Adhesive manufacturing company Avery Dennison (NYSE:AVY) met Wall Street’s revenue expectations in Q1 CY2025, but sales were flat year on year at $2.15 billion. Its non-GAAP profit of $2.30 per share was in line with analysts’ consensus estimates.
Revenue: $2.15 billion vs analyst estimates of $2.16 billion (flat year on year, in line)
Adjusted EPS: $2.30 vs analyst estimates of $2.31 (in line)
Adjusted EBITDA: $352.4 million vs analyst estimates of $353.4 million (16.4% margin, in line)
Adjusted EPS guidance for Q2 CY2025 is $2.40 at the midpoint, below analyst estimates of $2.58
Operating Margin: 11.9%, in line with the same quarter last year
Free Cash Flow was -$59.9 million, down from $64.1 million in the same quarter last year
Organic Revenue rose 2.3% year on year, in line with the same quarter last year
Market Capitalization: $13.46 billion
StockStory’s Take
Avery Dennison’s first quarter performance was shaped by consistent demand in its core Materials and Solutions Groups, with management citing high-value product categories and sequential margin expansion as key drivers. CEO Deon Stander highlighted strong organic growth in high-value segments such as graphics, reflective solutions, and industrial tapes, as well as a rebound in North American label volumes after prior-year destocking. The Solutions Group benefited from continued momentum in retail shelf-edge solutions and food labeling, offsetting softness in certain apparel-related categories.
Looking ahead, Avery Dennison’s forward guidance reflects caution amid increased macroeconomic and trade-related uncertainty. Management pointed to evolving tariffs, particularly those affecting Chinese apparel exports, as a primary reason for restricting visibility to quarterly guidance. CFO Gregory Lovins explained that tariff impacts and potential shifts in global sourcing strategies could pressure apparel demand and margins, prompting the company to activate scenario planning and cost containment measures. Stander noted, “It is more difficult to predict and forecast full-year results,” as the company balances investment in growth areas with proactive risk management.
Key Insights from Management’s Remarks
Avery Dennison’s management attributed the quarter’s steady results to targeted growth in high-value product lines, operational efficiency, and resilience in core markets. They also addressed evolving challenges in global trade policy and related impacts on customer demand, especially in apparel and logistics.
High-value category momentum: Management highlighted strong organic growth in high-value categories, including graphics, reflective solutions, and industrial tapes, which now represent over a third of Materials Group sales. These segments saw high single-digit growth, offsetting weaker base business performance.
Sequential recovery in North America: Label volume in North America improved from the prior year, aided by normalization of customer inventories and working capital. This helped stabilize Materials Group results despite softer demand in Europe and flat trends in China.
Solutions Group project execution: The Solutions Group delivered top-line and margin expansion, driven by the successful rollout of shelf-edge solutions (VESCOM) at CVS Health and ongoing pilots with major grocery retailers like Kroger. Apparel-related growth was mixed: core apparel rose mid-single digits, but certain personalized and sports categories faced declines due to program timing.
RFID and intelligent label outlook: Management emphasized continued progress in enterprise-wide intelligent labels, particularly in apparel and food, while logistics applications experienced expected declines. While new food pilots and compliance-driven retail programs are advancing, management does not anticipate another large-scale logistics rollout in 2025.
Tariff and macroeconomic headwinds: Leadership acknowledged elevated uncertainty from recent tariff changes, particularly affecting apparel labels for garments exported from China to the U.S. While direct cost impacts are considered manageable, the indirect effect on discretionary demand is less predictable, leading to a more cautious approach for the remainder of the year.
Drivers of Future Performance
Avery Dennison’s management expects near-term results to hinge on trade policy developments, apparel market demand, and the company’s ability to grow high-value categories while managing costs.
Tariff-driven apparel uncertainty: Management believes that ongoing U.S.-China tariff changes could continue to disrupt apparel label demand, with apparel sales expected to decline mid-single digits in the near term. The team is working with customers to facilitate supply chain shifts and is implementing pricing surcharges to offset direct input cost inflation.
Expansion in high-value categories: The company sees growth potential in intelligent labels, food labeling, and shelf-edge solutions, especially as adoption expands in grocery and general retail. Management is investing in these areas to diversify revenue streams and reduce exposure to cyclical end markets.
Proactive cost management: In response to macroeconomic uncertainty, management has activated scenario-based planning, including temporary cost controls and identification of structural actions if demand deteriorates. This approach is designed to protect margins and sustain free cash flow, even in a lower-volume environment.
Top Analyst Questions
Ghansham Panjabi (Baird): Asked whether recent tariff announcements prompted pre-buying or order shifts in apparel. Management clarified that no significant pull-forward occurred, but early Q2 apparel demand is trending lower as brands re-evaluate sourcing and pricing strategies under new tariffs.
John McNulty (BMO Capital Markets): Inquired about the rise in working capital and the company’s approach to mitigating low single-digit tariff impacts. CFO Gregory Lovins explained the increase was due to higher incentive and rebate payments, and tariff headwinds will be addressed through pricing surcharges and sourcing adjustments.
Jeffrey Zekauskas (JPMorgan): Questioned if the decline in apparel demand is mainly a China event and rationale for accelerating share buybacks amid limited visibility. Management attributed the apparel softness to China tariffs and justified buybacks based on valuation, noting the recent uncertainty emerged after the repurchases.
George Staphos (Bank of America): Probed Avery Dennison’s capacity to support customer supply chain shifts out of China and the outlook for intelligent label growth. Management said its global network can accommodate moderate shifts, but overall industry capacity remains a constraint; intelligent label programs remain on track except for apparel-related volatility.
Mike Roxland (Truist Securities): Sought details on competitive dynamics in intelligent labels for logistics and mitigation strategies for share erosion. CEO Deon Stander outlined innovation, process efficiency, and customer support as key levers to maintain majority share and support future logistics rollouts.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory team will monitor (1) the pace at which apparel brands adapt sourcing and pricing strategies in response to tariffs, (2) the execution and scaling of intelligent label pilots in food and retail, and (3) signs of margin resilience as cost control measures are deployed. The timing and impact of potential large-scale logistics customer rollouts and further macroeconomic developments will also be critical factors to track.
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