Highlights:

• 2Q23 Net sales of $2.1 billion
  • Sales change ex. currency (non-GAAP) down 10%
  • Organic sales change (non-GAAP) down 10%
• 2Q23 Reported EPS of $1.24
  • Increased accrual for legacy legal matter; preparing for appeal
  • Adjusted EPS (non-GAAP) of $1.92, up 13% sequentially
• 3Q23 Reported EPS guidance of $1.70 to $1.90
  • Adjusted EPS guidance of $2.00 to $2.20

MENTOR, Ohio, July 25, 2023 – Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its second quarter ended July 1, 2023. Non-GAAP financial measures referenced in this release are reconciled from GAAP in the attached financial schedules. Unless otherwise indicated, comparisons are to the same period in the prior year.

“Earnings per share increased sequentially in the second quarter, a trend we expect to continue in coming quarters,” said Mitch Butier, Chairman and CEO. “Volumes in our Materials businesses continue to recover from slow market conditions, largely destocking, while our Intelligent Labels platform accelerates adoption into new categories.

"While it's good to see the continuing sequential improvements in our Materials businesses and the building momentum in Intelligent Labels, the pace of our recovery is slower than anticipated. Our results for the quarter were below our expectation due to lower revenue, something the team was able to largely offset through cost reduction actions,” Butier added.

“We remain confident this period of challenging results will soon pass. Our leadership positions in large diverse growing markets, the strategic foundations we have laid, and the dedication and expertise of our team positions us well to continue to deliver GDP+ growth and top-quartile returns over the long-run,” said Deon Stander, President and COO.

Second Quarter 2023 Results by Segment

Materials Group

• Reported sales decreased 13% to $1.5 billion. Sales were down 12% ex. currency and on an organic basis.
  • Label materials sales were down mid-teens on an organic basis.
    • Lower volume was driven primarily by inventory destocking.
    • Volume increased sequentially, particularly in Europe, as the negative impact of destocking moderated.
  • Sales increased by high-single digits organically in the Graphics and Reflective Solutions businesses.
  • Sales decreased by low-to-mid single digits organically in the combined Performance Tapes and Medical businesses.
• Reported operating margin decreased 150 basis points to 13.1%. Adjusted EBITDA margin (non-GAAP) was strong, increasing 150 basis points sequentially to 15.7%. Adjusted EBITDA margin decreased 100 basis points compared to prior year, as productivity initiatives and temporary cost-saving actions largely offset lower volume/mix.
• The company anticipates adjusted EBITDA margin will improve sequentially.

Solutions Group

• Reported sales decreased 7% to $615 million. Sales were down 4% ex. currency and 7% on an organic basis.
  • Sales in high-value categories were up low-single digits on an organic basis.
  • Sales were down high-teens organically in base solutions as retailer and brand sentiment remains muted.
• Reported operating margin decreased approximately 14 points to (1.2%) with an increased accrual for a legacy legal matter, which the company is preparing for appeal. Adjusted EBITDA margin decreased 320 basis points to 15.8% driven by lower volume and growth investments, partially offset by productivity initiatives and temporary cost-saving actions.
• The company anticipates adjusted EBITDA margin will improve sequentially.

Other

Balance Sheet and Capital Deployment

During the first half of the year, the company deployed $194 million for acquisitions and returned $216 million in cash to shareholders through a combination of dividends and share repurchases. The company repurchased 0.5 million shares at an aggregate cost of $90 million during the first half of the year. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down 0.8 million compared to the same time last year.

The company continues to deploy capital in a disciplined manner, executing its long-term capital allocation strategy. The company’s balance sheet remains strong. Net debt to adjusted EBITDA (non-GAAP) was 2.75x at the end of the second quarter.

Income Taxes

The company’s reported second quarter effective tax rate was 28.4%. The adjusted tax rate (non-GAAP) for the quarter was 25.5%.

The company’s 2023 adjusted tax rate is expected to be in the mid-twenty percent range based on current tax regulations.

Cost Reduction Actions

During the first half of the year, the company realized approximately $24 million in pre-tax savings from restructuring, net of transition costs, and incurred approximately $28 million in pre-tax restructuring charges.

Guidance

In its supplemental presentation materials, “Second Quarter 2023 Financial Review and Analysis”, the company provides a list of factors that it believes will contribute to its third quarter 2023 financial results. Based on the factors listed and other assumptions, the company expects third quarter 2023 reported earnings per share of $1.70 to $1.90.

Excluding an estimated $0.30 per share impact of restructuring charges and other items, the company expects third quarter 2023 adjusted earnings per share of $2.00 to $2.20.

For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, “Second Quarter 2023 Financial Review and Analysis,” posted on the company’s website at www.investors.averydennison.com, and furnished to the SEC on Form 8-K.

Throughout this release and the supplemental presentation materials, amounts on a per share basis reflect fully diluted shares outstanding.

###