AVY · Q3 2025 Earnings

Cautious

Avery Dennison

Reported October 22, 2025

30-second summary

30-second take: Revenue of $2.22B grew 1.5% YoY on flat-to-negative organic (Materials -1.9%, Solutions +3.6%), with non-GAAP EPS of $2.37 landing above the midpoint of the $2.24-$2.40 guide. The headline event is the Walmart Intelligent Labels deal — management sized it as high-single to low-double-digit growth contribution to enterprise IL revenue over two years — but Q4 organic guide of just 0-2% confirms the underlying base business remains gridlocked by tariff-driven softness in general retail (down mid-teens). Trade policy was reframed from "manageable" to "temporary headwind," and management explicitly deferred any 2026 quantification to January.

Headline numbers

EPS

Q3 FY2025

$2.37

Revenue

Q3 FY2025

$2.22B

+1.5% YoY

Gross margin

Q3 FY2025

28.6%

Free cash flow

Q3 FY2025

$0.27B

Operating margin

Q3 FY2025

11.9%

Key financials

Q3 FY2025

Metric	Q3 FY2025	YoY	Q2 FY2025	QoQ
Revenue	$2.22B	+1.5%	$2.22B	-0.2%
EPS	$2.37	—	$2.42	-2.1%
Gross margin	28.6%	—	28.8%	-20bps
Operating margin	11.9%	—	12.9%	-100bps
Free cash flow	$0.27B	—	—	—

Guidance

Company raised FY2025 restructuring savings by $10M and interest expense by ~$50M driven by September euro notes, while raising Q4 revenue growth expectations (5–7%) and organic growth (0–2%) despite trade uncertainty.

Guidance is issued for the full year only, refreshed each quarter. Prior and new below are the same FY updated this quarter.

Actuals vs prior guidance

Metric	Period	Prior guide	Actual	Δ	Result
Adjusted EPS (non-GAAP)	Q3 FY2025	$2.24 to $2.40	$2.37	in-line	Met
Reported EPS (GAAP)	Q3 FY2025	$2.14 to $2.30	$2.13	in-line	Met

New guidance

Metric	Period	Guide	YoY
Free cash flow conversion	FY 2025	roughly 100%	—
Reported Revenue Growth	Q4 FY2025	5% to 7%	—
Organic Sales Growth	Q4 FY2025	0% to 2%	—
Adjusted EPS (non-GAAP)	Q4 FY2025	$2.35 to $2.45	—
Reported EPS (GAAP)	Q4 FY2025	$2.15 to $2.25	—

Changes to prior guidance

Metric	Period	Prior guide	New guide	Δ	Result
Restructuring savings net of transition costs	FY 2025	$50 million	$60 million	+$10 million	Raised
Interest expense	FY 2025	lower than $135 million	$135 million	increased (driver: €500M notes issued September)	Raised

Segment KPIs

Q3 FY2025

Segment	Q3 FY2025	YoY
Materials Group	$1.516B	+1.2%
Solutions Group	$0.7B	+2.0%
Materials Group Organic Sales Growth	-1.9%	—
Solutions Group Organic Sales Growth	3.6%	—

Other KPIs

Q3 FY2025

Segment	Q3 FY2025
Materials Group Adjusted Operating Margin	15.2%
Solutions Group Adjusted Operating Margin	10.0%
Adjusted EBITDA Margin	16.5%
Net Debt to Adjusted EBITDA	2.2x
Materials Group Adjusted EBITDA Margin	17.5%
Solutions Group Adjusted EBITDA Margin	17.0%

Management tone

Tariff impacts manageable (Q2) → trade policy uncertainty as temporary headwind (Q3): Last quarter management said trade policy impact was "unclear" and they were "prepared for various scenarios." This quarter, the language hardened — tariffs are now explicitly cited as constraining growth in apparel and general retail, with general retail down mid-teens YoY. Quote: "While growth will likely continue to remain constrained by trade policy uncertainty, particularly in apparel and general retail market segments, we view this as a temporary headwind." The shift signals that the impact is now quantifiable enough to call out by segment, but management is still framing it as cyclical rather than structural — a posture that will be tested if Q4 organic lands at the low end of 0-2%.

Apparel "moderating to low-single-digit decline" (Q2 guide) → total apparel up low-single-digits in Q3 (beat): Management's Q2 framing had apparel moderating from -6% toward low-single-digit declines. The Q3 print was meaningfully better: total apparel was UP low-single-digits, exceeding management's own expectations, with high-value apparel (including IL) up high-single-digits and apparel IL recovering to mid-single-digit growth. Base apparel remains down low-single-digits, reflecting soft retailer/brand demand still navigating tariff impacts. Quote: "Overall apparel sales exceeded expectations, rising low single digits in the quarter." The signal: the apparel recovery thesis is intact at the total level, even as base apparel still has a tail.

Intelligent Labels growth slowdown is company-addressable (Q2) → Walmart deal validates the platform (Q3): Last quarter the CEO acknowledged dissatisfaction with IL growth and pointed to three innovation buckets and the Inditex loss-detection win as company-specific levers. This quarter, the Walmart announcement is the answer to that pressure. Quote: "This is a very meaningful collaboration... demonstrating our ability to activate multiple levers in our portfolio." The shift signals that the IL narrative is moving from defense ("we are taking the right actions") to offense ("we won a flagship account") — but the revenue contribution doesn't show up until 2026-2027.

Buyback aggression and SG&A leverage (Q2) → balance-sheet expansion and capex posture (Q3): Q2 emphasized $360M of YTD buybacks and SG&A discipline (incentive comp tailwind). Q3's capital allocation discussion pivoted to the €500M notes issuance and how the modular IL production model means no incremental capex is needed for Walmart's initial phases. The tone shift suggests management is positioning for M&A optionality and capacity readiness rather than further return-of-capital acceleration.

Recurring themes management leaned on this quarter:

Tariff policy impacts creating persistent headwinds despite mitigation effortsHigh-value categories (45% of business) providing growth offset to base business softnessIntelligent labels adoption accelerating, particularly in food/Kroger/Walmart partnershipsOperational excellence and productivity driving margin expansion despite challenging volumesDisciplined capital allocation balancing shareholder returns with strategic M&ASequential improvement in certain segments but with caution on Q4 visibility

Risks management surfaced:

Trade policy uncertainty continuing to constrain growth in apparel and general retail segmentsTariff-related softness in general retail down mid-teens year-over-yearCustomer and distributor inventory management adjustments impacting graphics and performance tapesBase apparel volumes remain down despite sequential improvementWage inflation and higher employee costs offsetting productivity gains

Q&A highlights

George Stavros · Bank of America

Asked about the Walmart partnership announcement, its strategic importance, market opportunity sizing (protein cabinet and related end markets), and timing/scale of revenue impact over the next 2-3 years.

Management framed Walmart as a critical validation of technology effectiveness across freshness, labor, margin, and NPS. Estimated high single-digit to low double-digit growth contribution to total enterprise IL revenue over a two-year period. Highlighted proprietary innovation in protein/meat activation and antenna design for densely packed, high-dielectric items. Rollout will begin in Q4 2025 at small scale, ramping through 2026-2027.

Walmart partnership will contribute high single-digit to low double-digit growth to total 25 enterprise IL revenue over two yearsInitial rollout starting Q4 2025 at small scaleAddressed bakery, deli, protein/meat categories200 billion unit addressable market in food segment

Matt Roberts · Raymond James

Asked how much of the expected 5 basis points from 2025 IL program rollouts have shifted into 2026, how many additional basis points could come from new programs beyond Walmart, and whether 2026 can support at or above long-term IL growth rate given weak apparel/retail comps.

Management stated that across apparel, food, and general merchandise rollouts, programs remain roughly on track excluding tariff impact. Acknowledged apparel volume is muted due to tariffs but no rollout delays. Declined to provide 2026 guidance due to high uncertainty around tariff policy (India up 50%, China at 100%). Will provide detailed 2026 outlook in January.

5 basis points from program rollouts on track through 2025 (excluding tariff volume impact)Three buckets of rollouts: apparel, food, general merchandise/complianceNo rollout delays observed, but tariff-driven volume weakness in apparelTariff policy uncertainty: India tariffs up to 50%, China at 100%

John McNulty · BMO Capital Markets

Asked about the IL pipeline trajectory (growth by opportunity count and dollar value), and whether the substantial Walmart program size necessitates new capacity investments or capital allocation.

Management confirmed IL pipeline continues to grow in both opportunities and dollar value across key segments. Outlined capital allocation strategy: 3-5 year lead time for roofline/infrastructure capacity (Corretro Mexico facility started 2 years ago), 12-18 month lead for individual production assets. For Walmart, no additional capacity needed in initial phases; will reassess at end of year 2. Emphasized reduced capital intensity per billion units produced over past 5 years and modular asset approach.

IL pipeline growing in both quantity and dollar valueCapital allocation: 3-5 year lead for infrastructure, 12-18 months for production assetsCorretro Mexico facility started 2 years agoNo incremental capacity needed for Walmart in initial phases

Gacham Punjabi · RW Baird

Asked how materials segment volumes are progressing sequentially amid macro uncertainty, tariffs, and lower retail volumes, particularly whether materials volumes are beginning to weaken sequentially.

Management stated Q3 volumes were positive overall but below expectations across all regions. Cited lower retail volumes in North America/Europe, muted CPG demand per scanner data, episodic events in graphics/reflective (to remediate in Q4), and tariff-driven consumer caution in emerging markets. Expects similar growth trajectory in Q4. Emphasized materials business is GDP+ long-term, anchored in consumer staples, with normalization expected once trade environment stabilizes.

Q3 materials volumes positive overall but below expectations across all regionsLower retail volumes in North America and EuropeCPG demand muted per scanner dataEpisodic headwinds in graphics/reflective business (temporary)

Anthony Petanari · Citigroup

Asked how RFID and other IoT technologies (specifically Wiliot sensors with Walmart deployment) coexist, whether management is agnostic to technology winners, and how investors should think about the competitive/complementary dynamics between RFID and alternative sensing technologies.

Management stated UHF RFID is the most ubiquitous and best-placed sensing technology for item-level identification through supply chain and in-store. Acknowledged complementary role of other sensing technologies for ambient monitoring (temperature, pressure). Described Wiliot as a strong partner; both companies support each other's Walmart rollout. Wiliot handles pallet/case-level sensing while company manages item-level RFID. Positioned both as part of long-term suite of solutions enabling digital identities on all physical objects.

UHF RFID is primary item-level sensing technology for supply chain and store visibilityWiliot partnership strengthened; supporting each other's Walmart rolloutWiliot technology focused on pallet and case-level sensingCompany managing part of Wiliot's Walmart rollout

Answers to last quarter's watch list

Apparel sales trajectory — Q2 was -6%; management's Q3 assumption was low-single-digit decline. Q3 actual: total apparel was UP low-single-digits, exceeding expectations, with high-value apparel up high-single-digits and apparel IL recovering to mid-single-digit growth; base apparel remains down low-single-digits but improved sequentially.

Resolved positively

Intelligent Labels growth ex-apparel — Food/logistics/industrial categories combined grew mid-single-digits and the Walmart partnership was formally announced, with high-single to low-double-digit contribution to enterprise IL revenue over two years. This is the strongest IL data point of the year.

Resolved positively

Kroger expansion beyond bakery — Q&A referenced food/protein activation as part of the Walmart story but the Kroger protein conversation from Q2 was not specifically updated. Management talked broadly about "addressing bakery, deli, protein/meat categories" in the Walmart context. The company didn't directly quantify Kroger protein progress on this call.

Continue monitoring

Q3 non-GAAP EPS landing within $2.24-$2.40 — Landed at $2.37, above the midpoint of the range. Suggests SG&A and high-value mix performed roughly as modeled, with apparel and tariff drag absorbed.

Resolved positively

Full-year guidance disclosure — FY guide was not reinstated as a revenue/EPS range; instead management updated specific FY line items (restructuring savings, interest expense, FCF conversion) and issued Q4 guidance. The disclosure framework continues to be quarterly-forward rather than FY-comprehensive.

Not resolved

SG&A run-rate normalization — Not specifically addressed in the disclosed materials; consolidated EBITDA margin held at 16.5% (vs. 16.6% in Q2), suggesting no sharp SG&A normalization yet.

Continue monitoring

What to watch into next quarter

Q4 organic sales landing at the high end of 0-2%: A print at the low end (0%) signals tariff drag is deepening; a print at 2% or above signals stabilization. The Walmart contribution is still too small to move this number in Q4, so this is a clean read on the base business.

Q4 non-GAAP EPS landing within $2.35-$2.45: Below $2.35 would mark the first miss of the year on a quarterly EPS guide and undermine the "resilient franchise" framing. Above $2.45 likely requires Solutions Group margin to recover above Q3's 10.0%.

January FY2026 outlook framing on Walmart contribution: Management deferred 2026 quantification. Watch whether the FY2026 guide specifies enterprise IL revenue growth and whether the Walmart contribution is explicit or buried in segment commentary.

Apparel inflection or further deterioration: Total apparel turned up low-single-digits in Q3, but base apparel remains down. A Q4 print showing base apparel still flat-to-down would extend the "longer tail" interpretation for the base and pressure 2026 Solutions Group expectations even as high-value apparel continues to lead.

General retail mid-teens decline trajectory: This was the sharpest call-out on the print. If general retail remains down mid-teens into Q4, the "temporary headwind" framing weakens materially.

Interest expense run-rate post-€500M issuance: FY interest expense of ~$135M includes only partial-year impact of the September notes. Watch whether 2026 interest expense steps up further and how it offsets the $60M restructuring savings tailwind.

Sources

Avery Dennison Q3 2025 Press Release (Form 8-K Exhibit 99.1): https://www.sec.gov/Archives/edgar/data/8818/000119312525245839/d79220dex991.htm
Q3 2025 earnings call transcript and Q&A (analyst exchanges referenced above)

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