UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
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Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Section 2 - Financial Information
| Item 2.02 | Results of Operations and Financial Condition. |
Avery Dennison Corporation’s (the “Company’s”) press release, dated April 26, 2023, announcing the Company’s preliminary, unaudited financial results for the first quarter of 2023 and updated guidance for the 2023 fiscal year is attached hereto as Exhibit 99.1 and is being furnished (not filed) with this Form 8-K.
The Company’s supplemental presentation materials, dated April 26, 2023, regarding the Company’s preliminary, unaudited financial review and analysis for the first quarter of 2023 and updated guidance for the 2023 fiscal year is attached hereto as Exhibit 99.2 and is being furnished (not filed) with this Form 8-K. The press release and presentation materials are also available on the Company’s website at www.investors.averydennison.com.
The Company will discuss its preliminary, unaudited financial results during a webcast and teleconference to be held on April 26, 2023, at 1:00 p.m. ET. To access the webcast and teleconference, please go to the Company’s website at www.investors.averydennison.com.
Section 9 - Financial Statements and Exhibits
| Item 9.01 | Financial Statements and Exhibits. |
(d) Exhibits.
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this Form 8-K and the exhibits attached hereto are forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties.
The Company believes that the most significant risk factors that could affect its financial performance in the near term include: (i) the impacts to underlying demand for the Company’s products from global economic conditions, political uncertainty, and changes in environmental standards and governmental regulations; (ii) the cost and availability of raw materials; (iii) competitors’ actions, including pricing, expansion in key markets, and product offerings; (iv) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; (v) foreign currency fluctuations; and (vi) the execution and integration of acquisitions.
Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to, risks and uncertainties related to the following:
| • | International Operations – worldwide and local economic and market conditions; changes in political conditions, including those related to China and those related to the Russian invasion of Ukraine; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets |
| • | The Company’s Business – fluctuations in demand affecting sales to customers; fluctuations in the cost and availability of raw materials and energy; changes in the Company’s markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; the impact of competitive products and pricing; execution and integration of acquisitions; selling prices; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service |
| quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; the Company’s ability to generate sustained productivity improvement; the Company’s ability to achieve and sustain targeted cost reductions; collection of receivables from customers; our environmental, social and governance practices; and impacts from COVID-19 |
| • | Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets |
| • | Information Technology – disruptions in information technology systems or data security breaches, including cyber-attacks or other intrusions to network security; and successful installation of new or upgraded information technology systems |
| • | Human Capital – recruitment and retention of employees and collective labor arrangements |
| • | The Company’s Indebtedness – credit risks; the Company’s ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest rates; volatility of financial markets; and compliance with the Company’s debt covenants |
| • | Ownership of the Company’s Stock – potential significant variability of the Company’s stock price and amounts of future dividends and share repurchases |
| • | Legal and Regulatory Matters – protection and infringement of intellectual property; impact of legal and regulatory proceedings, including with respect to environmental, anti-corruption, health and safety, and trade compliance |
| • | Other Financial Matters – fluctuations in pension costs and goodwill impairment |
For a more detailed discussion of these factors, see Part I, Item 1A. “Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s 2022 Form 10-K, filed with the Securities and Exchange Commission on February 22, 2023. The forward-looking statements included in this Form 8-K are made only as of the date of this Form 8-K, and the Company undertakes no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.
EXHIBIT INDEX
| Exhibit |
Description | |
| 99.1 | Press release, dated April 26, 2023, announcing the Company’s preliminary, unaudited financial results for the first quarter of 2023. | |
| 99.2 | Supplemental presentation materials, dated April 26, 2023, regarding the Company’s preliminary, unaudited financial review and analysis for the first quarter of 2023. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| AVERY DENNISON CORPORATION | ||||||
| Date: April 26, 2023 | By: | /s/ Gregory S. Lovins | ||||
| Name: Gregory S. Lovins | ||||||
| Title: Senior Vice President and Chief Financial Officer | ||||||
Exhibit 99.1
For Immediate Release
AVERY DENNISON ANNOUNCES
FIRST QUARTER 2023 RESULTS
Highlights:
| ● | 1Q23 Reported EPS of $1.49 |
| ¡ | Adjusted EPS (non-GAAP) of $1.70, down 29% |
| ● | 1Q23 Net sales declined 12% to $2.1 billion |
| ¡ | Sales change ex. currency (non-GAAP) of (9%) |
| ¡ | Organic sales change (non-GAAP) of (9%) |
| ● | Revised FY 2023 EPS guidance |
| ¡ | Reported EPS of $8.35 to $8.70 (previously $8.85 to $9.25) |
| ¡ | Adjusted EPS of $8.85 to $9.20 (previously $9.15 to $9.55) |
MENTOR, Ohio, April 26, 2023 – Avery Dennison Corporation (NYSE:AVY) today announced preliminary, unaudited results for its first quarter ended April 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 were in line with our expectations for the first quarter, despite lower revenue due to higher-than-anticipated inventory destocking,” said Mitch Butier, Chairman and CEO. “We continue to expect a strong second half as the pace of destocking moderates and intelligent label programs accelerate. We have revised our guidance range for 2023 earnings per share to reflect a softer outlook for the second quarter.
“We remain confident that the consistent execution of our strategies will enable us to meet our long-term goals for superior value creation through a balance of profitable growth and capital discipline,” added Butier.
“Once again, I want to thank our entire team for continuing to raise their game to address the unique challenges at hand.”
First Quarter 2023 Results by Segment
Materials Group
| ● | Reported sales decreased 13% to $1.5 billion. Sales were down 9% ex. currency and on an organic basis. |
| ¡ | Label materials sales were down by low-double digits on an organic basis. |
| ∎ | Lower volume, driven by inventory destocking, was partially offset by pricing actions. |
| ∎ | On an organic basis, sales were down low-double digits in North America, high-single digits in Western Europe, and mid-to-high single digits in emerging markets. |
| ¡ | Sales increased by low-single digits organically in the Graphics and Reflective Solutions businesses. |
| ¡ | Sales increased by mid-single digits organically in the combined Performance Tapes and Medical businesses. |
| ● | Reported operating margin decreased 230 basis points to 11.0%. Adjusted EBITDA margin (non-GAAP) decreased 100 basis points to 14.2% driven by lower volume/mix, partially offset by benefits from the net impact of pricing and raw material input costs, and productivity. Adjusted EBITDA margin increased 140 basis points sequentially. |
| ● | The company anticipates label destocking to be largely complete by mid-year, and Materials Group adjusted EBITDA margin improving sequentially throughout 2023. |
Solutions Group
| ● | Reported sales decreased 11% to $605 million. Sales were down 8% ex. currency and 9% on an organic basis. |
| ¡ | Sales in high-value categories were up low-single digits on an organic basis. |
| ¡ | Sales decreased by roughly 20% organically in base solutions as customers adjusted inventory levels. |
| ¡ | Enterprise-wide Intelligent Labels sales were up low-single digits on an organic basis. |
| ● | Reported operating margin decreased 480 basis points to 8.5%. Adjusted EBITDA margin decreased 340 basis points to 15.7% driven by lower volume. |
| ● | The company anticipates apparel volume to rebound in the second half of 2023; throughout the year, Intelligent Labels programs are expected to accelerate and Solutions Group adjusted EBITDA margin to sequentially improve. |
| ● | The company announced an agreement to acquire Lion Brothers, a leading designer and manufacturer of apparel brand embellishments with sales of approximately $65 million in 2022. |
Other
Balance Sheet and Capital Deployment
In March, the company issued $400 million of 5.75% Senior Notes due 2033. The company used the net proceeds from the offering to repay existing indebtedness under the company’s commercial paper programs and to repay the $250 million aggregate principal amount of 3.35% Senior Notes that was due April 15, 2023.
During the first quarter, the company deployed $44 million for acquisitions and returned $112 million in cash to shareholders through a combination of dividends and share repurchases. The company repurchased 0.3 million shares at an aggregate cost of $51 million. Net of dilution from long-term incentive awards, the company’s share count at the end of the quarter was down 1.3 million compared to the same time last year.
The company’s balance sheet remains strong, with ample capacity to continue executing its long-term capital allocation strategy. Net debt to adjusted EBITDA (non-GAAP) was 2.5 at the end of the first quarter.
Income Taxes
The company’s reported first-quarter effective tax rate was 28.0%. 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 quarter, the company realized approximately $9 million in pre-tax savings from restructuring, net of transition costs, and incurred pre-tax restructuring charges of approximately $18 million.
Guidance
In its supplemental presentation materials, “Financial Review and Analysis First Quarter 2023,” the company provides a list of factors that it believes will contribute to its 2023 financial results. Based on the factors listed and other assumptions, the company has revised its guidance range for 2023 reported earnings per share from $8.85 to $9.25 to $8.35 to $8.70.
Excluding an estimated $0.50 per share related to restructuring charges and other items, the company revised its guidance range for adjusted earnings per share from $9.15 to $9.55 to $8.85 to $9.20.
For more details on the company’s results, see the summary tables accompanying this news release, as well as the supplemental presentation materials, “Financial Review and Analysis First Quarter 2023,” 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.
About Avery Dennison
Avery Dennison Corporation (NYSE: AVY) is a global materials science and digital identification solutions company that provides branding and information labeling solutions, including pressure-sensitive materials, radio-frequency identification (RFID) inlays and tags, and a variety of converted products and solutions. The company designs and manufactures a wide range of labeling and functional materials that enhance branded packaging, carry or display information that connects the physical and the digital, and improve customers’ product performance. The company serves an array of industries worldwide, including home and personal care, apparel, e-commerce, logistics, food and grocery, pharmaceuticals and automotive. The company employs approximately 36,000 employees in more than 50 countries. Reported sales in 2022 were $9.0 billion. Learn more at www.averydennison.com.
# # #
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this document are “forward-looking statements” intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties.
We believe that the most significant risk factors that could affect our financial performance in the near term include: (i) the impacts to underlying demand for our products from global economic conditions, political uncertainty, and changes in environmental standards and governmental regulations; (ii) the cost and availability of raw materials; (iii) competitors’ actions, including pricing, expansion in key markets, and product offerings; (iv) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; (v) foreign currency fluctuations; and (vi) the execution and integration of acquisitions.
Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to, risks and uncertainties related to the following:
| ● | International Operations – worldwide and local economic and market conditions; changes in political conditions, including those related to China and those related to the Russian invasion of Ukraine; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets |
| ● | Our Business – fluctuations in demand affecting sales to customers; fluctuations in the cost and availability of raw materials and energy; changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; the impact of competitive products and pricing; execution and integration of acquisitions; selling prices; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; collection of receivables from customers; our environmental, social and governance practices; and impacts from COVID-19 |
| ● | Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets |
| ● | Information Technology – disruptions in information technology systems or data security breaches, including cyber-attacks or other intrusions to network security; and successful installation of new or upgraded information technology systems |
| ● | Human Capital – recruitment and retention of employees and collective labor arrangements |
| ● | Our Indebtedness – credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest rates; volatility of financial markets; and compliance with our debt covenants |
| ● | Ownership of Our Stock – potential significant variability of our stock price and amounts of future dividends and share repurchases |
| ● | Legal and Regulatory Matters – protection and infringement of intellectual property; impact of legal and regulatory proceedings, including with respect to environmental, anti-corruption, health and safety, and trade compliance |
| ● | Other Financial Matters – fluctuations in pension costs and goodwill impairment |
For a more detailed discussion of these factors, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K, filed with the Securities and Exchange Commission on February 22, 2023.
The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law.
For more information and to listen to a live broadcast or an audio replay of the quarterly conference call with analysts, visit the Avery Dennison website at www.investors.averydennison.com
Contacts:
Media Relations:
Kristin Robinson (626) 304-4592
kristin.robinson@averydennison.com
Investor Relations:
John Eble (440) 534-6290
john.eble@averydennison.com
| First Quarter Financial Summary - Preliminary, unaudited |
|
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| (In millions, except % and per share amounts) |
|
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| 1Q | 1Q | % Sales Change vs. PY | ||||||||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Reported | Ex. Currency | Organic | ||||||||||||||||||||||||||||||||||||||||||||
| (a) | (b) | |||||||||||||||||||||||||||||||||||||||||||||||
| Net sales, by segment: |
||||||||||||||||||||||||||||||||||||||||||||||||
| Materials Group |
$1,460.5 | $1,670.3 | (12.6%) | (9.3%) | (9.3%) | |||||||||||||||||||||||||||||||||||||||||||
| Solutions Group |
604.5 | 679.0 | (11.0%) | (8.3%) | (8.9%) | |||||||||||||||||||||||||||||||||||||||||||
|
|
|
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| Total net sales |
$2,065.0 | $2,349.3 | (12.1%) | (9.1%) | (9.2%) | |||||||||||||||||||||||||||||||||||||||||||
| As Reported (GAAP) | Adjusted Non-GAAP (c) | |||||||||||||||||||||||||||||||||||||||||||||||
| 1Q | 1Q | % | % of Sales | 1Q | 1Q | % | % of Sales | |||||||||||||||||||||||||||||||||||||||||
| 2023 | 2022 | Change | 2023 | 2022 | 2023 | 2022 | Change | 2023 | 2022 | |||||||||||||||||||||||||||||||||||||||
| Operating income (loss) / operating margins before interest, other non-operating expense (income), and taxes, by segment: |
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| Materials Group |
$160.5 | $222.8 | 11.0% | 13.3% | $174.8 | $219.6 | 12.0% | 13.1% | ||||||||||||||||||||||||||||||||||||||||
| Solutions Group |
51.5 | 90.3 | 8.5% | 13.3% | 55.1 | 91.9 | 9.1% | 13.5% | ||||||||||||||||||||||||||||||||||||||||
| Corporate expense (d) |
(21.9) | (25.2) | (22.0) | (25.2) | ||||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
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| Total operating income / operating margins before interest, other non-operating expense (income), and taxes |
$190.1 | $287.9 | (34%) | 9.2% | 12.3% | $207.9 | $286.3 | (27%) | 10.1% | 12.2% | ||||||||||||||||||||||||||||||||||||||
| Interest expense |
$26.4 | $19.6 | $26.4 | $19.6 | ||||||||||||||||||||||||||||||||||||||||||||
| Other non-operating expense (income), net |
($4.6) | ($1.4) | ($4.6) | ($1.4) | ||||||||||||||||||||||||||||||||||||||||||||
| Income before taxes |
$168.3 | $269.7 | (38%) | 8.2% | 11.5% | $186.1 | $268.1 | (31%) | 9.0% | 11.4% | ||||||||||||||||||||||||||||||||||||||
| Provision for income taxes |
$47.1 | $71.5 | $47.5 | $68.6 | ||||||||||||||||||||||||||||||||||||||||||||
| Net income |
$121.2 | $198.2 | (39%) | 5.9% | 8.4% | $138.6 | $199.5 | (31%) | 6.7% | 8.5% | ||||||||||||||||||||||||||||||||||||||
| Net income per common share, assuming dilution |
$1.49 | $2.39 | (38%) | $1.70 | $2.40 | (29%) | ||||||||||||||||||||||||||||||||||||||||||
| Free Cash Flow (e) |
($71.2) | $73.3 | ||||||||||||||||||||||||||||||||||||||||||||||
| Adjusted EBITDA: |
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| Materials Group |
$207.5 | $254.1 | 14.2% | 15.2% | ||||||||||||||||||||||||||||||||||||||||||||
| Solutions Group |
$94.7 | $129.4 | 15.7% | 19.1% | ||||||||||||||||||||||||||||||||||||||||||||
Previously reported segment results have been recast to reflect our new operating structure.
See accompanying schedules A-4 to A-8 for reconciliations of non-GAAP financial measures from GAAP.
| (a) | Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation and the reclassification of sales between segments, and, where applicable, an extra week in our fiscal year and the calendar shift resulting from the extra week in the prior fiscal year, and currency adjustment for transitional reporting of highly inflationary economies. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. |
| (b) | Organic sales change refers to sales change ex. currency, excluding the estimated impact of acquisitions and product line divestitures. |
| (c) | Excluded impact of restructuring charges and other items. |
| (d) | As reported “Corporate expense” for the first quarter of 2023 included severance and related costs of ($.1). |
| (e) | Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for, where applicable, certain acquisition-related transaction costs. |
A-1
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share amounts)
| (UNAUDITED) | ||||||||
| Three Months Ended | ||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | |||||||
| Net sales |
$ | 2,065.0 | $ | 2,349.3 | ||||
| Cost of products sold |
1,522.7 | 1,708.0 | ||||||
| Gross profit |
542.3 | 641.3 | ||||||
| Marketing, general and administrative expense |
334.4 | 355.0 | ||||||
| Other expense (income), net(1) |
17.8 | (1.6 | ) | |||||
| Interest expense |
26.4 | 19.6 | ||||||
| Other non-operating expense (income), net |
(4.6 | ) | (1.4 | ) | ||||
| Income before taxes |
168.3 | 269.7 | ||||||
| Provision for income taxes |
47.1 | 71.5 | ||||||
| Net income |
$ | 121.2 | $ | 198.2 | ||||
| Per share amounts: |
||||||||
| Net income per common share, assuming dilution |
$ | 1.49 | $ | 2.39 | ||||
| Weighted average number of common shares outstanding, assuming dilution |
81.5 | 83.0 | ||||||
| (1) | “Other expense (income), net” for the first quarter of 2023 includes severance and related costs of $17.1, asset impairment charges of $.5, and transaction and related costs of $.2. |
“Other expense (income), net” for the first quarter of 2022 includes gain on venture investment of $3.7, partially offset by outcome of legal proceedings of $1, severance and related costs of $.9, and transaction and related costs of $.2.
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A-2
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions)
| (UNAUDITED) | ||||||||
| ASSETS | Apr. 1, 2023 | Apr. 2, 2022 | ||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 351.3 | $ | 147.1 | ||||
| Trade accounts receivable, net |
1,369.1 | 1,551.4 | ||||||
| Inventories |
1,050.6 | 960.9 | ||||||
| Other current assets |
218.2 | 234.9 | ||||||
| Total current assets |
2,989.2 | 2,894.3 | ||||||
| Property, plant and equipment, net |
1,565.6 | 1,477.5 | ||||||
| Goodwill and other intangibles resulting from business acquisitions, net |
2,720.6 | 2,800.8 | ||||||
| Deferred tax assets |
118.3 | 128.8 | ||||||
| Other assets |
828.6 | 837.4 | ||||||
| $ | 8,222.3 | $ | 8,138.8 | |||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||
| Current liabilities: |
||||||||
| Short-term borrowings and current portion of long-term debt and finance leases |
$ | 648.3 | $ | 494.9 | ||||
| Accounts payable |
1,236.2 | 1,372.5 | ||||||
| Other current liabilities |
759.2 | 855.8 | ||||||
| Total current liabilities |
2,643.7 | 2,723.2 | ||||||
| Long-term debt and finance leases |
2,910.8 | 2,773.8 | ||||||
| Other long-term liabilities |
624.9 | 709.3 | ||||||
| Shareholders’ equity: |
||||||||
| Common stock |
124.1 | 124.1 | ||||||
| Capital in excess of par value |
850.8 | 844.6 | ||||||
| Retained earnings |
4,486.4 | 4,023.2 | ||||||
| Treasury stock at cost |
(3,057.4 | ) | (2,799.4 | ) | ||||
| Accumulated other comprehensive loss |
(361.0 | ) | (260.0 | ) | ||||
| Total shareholders’ equity |
2,042.9 | 1,932.5 | ||||||
| $ | 8,222.3 | $ | 8,138.8 | |||||
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A-3
AVERY DENNISON CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
| (UNAUDITED) | ||||||||||||
| Three Months Ended | ||||||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | |||||||||||
| Operating Activities |
|
|||||||||||
| Net income |
$ | 121.2 | $ | 198.2 | ||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation |
44.8 | 43.8 | ||||||||||
| Amortization |
27.5 | 28.2 | ||||||||||
| Provision for credit losses and sales returns |
10.6 | 16.1 | ||||||||||
| Stock-based compensation |
10.5 | 11.1 | ||||||||||
| Deferred taxes and other non-cash taxes |
(4.5 | ) | 1.9 | |||||||||
| Other non-cash expense and loss (income and gain), net |
10.1 | 6.5 | ||||||||||
| Changes in assets and liabilities and other adjustments |
(218.3 | ) | (179.6 | ) | ||||||||
| Net cash provided by operating activities |
1.9 | 126.2 | ||||||||||
| Investing Activities |
||||||||||||
| Purchases of property, plant and equipment |
(64.5 | ) | (49.7 | ) | ||||||||
| Purchases of software and other deferred charges |
(5.3 | ) | (5.6 | ) | ||||||||
| Proceeds from sales of property, plant and equipment |
0.2 | 0.3 | ||||||||||
| Proceeds from insurance and sales (purchases) of investments, net |
(3.5 | ) | 1.8 | |||||||||
| Payments for acquisitions, net of cash acquired, and venture investments |
(43.5 | ) | (33.4 | ) | ||||||||
| Net cash used in investing activities |
(116.6 | ) | (86.6 | ) | ||||||||
| Financing Activities |
||||||||||||
| Net increase (decrease) in borrowings with maturities of three months or less |
42.9 | 179.4 | ||||||||||
| Additional long-term borrowings |
394.9 | --- | ||||||||||
| Repayments of long-term debt and finance leases |
(1.4 | ) | (1.9 | ) | ||||||||
| Dividends paid |
(60.8 | ) | (56.2 | ) | ||||||||
| Share repurchases |
(50.7 | ) | (151.5 | ) | ||||||||
| Net (tax withholding) proceeds related to stock-based compensation |
(23.6 | ) | (24.9 | ) | ||||||||
| Other |
(1.5 | ) | --- | |||||||||
| Net cash provided by (used in) financing activities |
299.8 | (55.1 | ) | |||||||||
| Effect of foreign currency translation on cash balances |
(1.0 | ) | (0.1 | ) | ||||||||
| Increase (decrease) in cash and cash equivalents |
184.1 | (15.6 | ) | |||||||||
| Cash and cash equivalents, beginning of year |
167.2 | 162.7 | ||||||||||
| Cash and cash equivalents, end of period |
$ | 351.3 | $ | 147.1 | ||||||||
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A-4
Reconciliation of Non-GAAP Financial Measures from GAAP
We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement the presentation of our financial results prepared in accordance with GAAP. Based on feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessments of our performance and operating trends, as well as liquidity.
Our non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it more difficult to assess our underlying performance in a single period. By excluding the accounting effects, positive or negative, of certain items (e.g., restructuring charges, outcomes of certain legal proceedings, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, gains or losses on venture investments and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency or timing.
We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for quarters and year-to-date periods, as applicable.
We use the non-GAAP financial measures described below in the accompanying news release.
Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation and the reclassification of sales between segments, and, where applicable, an extra week in our fiscal year and the calendar shift resulting from the extra week in the prior fiscal year, and currency adjustment for transitional reporting of highly inflationary economies. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations.
Organic sales change refers to sales change ex. currency, excluding the estimated impact of acquisitions and product line divestitures.
We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period.
Adjusted operating income refers to net income adjusted for taxes; other expense (income), net; interest expense and other non-operating expense (income), net.
Adjusted EBITDA refers to adjusted operating income before depreciation and amortization.
Adjusted operating margin refers to adjusted operating income as a percentage of net sales.
Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net sales.
Adjusted tax rate refers to the projected full-year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to significantly impact that rate, such as effects of certain discrete tax planning actions, impacts related to enactments of comprehensive tax law changes, and other items.
Adjusted net income refers to income before taxes, tax-effected at the adjusted tax rate, and adjusted for tax-effected restructuring charges and other items.
Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by the weighted average number of common shares outstanding, assuming dilution.
We believe that adjusted operating margin, adjusted EBITDA margin, adjusted net income, and adjusted EPS assist investors in understanding our core operating trends and comparing our results with those of our competitors.
Net debt to adjusted EBITDA ratio refers to total debt (including finance leases) less cash and cash equivalents, divided by adjusted EBITDA for the last twelve months. We believe that the net debt to adjusted EBITDA ratio assists investors in assessing our leverage position.
Free cash flow refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for, where applicable, certain acquisition-related transaction costs. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions.
Reconciliations are provided in accordance with Regulations G and S-K and reconcile our non-GAAP financial measures with the most directly comparable GAAP financial measures.
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A-5
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION OF NON-GAAP FINANCIAL MEASURES FROM GAAP
(In millions, except % and per share amounts)
| (UNAUDITED) | ||||||
| Three Months Ended | ||||||
| Apr. 1, 2023 | Apr. 2, 2022 | |||||
| Reconciliation of non-GAAP operating margins from GAAP: |
||||||
| Net sales |
$ | 2,065.0 | $ 2,349.3 | |||
|
|
| |||||
| Income before taxes |
$ | 168.3 | $ 269.7 | |||
| Income before taxes as a percentage of net sales |
8.2 | % | 11.5% | |||
| Adjustments: |
||||||
| Interest expense |
$ | 26.4 | $ 19.6 | |||
| Other non-operating expense (income), net |
(4.6 | ) | (1.4) | |||
|
|
| |||||
| Operating income before interest expense, other non-operating expense (income) and taxes |
$ | 190.1 | $ 287.9 | |||
| Operating margins |
9.2 | % | 12.3% | |||
| As reported net income |
$ | 121.2 | $ 198.2 | |||
| Adjustments: |
||||||
| Restructuring charges: |
||||||
| Severance and related costs |
17.1 | 0.9 | ||||
| Asset impairment charges |
0.5 | --- | ||||
| Transaction and related costs |
0.2 | 0.2 | ||||
| Outcome of legal proceedings |
--- | 1.0 | ||||
| Gain on venture investment |
--- | (3.7) | ||||
| Interest expense |
26.4 | 19.6 | ||||
| Other non-operating expense (income), net |
(4.6 | ) | (1.4) | |||
| Provision for income taxes |
47.1 | 71.5 | ||||
|
|
| |||||
| Adjusted operating income (non-GAAP) |
$ | 207.9 | $ 286.3 | |||
| Adjusted operating margins (non-GAAP) |
10.1 | % | 12.2% | |||
| Depreciation and amortization |
72.3 | 72.0 | ||||
| Adjusted EBITDA (non-GAAP) |
280.2 | 358.3 | ||||
| Adjusted EBITDA margins (non-GAAP) |
13.6 | % | 15.3% | |||
| Reconciliation of non-GAAP net income from GAAP: |
||||||
| As reported net income |
$ | 121.2 | $ 198.2 | |||
| Adjustments: |
||||||
| Restructuring charges and other items(1) |
17.8 | (1.6) | ||||
| Tax effect on restructuring charges and other items and impact of adjusted tax rate |
(0.4 | ) | 2.9 | |||
| Adjusted net income (non-GAAP) |
$ | 138.6 | $ 199.5 | |||
| (1) | Included pretax restructuring charges, transaction and related costs, outcomes of legal proceedings, and gain on venture investment. |
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A-5
(continued)
AVERY DENNISON CORPORATION
PRELIMINARY RECONCILIATION OF NON-GAAP FINANCIAL MEASURES FROM GAAP
(In millions, except % and per share amounts)
| (UNAUDITED) | ||||||||
| Three Months Ended | ||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | |||||||
| Reconciliation of non-GAAP net income per common share from GAAP: |
||||||||
| As reported net income per common share, assuming dilution |
$ | 1.49 | $ | 2.39 | ||||
| Adjustments per common share, net of tax: |
||||||||
| Restructuring charges and other items(1) |
0.22 | (0.02 | ) | |||||
| Tax effect on restructuring charges and other items and impact of adjusted tax rate |
(0.01 | ) | 0.03 | |||||
| Adjusted net income per common share, assuming dilution (non-GAAP) |
$ | 1.70 | $ | 2.40 | ||||
| Weighted average number of common shares outstanding, assuming dilution |
81.5 | 83.0 | ||||||
Our adjusted tax rate was 25.5% and 25.6% for the three months ended April 1, 2023 and April 2, 2022, respectively.
| (1) | Included pretax restructuring charges, transaction and related costs, outcomes of legal proceedings, and gain on venture investment. |
| (UNAUDITED) | ||||||||
| Three Months Ended | ||||||||
| Apr. 1, 2023 | Apr. 2, 2022 | |||||||
| Reconciliation of free cash flow: |
||||||||
| Net cash provided by operating activities |
$ | 1.9 | $ | 126.2 | ||||
| Purchases of property, plant and equipment |
(64.5 | ) | (49.7 | ) | ||||
| Purchases of software and other deferred charges |
(5.3 | ) | (5.6 | ) | ||||
| Proceeds from sales of property, plant and equipment |
0.2 | 0.3 | ||||||
| Proceeds from insurance and sales (purchases) of investments, net |
(3.5 | ) | 1.8 | |||||
| Payments for certain acquisition-related transaction costs |
--- | 0.3 | ||||||
| Free cash flow (non-GAAP) |
$ | (71.2 | ) | $ | 73.3 | |||
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A-6
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions, except %)
(UNAUDITED)
| First Quarter Ended | ||||||||||||||||||||||||||||||||
| NET SALES | OPERATING INCOME (LOSS) | OPERATING MARGINS | ||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||
| Materials Group |
$ | 1,460.5 | $ | 1,670.3 | $ | 160.5 | $ | 222.8 | 11.0 | % | 13.3 | % | ||||||||||||||||||||
| Solutions Group |
604.5 | 679.0 | 51.5 | 90.3 | 8.5 | % | 13.3 | % | ||||||||||||||||||||||||
| Corporate Expense |
N/A | N/A | (21.9 | ) | (25.2 | ) | N/A | N/A | ||||||||||||||||||||||||
| TOTAL FROM OPERATIONS |
$ | 2,065.0 | $ | 2,349.3 | $ | 190.1 | $ | 287.9 | 9.2 | % | 12.3 | % | ||||||||||||||||||||
RECONCILIATION OF NON-GAAP SUPPLEMENTARY INFORMATION FROM GAAP
| First Quarter Ended | ||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| Materials Group |
||||||||||||||||||||
| Operating income and margins, as reported |
$ | 160.5 | $ | 222.8 | 11.0 | % | 13.3% | |||||||||||||
| Adjustments: |
||||||||||||||||||||
| Restructuring charges: |
||||||||||||||||||||
| Severance and related costs |
14.3 | 0.5 | 1.0 | % | --- | |||||||||||||||
| Gain on venture investment |
--- | (3.7 | ) | --- | (0.2%) | |||||||||||||||
| Adjusted operating income and margins (non-GAAP) |
$ | 174.8 | $ | 219.6 | 12.0 | % | 13.1% | |||||||||||||
| Depreciation and amortization |
32.7 | 34.5 | 2.2 | % | 2.1% | |||||||||||||||
| Adjusted EBITDA and margins (non-GAAP) |
$ | 207.5 | $ | 254.1 | 14.2 | % | 15.2% | |||||||||||||
| Solutions Group |
||||||||||||||||||||
| Operating income and margins, as reported |
$ | 51.5 | $ | 90.3 | 8.5 | % | 13.3% | |||||||||||||
| Adjustments: |
||||||||||||||||||||
| Restructuring charges: |
||||||||||||||||||||
| Severance and related costs |
2.9 | 0.4 | 0.5 | % | 0.1% | |||||||||||||||
| Asset impairment charges |
0.5 | --- | 0.1 | % | --- | |||||||||||||||
| Transaction and related costs |
0.2 | 0.2 | --- | --- | ||||||||||||||||
| Outcome of legal proceedings |
--- | 1.0 | --- | 0.1% | ||||||||||||||||
| Adjusted operating income and margins (non-GAAP) |
$ | 55.1 | $ | 91.9 | 9.1 | % | 13.5% | |||||||||||||
| Depreciation and amortization |
39.6 | 37.5 | 6.6 | % | 5.6% | |||||||||||||||
| Adjusted EBITDA and margins (non-GAAP) |
$ | 94.7 | $ | 129.4 | 15.7 | % | 19.1% | |||||||||||||
Previously reported segment results have been recast to reflect our new operating structure.
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A-7
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(In millions, except ratios)
(UNAUDITED)
| QTD | ||||||||||||||||
| 2Q22 | 3Q22 | 4Q22 | 1Q23 | |||||||||||||
| Reconciliation of adjusted EBITDA from GAAP: |
||||||||||||||||
| As reported net income |
$ | 214.5 | $ | 221.5 | $ | 122.9 | $ | 121.2 | ||||||||
| Other expense (income), net |
3.4 | (3.9) | 1.5 | 17.8 | ||||||||||||
| Interest expense |
20.8 | 21.2 | 22.5 | 26.4 | ||||||||||||
| Other non-operating expense (income), net |
(1.3) | (1.4) | (5.3) | (4.6) | ||||||||||||
| Provision for income taxes |
73.4 | 51.0 | 46.3 | 47.1 | ||||||||||||
| Depreciation and amortization |
73.2 | 72.0 | 73.5 | 72.3 | ||||||||||||
| Adjusted EBITDA (non-GAAP) |
$ | 384.0 | $ | 360.4 | $ | 261.4 | $ | 280.2 | ||||||||
|
|
||||||||||||||||
| Total Debt |
$ | 3,559.1 | ||||||||||||||
| Less: Cash and cash equivalents |
351.3 | |||||||||||||||
| Net Debt |
$ | 3,207.8 | ||||||||||||||
| Net Debt to Adjusted EBITDA LTM* (non-GAAP) |
2.5 | |||||||||||||||
*LTM = Last twelve months (2Q22 to 1Q23)
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A-8
AVERY DENNISON CORPORATION
PRELIMINARY SUPPLEMENTARY INFORMATION
(UNAUDITED)
| First Quarter 2023 | ||||||||||||
| Total Company |
Materials Group |
Solutions Group |
||||||||||
| Reconciliation of organic sales change from GAAP: |
||||||||||||
| Reported net sales change |
(12.1%) | (12.6%) | (11.0%) | |||||||||
| Reclassification of sales between segments |
--- | 0.2% | (0.4%) | |||||||||
| Foreign currency translation |
3.1% | 3.0% | 3.1% | |||||||||
| Sales change ex. currency (non-GAAP)(1) |
(9.1%) | (9.3%) | (8.3%) | |||||||||
| Acquisitions |
(0.2%) | --- | (0.6%) | |||||||||
| Organic sales change (non-GAAP)(1) |
(9.2%) | (9.3%) | (8.9%) | |||||||||
(1) Totals may not sum due to rounding.
Exhibit 99.2 First Quarter 2023 Financial Review and Analysis (preliminary, unaudited) April 26, 2023 Supplemental Presentation Materials Unless otherwise indicated, comparisons are to the same period in the prior year. April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 1
Safe Harbor Statement Certain statements contained in this document are forward-looking statements intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements, and financial or other business targets, are subject to certain risks and uncertainties. We believe that the most significant risk factors that could affect our financial performance in the near term include: (i) the impacts to underlying demand for our products from global economic conditions, political uncertainty, and changes in environmental standards and governmental regulations; (ii) the cost and availability of raw materials; (iii) competitors' actions, including pricing, expansion in key markets, and product offerings; (iv) the degree to which higher costs can be offset with productivity measures and/or passed on to customers through price increases, without a significant loss of volume; (v) foreign currency fluctuations; and (vi) the execution and integration of acquisitions. Actual results and trends may differ materially from historical or anticipated results depending on a variety of factors, including but not limited to, risks and uncertainties related to the following: ● International Operations – worldwide and local economic and market conditions; changes in political conditions, including those related to China and those related to the Russian invasion of Ukraine; and fluctuations in foreign currency exchange rates and other risks associated with foreign operations, including in emerging markets ● Our Business – fluctuations in demand affecting sales to customers; fluctuations in the cost and availability of raw materials and energy; changes in our markets due to competitive conditions, technological developments, environmental standards, laws and regulations, and customer preferences; the impact of competitive products and pricing; execution and integration of acquisitions; selling prices; customer and supplier concentrations or consolidations; financial condition of distributors; outsourced manufacturers; product and service quality; timely development and market acceptance of new products, including sustainable or sustainably-sourced products; investment in development activities and new production facilities; successful implementation of new manufacturing technologies and installation of manufacturing equipment; our ability to generate sustained productivity improvement; our ability to achieve and sustain targeted cost reductions; collection of receivables from customers; our environmental, social and governance practices; and impacts from COVID-19 ● Income Taxes – fluctuations in tax rates; changes in tax laws and regulations, and uncertainties associated with interpretations of such laws and regulations; retention of tax incentives; outcome of tax audits; and the realization of deferred tax assets ● Information Technology – disruptions in information technology systems or data security breaches, including cyber-attacks or other intrusions to network security; and successful installation of new or upgraded information technology systems ● Human Capital – recruitment and retention of employees and collective labor arrangements ● Our Indebtedness – credit risks; our ability to obtain adequate financing arrangements and maintain access to capital; fluctuations in interest rates; volatility of financial markets; and compliance with our debt covenants ● Ownership of Our Stock – potential significant variability of our stock price and amounts of future dividends and share repurchases ● Legal and Regulatory Matters – protection and infringement of intellectual property; impact of legal and regulatory proceedings, including with respect to environmental, anti-corruption, health and safety, and trade compliance ● Other Financial Matters – fluctuations in pension costs and goodwill impairment For a more detailed discussion of these factors, see “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Form 10-K, filed with the Securities and Exchange Commission on February 22, 2023. The forward-looking statements included in this document are made only as of the date of this document, and we undertake no obligation to update these statements to reflect subsequent events or circumstances, other than as may be required by law. April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 2
Use of Non-GAAP Financial Measures This presentation contains certain non-GAAP financial measures as defined by SEC rules. We report our financial results in conformity with accounting principles generally accepted in the United States of America, or GAAP, and also communicate with investors using certain non-GAAP financial measures. These non-GAAP financial measures are not in accordance with, nor are they a substitute for or superior to, the comparable GAAP financial measures. These non-GAAP financial measures are intended to supplement the presentation of our financial results prepared in accordance with GAAP. Based on feedback from investors and financial analysts, we believe that the supplemental non-GAAP financial measures we provide are useful to their assessments of our performance and operating trends, as well as liquidity. In accordance with Regulations G and S-K, reconciliations of non-GAAP financial measures from the most directly comparable GAAP financial measures, including limitations associated with these non-GAAP financial measures, are provided in the appendix to this document and/or financial schedules accompanying the earnings news release for the quarter (see Attachments A-4 through A-8 to news release dated April 26, 2023). Our non-GAAP financial measures exclude the impact of certain events, activities or strategic decisions. The accounting effects of these events, activities or decisions, which are included in the GAAP financial measures, may make it more difficult to assess our underlying performance in a single period. By excluding the accounting effects, positive or negative, of certain items (e.g., restructuring charges, outcomes of certain legal proceedings, certain effects of strategic transactions and related costs, losses from debt extinguishments, gains or losses from curtailment or settlement of pension obligations, gains or losses on sales of certain assets, gains or losses on venture investments and other items), we believe that we are providing meaningful supplemental information that facilitates an understanding of our core operating results and liquidity measures. While some of the items we exclude from GAAP financial measures recur, they tend to be disparate in amount, frequency or timing. We use these non-GAAP financial measures internally to evaluate trends in our underlying performance, as well as to facilitate comparison to the results of competitors for quarters and year-to-date periods, as applicable. We use the non-GAAP financial measures described below in this presentation. • Sales change ex. currency refers to the increase or decrease in net sales, excluding the estimated impact of foreign currency translation and the reclassification of sales between segments, and, where applicable, an extra week in our fiscal year and the calendar shift resulting from the extra week in the prior fiscal year, and currency adjustment for transitional reporting of highly inflationary economies. The estimated impact of foreign currency translation is calculated on a constant currency basis, with prior period results translated at current period average exchange rates to exclude the effect of currency fluctuations. • Organic sales change refers to sales change ex. currency, excluding the estimated impact of acquisitions and product line divestitures. We believe that sales change ex. currency and organic sales change assist investors in evaluating the sales change from the ongoing activities of our businesses and enhance their ability to evaluate our results from period to period. We believe that the following measures assist investors in understanding our core operating trends and comparing our results with those of our competitors. • Adjusted operating income refers to net income adjusted for taxes; other expense (income), net; interest expense and other non-operating expense (income), net. • Adjusted EBITDA refers to adjusted operating income before depreciation and amortization. • Adjusted operating margin refers to adjusted operating income as a percentage of net sales. • Adjusted EBITDA margin refers to adjusted EBITDA as a percentage of net sales. • Adjusted tax rate refers to the projected full-year GAAP tax rate, adjusted to exclude certain unusual or infrequent events that are expected to significantly impact that rate, such as effects of certain discrete tax planning actions, impacts related to enactments of comprehensive tax law changes, and other items. • Adjusted net income refers to income before taxes, tax-effected at the adjusted tax rate, and adjusted for tax-effected restructuring charges and other items. • Adjusted net income per common share, assuming dilution (adjusted EPS) refers to adjusted net income divided by the weighted average number of common shares outstanding, assuming dilution. • Net debt to adjusted EBITDA ratio refers to total debt (including finance leases) less cash and cash equivalents, divided by adjusted EBITDA for the last twelve months. We believe that the net debt to adjusted EBITDA ratio assists investors in assessing our leverage position. • Free cash flow (FCF) refers to cash flow provided by operating activities, less payments for property, plant and equipment, software and other deferred charges, plus proceeds from sales of property, plant and equipment, plus (minus) net proceeds from insurance and sales (purchases) of investments. Free cash flow is also adjusted for, where applicable, certain acquisition-related transaction costs. We believe that free cash flow assists investors by showing the amount of cash we have available for debt reductions, dividends, share repurchases, and acquisitions. • Free cash flow conversion refers to free cash flow divided by net income. This document has been furnished (not filed) on Form 8-K with the SEC and may be found on our website at www.investors.averydennison.com. April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 3
Q1 EPS as expected; Q2 outlook lowered; reaffirm H2 EPS run rate >$10 First Quarter EPS and free cash flow as expected, despite inventory destocking in labels and apparel ● Reported EPS of $1.49; adj. EPS (non-GAAP) of $1.70, down 29% ● Net sales of $2.1 bil., down 9% ex. currency (non-GAAP) and organically (non-GAAP) ● Reported operating income of $190 mil. ○ Adj. EBITDA (non-GAAP) of $280 mil., down 22% ○ Sequentially, adj. EBITDA up 7% ● YTD free cash flow (non-GAAP) of ($71) mil. Sequential improvement expected in Q2; lower than previous outlook due to continued destocking Expect to deliver strong second half with >$10 EPS run-rate ● Anticipate destocking to be largely complete mid-year ● Confident in $1B IL platform in 2023; new programs accelerating ● Cost-saving initiatives to ramp throughout the year FY adj. EPS guidance range of $8.85 to $9.20 (previously $9.15 to $9.55) ● Revised due to lower Q2 outlook ● Targeting ~100% free cash flow conversion (non-GAAP) April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 4
$1B Intelligent Labels $0.8B 2022 Sales by End Market ~20% Apparel Org. Sales $0.8B Other $0.25B ● Q1 up low-single digits; non-apparel up ~50%, largely Pipeline by End Market offset by decline in apparel, incl. inventory destocking Apparel ● Industry-leading position; 50%+ UHF RFID share Food ● Targeting 20%+ organic growth in coming years ● Clear innovation leader Industrial ● Investing in capacity and market development Logistics Beauty Solutions enabling omnichannel retail, more efficient supply chains, enhanced consumer experience and less waste April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 5 5 # of Engagements End Market
Quarterly Sales Trend Analysis 1Q22 2Q22 3Q22 4Q22 1Q23 Reported Sales Change 14.5% 11.7% 11.8% (7.2%) (12.1%) (1) Organic Sales Change 12.7% 11.3% 15.5% (0.9%) (9.2%) Acquisitions/Divestitures 5.3% 5.4% 3.5% 0.1% 0.2% (1),(2) Sales Change Ex. Currency 18.0% 16.7% 19.0% (0.8%) (9.1%) Currency Translation (3.4%) (5.0%) (7.2%) (6.4%) (3.1%) (2) Reported Sales Change 14.5% 11.7% 11.8% (7.2%) (12.1%) (1) Non-GAAP (2) Totals may not sum due to rounding April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 6
Quarterly Sales Trend Analysis (cont.) Organic Sales Change 1Q22 2Q22 3Q22 4Q22 1Q23 Materials Group 10% 14% 19% 2% (9%) Solutions Group 20% 5% 7% (8%) (9%) Total Company 13% 11% 16% (1%) (9%) Total Company 18% 17% 19% (1%) (9%) Sales Change Ex. Currency April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 7
Sales Growth and Operating Margin Comparison Q1 Sales Growth Reported Ex. Currency Organic Materials Group (12.6%) (9.3%) (9.3%) Solutions Group (11.0%) (8.3%) (8.9%) Total Company (12.1%) (9.1%) (9.2%) Reported Adj. EBITDA Margin (non-GAAP) Operating Margin 1Q23 1Q22 1Q23 1Q22 Materials Group 11.0% 13.3% 14.2% 15.2% Solutions Group 8.5% 13.3% 15.7% 19.1% Total Company 9.2% 12.3% 13.6% 15.3% April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 8
First Quarter 2023 Results AVY ‘22 Sales by Segment Materials Group Materials Group 72% Reported sales decreased 13% to $1.5 bil. Solutions Group Sales down 9% ex. currency and organically ● Label materials down low-double digits on organic basis ○ Lower volume, driven by inventory destocking, partially offset by pricing actions ○ Organically, sales down low-double digits in North America, Materials Group 2022 Sales by Product high-single digits in Western Europe and mid-to-high single digits in emerging markets High Value Label materials Categories ● Graphics and Reflectives up low-single digits organically Graphics & Reflectives 35% ● Performance Tapes and Medical up mid-single digits organically Performance Tapes & Medical Other Reported operating margin decreased 230 bps to 11.0% ● Adj. EBITDA margin decreased 100 bps to 14.2% driven by lower Materials Group volume/mix, partially offset by benefits from the net impact of 2022 Sales by Geography pricing and raw material input costs, and productivity U.S. & Canada ● Sequentially, adj. EBITDA margin increased 140 bps Emerging Western Europe Markets E. Europe & MENA Anticipate label destocking to be largely complete mid-year; 36% Asia Pacific adj. EBITDA margin to continue improving sequentially Latin America throughout 2023 April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 9 9 End Market Product Category
First Quarter 2023 Results AVY ‘22 Sales by Segment Solutions Group Materials Group 28% Reported sales decreased 11% to $605 mil. Solutions Group Sales down 8% ex. currency and 9% organically ● High-value categories up low-single digits organically ● Base solutions down roughly 20% organically, incl. destocking ● Enterprise-wide Intelligent Labels sales up low-single digits Solutions Group organically 2022 Sales by Product Reported operating margin decreased 480 bps to 8.5% Base Solutions High Value ● Adj. EBITDA margin decreased 340 bps to 15.7% driven by lower Categories Intelligent Labels volume 53% Vestcom Ext. Embellishments Apparel volume expected to rebound in H2, while IL programs accelerate throughout 2023. Adj. EBITDA margin to improve sequentially throughout 2023 Solutions Group 2022 Sales by Geography Announced agreement to acquire Lion Brothers, a leading U.S. & Canada provider of external embellishments, with ~$65 mil. in annual Europe sales Asia Pacific Latin America April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 10 10 Est. End Market Product Category
2023 EPS Guidance Previous Updated Adj. EPS Reported EPS $8.85 – $9.25 $8.35 – $8.70 ~40% adj. EPS growth 2019-2022 Add back: est. restructuring costs and other items ~$0.30 ~$0.50 Adjusted EPS (non-GAAP) $9.15 – $9.55 $8.85 – $9.20 Contributing Factors ● Reported sales of -2% to 0% ○ Negligible impact from currency (previously ~1% headwind) ○ Organic sales change of -2% to 0% (previously 1% to 5%) Net Sales ● CY savings of ~$50 mil. from restructuring actions, net (previously ~$45 mil.) ($ billion) ● Continuing to invest in key strategic platforms, particularly Intelligent Labels ○ Incremental opex investment of ~$25 mil. ○ Fixed and IT capital spend of ~$350 mil. ○ $0.25 headwind from non-operational items (tax, currency, interest, share count) ● Sequential improvement expected in Q2; lower than prev. outlook (continued destocking) ● Expect to deliver strong second half with >$10 EPS run-rate April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 11
Appendix April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 12
Broad exposure to diverse end markets (1) (1) Sales by End Market Category Sales by Geographic End Market (2) (2) Staples Other Other Food Industrial/ ~60% LATAM Dur U.S abl . e S. Asia 27% U.S. HPC Total ~40% China Staples E. Europe Apparel ~80% Beverage & MENA Western Discretionary Pharma Europe Western Oth. Non- Staples ~20% 22% Europe Logistics Durable ~30% Healthcare (1) FY22 sales (2) Includes Australia, Canada, Japan, New Zealand, and South Africa Note: Ceased shipment of all products for the Russian market (~1% of total company revenue in 2021) April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 13
Strong Balance Sheet and Ample Liquidity Q1 2023 Leverage Debt / Liquidity Considerations Total Debt Outstanding $3.6B ● Ample liquidity: $1.2 bil. available under revolving credit facility (through 2026), plus ~$351 mil. in cash and cash equivalents at QE Cash and cash equivalents $0.4B (1) ● Prioritizing near-term capex priorities while supporting long-term Net Debt $3.2B value creation goals Adjusted EBITDA, trailing 4 qtrs $1.3B ● Strong FCF profile; delivering ~100% long-term FCF conversion Net Debt to Adj. EBITDA (non-GAAP) 2.5 Long-term Capital Allocation Strategy Long-term Debt Maturity Schedule % of Available Capital 2021-2025 Capex/restructuring 25%-30% Dividends ~20% ~50% Buyback/M&A (1) Totals may not sum due to rounding * €500M debt converted to USD at 1.1x + $30M medium-term note April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 14
Adjusted EPS The adjusted tax rate was 24.7%, 25%, 24.1%, and 24.6% for 2022, 2021, 2020, and 2019, respectively. (1) Includes restructuring and related charges, transaction and related costs, gain/loss on venture investments, gain/loss on sale of assets, gain on sale of product line, and outcomes of legal proceedings. April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 15
April 26, 2023 Preliminary & unaudited, Q1 2023 financial review and analysis 16 © 2023 Avery Dennison Corporation. All rights reserved. Avery Dennison and all other Avery Dennison brands, product names and codes are trademarks of Avery Dennison Corporation. All other brands or product names are trademarks of ® their respective owners. Fortune 500 is a trademark of Time, Inc. Branding and other information on any samples depicted is fictitious. Any resemblance to actual names is purely coincidental.