AVY · Q2 2025 Earnings
CautiousAvery Dennison
Reported July 22, 2025
30-second summary
30-second take: Revenue of $2.22B fell 0.7% YoY on organic sales of -1.0%, with Solutions Group down 2.6% as apparel sales dropped 6% in the quarter. Non-GAAP EPS of $2.42 held up via SG&A discipline (restructuring, lower incentive comp) and high-value category mix — graphics/reflectives and Vescom both grew mid-to-high single digits, food/logistics IL grew mid-teens. Q3 guide of $2.24-$2.40 non-GAAP EPS implies management expects the apparel drag to persist but moderate (CEO assumed apparel down low-single-digits in Q3 vs. -6% in Q2).
Headline numbers
EPS
Q2 FY2025
$2.42
Revenue
Q2 FY2025
$2.22B
-0.7% YoY
Gross margin
Q2 FY2025
28.8%
Operating margin
Q2 FY2025
12.9%
Key financials
Q2 FY2025| Metric | Q2 FY2025 | YoY |
|---|---|---|
| Revenue | $2.22B | -0.7% |
| EPS | $2.42 | — |
| Gross margin | 28.8% | — |
| Operating margin | 12.9% | — |
Guidance
Prior quarter data unavailable — comparison not possible.
Segment KPIs
Q2 FY2025| Segment | Q2 FY2025 | YoY |
|---|---|---|
| Materials Group | $1.55B | +0.2% |
| Solutions Group | $0.67B | -2.6% |
Other KPIs
Q2 FY2025| Segment | Q2 FY2025 |
|---|---|
| Organic sales change | -1.0% |
| Adjusted EBITDA margin | 16.6% |
| Materials Group adjusted operating margin | 15.6% |
| Solutions Group adjusted operating margin | 10.0% |
| Adjusted free cash flow | $188.9 million |
| Net debt to adjusted EBITDA | 2.3x |
| Share repurchases YTD | $360 million |
| Dividend per share increase | 7% |
Management tone
Q&A confidence ran high (4/5) despite a soft top line, with management leaning hard on three forward narratives: Intelligent Labels expansion outside apparel, high-value category mix, and tariff-scenario preparedness. There is no prior-quarter transcript to anchor a tone shift against, so the below reads the current call on its own terms.
The CEO acknowledged dissatisfaction with Intelligent Labels growth trajectory and used the Citi exchange to outline three innovation buckets (microwavable tags, APR-recyclable tags, proprietary IP launches in H2) plus the Inditex loss-detection rollout — framing the slowdown as company-addressable rather than industry-structural. The "$8 billion addressable opportunity over time" line is the conviction anchor here; it tells you management is choosing to be measured against TAM penetration rather than near-term IL revenue growth.
On apparel, management was direct that Q2's -6% will moderate to low-single-digit declines in Q3 — a specific, falsifiable assumption baked into the Q3 EPS guide. That is more useful than the typical "muted customer sentiment" framing because it gives a number to test against next quarter.
SG&A leverage was clarified as restructuring headcount actions, discretionary cost control, and lower incentive comp accruals (prior year ran above-target). This is not a recurring tailwind — the incentive comp benefit normalizes out, and investors should not extrapolate the current SG&A line into 2026 without adjustment.
Q&A highlights
John McNulty · BMO Capital Markets
Asked about pent-up demand in solutions group post-tariff uncertainty, timing of profitability flow-through, and conversion prospects for new food/grocery business before year-end.
Management acknowledged continued macro softness (US retail growth <1%, European retail weakness), noted customer sentiment remains muted despite apparel consumption being robust. Emphasized outside apparel/general retail, business on track; food/logistics growing mid-teens. Expressed confidence in food rollouts with strong ROI and customer adoption continuing.
Jeffrey Zukauskas · JP Morgan
Inquired about continuation of high single-digit graphics and reflectives volume growth and drivers behind year-over-year SG&A expense reductions despite stable headcount levels.
Graphics and reflectives growth driven by paint protection films in Asia and cast color change films in North America; trend expected to continue. SG&A benefits from restructuring headcount reductions, discretionary cost controls (travel, etc.), and lower incentive compensation accruals versus prior year (which had above-target performance).
Anthony Pettinari · Citi
Sought detail on specific activities to improve IL network efficiency and expand innovation; asked whether IL growth slowdown is company-specific or industry-wide.
Management outlined three innovation buckets: product-level (microwavable tags, APR-recyclable tags for food), solution-level expansions, and proprietary IP launches in H2 for category expansion. Emphasized network resilience improvements and working capital optimization. Stated competitive intensity unchanged; Avery remains market leader with share gains expected from loss detection rollouts and new initiatives.
Mike Roxland · Truist Securities
Asked about impact of Kroger's announced closure of 60 stores over 18 months on IL deployments in baked goods and potential protein rollouts.
Management characterized store closures as normalization of customer real estate footprint; stated Kroger rollout continues as expected with ~700 stores at midpoint of year, with full rollout taking ~1.5 years for bakery. In active discussions with Kroger on accelerating expansion into proteins and other categories given strong ROI results.
John Dunnigan · Jefferies
Asked about Embellix's reliance on global sporting events (World Cup 2026), growth expectations in back half, and CVS rollout performance for Vescom including positives/surprises.
Embellix comprises three buckets: team sports decoration, performance brand supplies, and episodic events. Performance brand slowdown and apparel tariffs impacted H1; expects high single-digit growth long-term. Anticipates Q4 growth acceleration from World Cup momentum. Vescom CVS rollout proceeding well; CVS store closures in competitor (pharmacy) had modest negative impact; business benefiting from pricing and promotional environment dynamics.
What to watch into next quarter
Apparel sales trajectory: Management assumed Q3 apparel down low-single-digits vs. -6% in Q2. Verify whether actual Q3 apparel decline meets or undershoots that assumption — material to Solutions Group margin and full-year EPS path.
Intelligent Labels growth ex-apparel: Food/logistics grew mid-teens in Q2. Watch whether this growth rate sustains or accelerates as new food/logistics customers move from pilot to deployment, and whether grocery pipeline conversions are disclosed by name.
Kroger expansion beyond bakery: Management flagged active discussions on protein category acceleration. A formal announcement or quantified protein rollout would be a positive catalyst; silence on the topic would suggest the discussions stalled.
Q3 non-GAAP EPS landing within $2.24-$2.40: Below $2.24 signals apparel or tariff impact is worse than management modeled; above $2.40 suggests SG&A or high-value mix is stronger than implied.
Full-year guidance disclosure: Management did not provide updated FY guidance in the materials reviewed. Watch whether FY guide is reinstated next quarter and at what level relative to the implied H2 run-rate from Q3 guidance.
SG&A run-rate normalization: Incentive comp accruals were a non-recurring tailwind in H1. Watch whether absolute SG&A dollars rise sequentially in Q3-Q4 as that comparison normalizes.
Sources
- Avery Dennison Q2 2025 Press Release (Form 8-K Exhibit 99.1): https://www.sec.gov/Archives/edgar/data/8818/000119312525162209/d83231dex991.htm
- Q2 2025 earnings call Q&A (analyst exchanges referenced above)
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