Avery Dennison Corporation (AVY) Earnings & Analysis

Latest quarter

Avery Dennison’s third-quarter revenue beat the consensus by 1.24%, while adjusted earnings per share of $2.42 exceeded the $2.30 consensus estimate. Revenue rose to $2.3 billion from $2.2 billion a year earlier, and diluted earnings per share increased to $2.24 from $2.13.

The company’s filing attributed organic sales growth primarily to pricing actions and higher volume. CFO Greg Lovins said Materials Group sales reached $1.6 billion, with both base and high-value categories growing organically. He said Solutions Group’s base categories grew, while its high-value categories were comparable to the prior year.

Gross margin fell to 28.1% from 28.7%, and operating margin declined to 11.7% from 11.9%. Lovins said pricing to cover raw-material inflation reduced the margin percentage, while higher employee-related costs also weighed on Materials Group margins. Avery Dennison reported free cash flow of $245.8 million, compared with $273.0 million a year earlier.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Deon Stander said Materials Group sales came in ahead of expectations because customers reduced inventories more gradually than anticipated. He said destocking was ongoing and Avery Dennison expected most first-half pre-buy inventory to unwind by the end of the fourth quarter. In response to an analyst, CFO Greg Lovins said the remaining destocking was expected to come largely from Europe, while Asia was mostly through the process by the end of the third quarter.

Asked about customer demand, Stander said consumer-products companies and retailers remained cautious amid inflation. He said converters were not seeing signs of significant growth from consumer-products customers, while apparel retailers expected holiday growth to be driven largely by prices.

Stander said intelligent-label sales in apparel and general retail rose approximately 10.0% in the third quarter, helped by program expansions and a recovery in general retail. He said logistics sales declined by double digits as earlier share gains normalized and customer demand softened. Asked about grocery deployments, Stander said the Walmart Fresh program’s start had moved past the second half, with a commercial ramp expected in 2027; another large grocer was in an early commercial rollout.

On margins, Lovins told analysts that pricing to cover inflation reduced the Materials Group margin percentage, even as pricing and material re-engineering covered inflation in dollar terms. He said productivity and restructuring benefits supported Solutions Group margins and that the company expected a relatively stable raw-material basket from the third to fourth quarter, although uncertainty remained.

Asked about supply constraints, Stander said, “we’re not seeing any bottlenecks ourselves,” and that Avery Dennison continued to invest in the efficiency of its assets. He also said the company had generally gained Materials Group share across most regions since the previous year.

Guidance

Avery Dennison narrowed its FY2026 adjusted EPS guidance to $10.10–$10.24 and raised the midpoint. It also expects reported EPS of $9.45–$9.59, compared with its previous range.

Lovins said the company now targets full-year free cash flow conversion above 100.0%; its prior target was roughly 100.0%. He said Avery Dennison expects more incremental restructuring savings than previously projected.