we know now. We’ve learned a lot, as I said, Mike, through this kind of first adoption, and that learning in that kind of first and second year really matters when you come to sort of being able to plan out what is going to happen sequentially from a volume perspective, service priority and also innovation that we bring to bear in the count as we continue to help them progress on their IL journey as well. I think overall, we did see some choppiness in the volume as I talked about during 2024 and some of the products didn’t have RFID packages enabled packages they went through. That’s all been resolved now. And I contend that the their use of the technology has significantly continued to improve, and they’re talking about, as you know, in their journey, moving it not just from where it is in the last mile fulfillment center to the van, to the delivery point and ultimately actually back to the source as well. And we’re involved in all those segments of their development and providing both innovation support and actually expertise as well. Referring to your second question around delays overall. It’s not atypical, Mike, that we see. And particularly in some programs, they may ship one or two quarters depending on how the timing of those goes. We’ve seen that historically right since the start of this journey. There’s nothing material or significant in any of those changes. And it’s part of the reasons why when I look forward into this year to 2025, and I talked about that an incremental 5% growth, we have planned those rollouts based on what we know and discussions…

Our next question comes from the line of Michael Leithead from Barclays. Please go ahead, sir.

Great. Thanks. Good morning. Can you maybe just speak more to the initial capital allocation plans this year? I think in the slides, you talked about ample capacity for M&A and buyback. So I guess, just how does the M&A pipeline currently look? And then do the debt coming due this year, do you intend to refinance all of that or pay some of that off with cash generation?

Thanks, Michael. Yes. So overall, I’ll say that our capital allocation strategy really hasn’t changed and remained the same as what we did over the last few years. We’ve always said that we would like to have strong balance sheet that we can pursue strategic acquisitions that can help accelerate our strategies or growth margins, et cetera, as well as take advantage of market dislocations. And so for 2025, we will continue with the same playbook. We can continue to pursue M&A that is strategic to us that we can acquire attractive valuation as well as take advantage of market dislocations in the market to share buyback like we’ve done in the fourth quarter. So I don’t see anything materially changing. We’re in a great spot to be able to drive earnings growth as well as EVA, and we’ll continue to execute on that strategy.

Michael, let me just double click on something Danny said at the end there. I just want to reemphasize how as an organization, both the leadership level through the organization by program, by business unit, we are truly EVA focused, really makes sure that we optimize this balance of growth, margin and capital efficiency. And we have the balance sheet to be able to do that to drive any one of those levers as we see as well as a really strong foundation for the way that we can continue to compound earnings as we move forward.

And one thing just to add on the debt side, we – yes, we do have €500 million coming due in March. So that will be repaid, and we actually issued €500 million of senior notes in early November in the same regard at 3.75% to full repayment. So don’t anticipate needing to raise in the near term.

Yes. Thanks, John. One just to link one other thing to this is that you can see on our supplemental materials as well that we’re calling out interest – net interest expense. We expect that to be slightly up next year because of that refinancing that we did at a higher rate than the bond that came due – that is coming due in March.

Thank you. Our next question comes from the line of Anthony Pettinari from Citi. Please go ahead.

It’s actually Bryan Burgmeier sitting in for Anthony. Thank you for taking the question. Just there’s a lot of discussion on potential tariffs in the United States right now. Just wondering if you can remind us, does Avery ship a meaningful amount of products from Canada and Mexico in or out of the United States? I know there’s an RFID facility that Avery built in Mexico. I’m not sure if those come into the United States or if they could face tariffs. Just general thoughts on how tariffs could impact Avery as we watch these play out? Thank you.

Thanks, Bryan. Let me start at the high level. Our direct exposure to tariffs is very limited. One of the strengths of our business is that we’re really good at scenario planning. We’ve proven that over time. And no matter where there are policy changes, geopolitical risk, we tend to have scenarios planned out for those. I’d also say as a point of general reference, we largely procure and produce and sell in the same region. And when we procure internationally, we have multiple suppliers that we’re able to leverage. I’d essentially say our global network is also allows us to have the capability to flex production wherever we need to. That’s a really strong key competitive advantage for us. Let me talk a bit specifically about – I know there’s been two discussions on two sort of areas. So one around China. China for us, about half of our China business is actually in our Materials Group, which the vast majority of which is basically sold as labels in the Chinese market for label consumption in the Chinese market. The other half is in our apparel business, which we add tags and labels to garments that are largely exported to the United States and Europe. And we have seen and supported our brands over the last 10, 15 years and helping them manage migration if they see fit, to want to move production from one country like China to another like Vietnam or to Honduras, we are enabled – we enabled that to do that given the strength of our network around the world. If there may be some modest indirect exposure in this area to tariffs in the event that higher costs on apparel effectively translate to somewhat the lower overall demand and that may be a possibility. In Mexico, specifically, we do have some more direct exposure there. We just recently built, opened and established and are running our New Mexico Intelligent Labels facility. But as part of our scenario planning that we have enough network capacity if we need to choose to move it around, including in the United States, should we need to do that as well overall, Bryan.

Our last question comes from the line of George Staphos from Bank of America. Sir, please go ahead.

Yes, hi. I wanted to go to Slide 7, and as kind of a two-part question on Vestcom before I turn back into queue. So you say that in total, high-value categories this year will be two to 3.5 points of volume. IL, assuming your forecasts are accurate, that’s one to 1.5 points as I take it, which would leave one to two points residual. If I then look at Materials, Materials are saying you’re looking for mid-single-digit growth out of your high-value categories and materials, which is about over 1/3 of the Materials segment and that in turn is whatever, 3/4 of the company. So that’s another point plus that doesn’t leave a whole lot of growth, I’ve done the math right for growth in Embelex or Vestcom even though it sounds like you’re positive on both and certainly Vestcom, you talked about a new pharmacy customer that you’re bringing in. So help me square that circle in terms of if there is growth in Embelex and Vestcom, while we’re not necessarily seeing maybe more growth in high value. Relatedly, can you talk about what the growth in Vestcom should be? You gave some color down early and then up later. What growth are you looking for Vestcom this year? And what’s the contribution to earnings there? Thank you, guys.

All right. Let me see if I can unpack that, George, I capture those questions. So let me just start with Embelex overall. We expect Embelex to grow double digits this year, high single digits to low double digits depending on kind of the performance overall. And that’s really anchored in a couple of things. The actual industry for personalized engagement and fan engagement has continued to be very strong throughout the years as well. And we’ve seen that industry – our own business growing 15% plus over the last six years. Particularly in this year, we’re going to continue to see further rollouts of new customers. And this is both at the product level. So imagine in performance athletic, the badges, the branding that go on to some of our performance athletic customers, particularly as one performance athlete customer looks likely to recover as they move through this year. On the Team Sports side, where we continue to win new team sports for decoration, both names and numbers, whether it’s in Europe or North America and some of the professional sports league. And then also actually in stadium as we’re providing the full customization facilities in many of the professional leagues now. A great example that if you went to the intuit stadium and saw exactly how our customized personalizing stadium, which we drive – sorry, center which we drive not only the hardware to software, but all the technology and the actual physical apparel itself. So we anticipate Embelex will continue to grow. There’s also the additional piece of the preparation of the start of the World Cup 2026, which always adds another boost typically for a very large sporting event. Turning to Vestcom. Yes, certainly, our new customer that we want to continue and roll out during the first half will add substantially to what we believe Vestcom is going to sort of grow, again, high single to low double-digit growth for this year. It’s not the only customer they’ve won. They’re going to continue to make progress with some new customers and particularly on the media solutions side as we leverage this increasing scale of that network where we touch 60,000-plus stores to drive media sales for both CPGs and retailers themselves. And so when you look at our range overall, George, the upper end of our range, could it be stronger based on everything going away. Yes. But I’d just reinforce at the upper end of our range, we’re looking at 12% earnings growth overall. I think, John, did I capture all the questions there? I think I did, yes.

Thanks.

Thanks, George.

Thank you. Mr. Eble, there are no further questions at this time. I will now turn the call back to you for closing remarks.

Thanks, Jeanine. We are confident we will continue to make strong progress against our long-term goals in 2025. And with the overarching objective to deliver GDP-plus growth and top quartile returns, a recipe for strong EVA growth, making superior value creation possible. Thank you for joining today. This now concludes our call.

Ladies and gentlemen, that concludes the conference call for today. Thank you for your participation, and you may now disconnect.