Earnings call transcript: Avery Dennison tops Q3 2026 estimates, shares edge up

Avery Dennison beat Wall Street’s expectations in the third quarter of 2026, reporting adjusted earnings of $2.42 a share on revenue of $2.3 billion, ahead of forecasts for $2.32 and $2.26 billion, respectively. The label and materials company said sales rose 5% from a year earlier, while adjusted free cash flow remained strong at $246 million. Shares rose 0.84% in premarket trading to $182.22, then finished the regular session unchanged at that level.

• Growth in intelligent labels, especially in apparel and food, remained a major strategic focus.

At its current price of $182.22, the stock trades below InvestingPro’s Fair Value estimate, placing it among potentially undervalued opportunities in the materials sector. The company’s $13.8 billion market cap reflects a P/E ratio of 19.6 times earnings.

Avery Dennison said third-quarter sales rose to $2.3 billion from a year earlier, helped by organic growth and the Taylor Adhesives acquisition. Adjusted EPS increased 2% year over year to $2.42. Management said customer destocking reduced sales by about 2 percentage points and cut adjusted EPS by about $0.15, especially in Europe and parts of Asia.

Even with those headwinds, the company described the quarter as strong. It said underlying organic sales growth was about 6% and underlying adjusted EPS growth was about 8% after adjusting for destocking. That suggests the business performed better than the headline figures alone indicate.

The Materials Group posted organic sales growth of 5%, while the Solutions Group reported 1% organic growth. Materials margins were under pressure, but the company said it gained share in most regions. Solutions margins improved, helped by productivity actions.

Avery Dennison reported adjusted EPS of $2.42, beating the consensus estimate of $2.32 by $0.10, or 4.31%. Revenue of $2.3 billion topped the $2.26 billion forecast by $40 million, or 1.77%.

The earnings beat was more meaningful than the sales beat. In a quarter marked by destocking and margin pressure, the company still delivered better-than-expected profit. That matters because investors often focus more on earnings quality than on a small revenue surprise.

Management also said the quarter looked stronger on an underlying basis than the reported figures suggested. After adjusting for customer inventory destocking, it estimated underlying adjusted EPS growth of about 8% and underlying organic sales growth of about 6%. That is a stronger signal than the headline 2% EPS growth rate.

The stock rose 0.84% in premarket trading to $182.22 after the report, up from $180.70 before earnings. The move was modest, suggesting investors viewed the results as solid but not dramatic. The shares later closed the regular session at $182.22, unchanged from the premarket level.

At that price, Avery Dennison was trading about 8.7% below its 52-week high of $199.54 and about 19.6% above its 52-week low of $152.42. The stock’s reaction suggests the market saw the quarter as supportive, but not enough to change the broader outlook in a major way.

Management slightly raised the midpoint of its full-year 2026 guidance. The company now expects adjusted EPS of $10.10 to $10.24, with the midpoint implying about 7% growth from the prior year.

For the full year, Avery Dennison expects:

The company also said it expects full-year free cash flow conversion above 100% of net income and capital spending of about $240 million. It raised its restructuring savings target to more than $65 million, up from $50 million, and said about $0.20 of carryover savings should benefit 2027.

Looking ahead, management said it expects most remaining customer destocking to end by year-end. It also pointed to strong growth potential in intelligent labels, especially in food and apparel, with a broader ramp expected through 2027.

The company’s 8% free cash flow yield underscores its ability to generate cash relative to its valuation. For investors seeking deeper analysis, InvestingPro offers a comprehensive Pro Research Report on Avery Dennison, transforming complex Wall Street data into clear, actionable intelligence across financial health, valuation, and growth metrics.

“We delivered strong third-quarter results, continuing to demonstrate the underlying strength and resilience of our business,” Chief Executive Deon Stander said. He added that organic sales grew 4% and adjusted EPS grew 2% compared with a year earlier.

Stander also said the company’s underlying business was stronger than the reported numbers suggested, noting estimated 6% organic sales growth and 8% adjusted EPS growth after adjusting for inventory destocking. That comment highlights how much of the quarter’s pressure came from timing effects rather than from a broad demand slowdown.

Chief Financial Officer Greg Lovins said free cash flow remained a standout. “We generated adjusted free cash flow of $246 million in the quarter, bringing year-to-date adjusted free cash flow to $716 million, a conversion rate well above 100% of net income,” he said.

Analysts focused on margins, end-market demand, intelligent labels, and the pace of destocking. Questions centered on whether margin pressure in Materials would continue, how strong consumer demand really is, and how quickly intelligent labels could grow in 2027.

Management said Materials margins were affected by the math of pricing pass-through during inflationary periods, while Solutions continued to benefit from productivity gains. On demand, executives described a cautious consumer backdrop, with retail and CPG customers still dealing with inflation and uneven volume trends.

A major topic was intelligent labels, especially food and apparel. Management said the Walmart fresh program has shifted to a 2027 commercial ramp, but it remains confident in the opportunity. It also said three large grocers are now actively engaged in rollout or early commercialization, and that the food RFID pipeline remains strong even as some programs move from pipeline to deployment.

Analysts also asked about restructuring savings, capital spending, and free cash flow. The company said restructuring savings are running ahead of plan, capital spending is being timed around inventory swings, and cash generation remains strong despite working-capital volatility.

Operator: Ladies and gentlemen, welcome to Avery Dennison’s earnings conference call for the third quarter ended on September 30th, 2026. During the presentation, all participants will be in a listen-only mode. Afterward, we will conduct a Q&A session. At that time, if you would like to ask a question, please press star one on your telephone keypad to raise your hand and enter the queue. As a reminder, this webcast is being recorded and will be available for replay on the Avery Dennison Investor Relations website. I’d now like to turn the call over to William Gilchrist, Avery Dennison’s Vice President of Investor Relations. Please go ahead, sir.

William Gilchrist, Vice President of Investor Relations, Avery Dennison: Thank you, Chase, and welcome to Avery Dennison’s third quarter 2026 earnings conference call. Please note that throughout today’s discussion, we will be making references to non-GAAP financial measures. The non-GAAP measures that we use are defined, qualified, and reconciled from GAAP on Schedules A-4 to A-8 of the financial statements accompanying today’s earnings release. We remind you that we will make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the safe harbor statement included in today’s earnings release. On the call today are Deon Stander, President and Chief Executive Officer, and Greg Lovins, Senior Vice President and Chief Financial Officer. I will now turn the call over to Deon.

Deon Stander, President and Chief Executive Officer, Avery Dennison: Thanks, Gilly, and good morning, everyone. We delivered strong third-quarter results, continuing to demonstrate the underlying strength and resilience of our business. Organic sales grew 4%, adjusted EPS grew 2% compared to prior year, and adjusted free cash flow generation continues to be robust at over $240 million. Considering the impact of customer inventory management, as shown on slide five, our underlying business performance remains strong, with an estimated 6% organic sales growth and an estimated 8% adjusted EPS growth year-over-year. Reported sales growth was balanced across both high-value and base categories, with each up mid-single digits. As we indicated in our recent investor showcase event, high-value categories are a key part of our growth algorithm and future margin expansion. Q3 results reinforce the value of this portfolio of solutions, which are being driven by both secular demand growth and our differentiated competitive position.

At an enterprise level, our operational priorities remain clear. First, investing in innovation and service-led differentiation to drive share gains and expand opportunities across base and high-value categories. Second, executing with commercial and operational agility, combining targeted pricing actions with relentless productivity to mitigate cost inflation. Third, disciplined capital allocation supported by a robust free cash flow as we continue to invest in our business and return cash to shareholders while maintaining our strong balance sheet. Turning to our segment results. Materials Group delivered organic sales growth of 5%, with both high-value and base categories growing mid-single digits. We continue to solidify our leadership position through commercialization of innovative solutions that support industry secular trends. Sales in the quarter came in ahead of expectations due to a more gradual pace of customer inventory destocking than anticipated.

While this unwind is taking longer to materialize, destocking is ongoing, and we continue to expect