AVY
#Thanks, Mitch
And hello, everybody
As Mitch mentioned, we delivered another strong quarter, with earnings coming in ahead of our expectations
Our adjusted EPS was up 25%, driven largely by strong operating performance
We grew sales by 10%, excluding currency, and 5.3% on an organic basis
And currency translation added about 1% to reported sales growth in the third quarter, with an approximately $0.02 benefit to EPS compared to the same period last year
The reduction in the tax rate also contributed roughly $0.05 to EPS in the quarter versus last year
Our adjusted operating margin of 10.4% improved by 60 basis points versus prior year, as the net benefits from higher volume and productivity improvements more than offset higher employee-related costs
Productivity gains this quarter included approximately $14 million of net restructuring savings, most of which benefited our RBIS segment
And our adjusted tax rate was 28% in the quarter, which is consistent with the guidance we provided in July, and down from 31% for the same period last year
And year-to-date free cash flow, we've generated $256 million, up $8 million compared to the same period last year
And we continue to expect free cash flow conversion for the year of nearly 100% of GAAP net income
And our balance sheet remains strong
We have ample capacity to continue investing in the business, including funding M&A, as well as continuing to return cash to shareholders in a disciplined manner
In the quarter, we repurchased approximately 400,000 shares at an aggregate cost of $35 million
And net of dilution, our share count declined modestly
And we paid approximately $40 million in dividends in the quarter as well
Now let me turn to our segment results
Label and Graphic Materials sales were up 7% excluding currency, reflecting 2 points of benefit from acquisitions, including Mactac, which we acquired at the beginning of August last year, as well as Hanita and Ink Mill
Our organic sales growth of 5% represented a rebound from a slower pace we reported last quarter, as the timing effects we highlighted during our last call, played out as we had expected
These timing effects reflected shift of sales that are both the second and fourth quarters, and we continue to expect that organic growth for the second half of the year will be roughly 4% in this segment
Consistent with our strategy, LGM's high value product lines continue to grow faster than the base business, with relatively broad-based strength across most of our high-value categories
And looking regionally, organic growth reaching mature markets of North America and Western Europe were both solid, with Europe rebounding from the slower pace we saw in Q2, as expected
Growth in emerging markets also rebounded from our Q2 pace, and when we adjust for timing effects, China, ASEAN and India all grew organically at high-single to low double-digit rates in Q3, while Eastern Europe and Latin America both posted solid mid-single digit growth
Operating margin for the segment also remained strong
Our ongoing productivity efforts in material reengineering continued to help us expand the market for Pressure-sensitive Materials and maintain our cost advantage, allowing us to grow profitably across various raw material cycles
For the quarter, LGM's adjusted operating margin of 13.1% was up 40 basis points compared to prior year
As the benefits from productivity and higher volume more than offset higher employee related costs and a negative net impact from pricing and raw material costs
As we anticipated, overall commodity costs were up modestly compared to prior year
And as you know, our raw material costs tend to differ across regions and individual categories
We continue to monitor movements within each market, and adjust our prices where appropriate
And while our overall raw material costs have been relatively stable this year, we do anticipate some modest sequential inflation in the fourth quarter
We're in the process of implementing some targeted price increases accordingly
So now, I'll shift to Retail Branding and Information Solutions segment
The RBIS team delivered another excellent quarter
As the team continues to execute extremely well on its business model transformation, enabling market share gains, while driving significant margin expansion
Regional empowerment has moved decision-making closer to the market and improved local accountability, helping turn speed and flexibility into competitive advantages
And we also continue to build a more efficient cost structure here
RBIS sales were up 7% organically, driven by strength in both, RFID and the base business, combined with some benefit from holiday timing
The strength was broad based, spanning most market segments and product categories
And we believe that we continued to gain share, as we see our volume growth outpacing apparel unit imports
Sales of RFID products were up more than 25% in the quarter, and sales of external embellishments, another high-value category for us, were up by low double digits, as our heat transfer solutions got an extra sales lift, related to next year's World Cup
Adjusted operating margins expanded by 170 basis points to 8.7%, driven by the benefits of higher volume and productivity as well as the anticipated reduction in intangibles' amortization
These benefits were partly offset by higher employee related costs, including incentive plan accruals, reflecting this segments strong performance against targets and relative to last year
And finally, turning to the Industrial and Healthcare Materials segment, with the benefit of the Yongle, Finesse and Mactac acquisitions, sales rose 50% excluding currency
Organic growth returned to a solid 3.5%, following the anniversary of the bulk of the headwinds we've been facing in the healthcare category, and we saw solid organic growth for both, the industrial and health care categories in the quarter
Operating margin declined by roughly 3 points due primarily to acquisition-related cost
As Mitch mentioned though, we have fallen short of our productivity targets for the underlying business, and we are refocusing our efforts to drive productivity, while continuing to invest to support growth
Over the coming years, we expect to see operating margin expand to LGM's level or better here
So turning now to our outlook for the balance of the year
We have raised the midpoint of our guidance for adjusted earnings per share by $0.10 to an updated range of 490 to 495, reflecting the strength of our underlying operating results
We outlined some of the key contributing factors to our EPS guidance on Slide 9 of our supplemental presentation materials
Focusing on the factors that have changed from our previous outlook, we now expect reported sales growth of roughly 8% for the full year, and at recent foreign exchange rates, we estimate that currency translation will be roughly neutral to sales and earnings for full year
We also now expect incremental restructuring savings of approximately $50 million to $55 million, primarily due to rising confidence that we'll realize the full benefit from planned actions for the year, as well as the execution of a few projects a bit earlier than expected
And we expect average shares outstanding, assuming dilution, of approximately 90 million shares
Our other key assumptions remain essentially unchanged from what we shared last quarter
So to wrap up, we're pleased to report a strong quarter of continued progress into our long-term strategic and financial objectives
And with that, we'll now open the call up for your questions
Question-and-Answer Session
Yes, I think overall, as I mentioned, we do see material cost tend to differ a little bit across regions and across categories
Overall impact on the quarter was relatively modest, and it was in line with what our expectations were for the quarter
Overall, we're seeing a few pockets of inflation in some specific areas, areas such as paper in Europe and Asia
And overall, our approach to deal with these things is pretty consistent with what we've done in the past
We've focused on material reengineering, to try to reduce the cost of our materials where we can, and then we look to pass inflation onto pricing as necessary as well
Overall, we did have ---+ that's just a modest inflation this quarter and expect to see a little bit of modest inflation in Q4 as well
And we also had a little bit of carryover price headwind from prior year, as we're still in pretty much a deflationary environment through the beginning of this year
So a little bit of carryover there
But overall, at this point, we're seeing some modest inflation trends, and we're looking at some price increases where necessary
An example of that, in China right now, we're seeing some increases in paper
And we're in the process of implementing some price increase actions in China in early October as well, to deal with that
Yes, there is a few timing-related impacts that we talked last quarter about some timing in Q2 that led us also some timing impacts in Q3. A little bit of impact from timing of the Chinese mid-Autumn festival, which was in September last year, fell in the first week of October with Golden Week this year
But also, I mentioned the price increase we've implemented in China here in early October that led to a little bit of a prebuy for us in the third quarter in LGM
So overall, we still expect, on the LGM side, about 4% organic growth in the quarter or in the back half
And that basically translate into the total corporation deal as well
Yes, we had a little bit of a headwind from pricing
Again, most of that was carryover, as we talked about a minute ago
But largely volume driven growth in the quarter drive the majority of our organic growth
Price mix was a slight modest headwind, I think, in the quarter as well
Short answer is, yes, there is continued share gain
We've been talking about that for a number of quarters now, in the base business
And then clearly, our differentiated position in RFID allows us to continue to drive growth and penetration of that new product platform
If you look at just apparel import units, they've been ---+ if you look at them within the U.S
, they are up less than 1% for the last 6 months, and they're down around 1% in Europe
So the overall apparel imports that you're seeing into the mature regions, still pretty anemic growth or flattish overall
So clearly, the amount of growth we're showing is share gain
And as far as the outlook for next year, I can't have one comment that describes what's going on
It's really unique, retailer by retailer and brand by brand
I think overall, you can see the ---+ all the focus that the retailers are having towards driving more towards omnichannel
That's something we're working with each of the retailers and brands to help support them in that transition, and a place where our position in RFID continues to make us a key strategic partner for them, as they look to make that transformation
<UNK>, this is Greg
I think, overall, revised guidance for this year, as I mentioned, was really driven by just continued confidence in our ability to execute on our strategy, particularly in the RBIS strategy that they've been executing against this year, and really delivering solidly against
For next year, I think you could expect ---+ we've said this year, we have $50 million to $55 million restructuring savings, roughly half of that is carryover
And we look at basically $20 million or so of carryover into next year as well
I think modest headwind year-over-year
Sequentially, relatively neutral, I think, as we look Q3 to Q4. So a little bit of modest increase in inflation and a little bit of pricing actions that are offsetting part of that, so
Right
So I'll start with the first question
I think overall, one thing I think it's good to remember is our breadth across geographies
So given how broad our geographic spread is, across LGM in particular, what we're seeing right now is pockets of inflation that are different in different categories and across different geographies
So you might see a little bit of chemical inflation in North America
Still relatively modest to us in that region, whereas, we're not seeing that necessarily across all other regions
So right now, it's still kind of in pockets, in different categories across different geographies
Relatively modest across each of those individually though as well
I think some of our ---+ just the breadth of our geographic scale as I said, strong vendor relationships, good material science ability to manage through that as well, has given us the ability to manage through some of those potential challenges that you mentioned also
Yes, it's typically specialty papers, <UNK>
So not 100% linked to pulp, for instance, as you mentioned yourself
What I can tell you what we are seeing is typically, I think I mentioned earlier, a little bit of paper increases in Europe and a little bit of paper increases in China
Not seeing much outside of that at this point in time
But that's where we're seeing a little bit of headwinds right now
And that's why we've done some pricing actions accordingly in both of those regions to deal with that
Sure
In both, U.S
and Europe, as we mentioned earlier, we had low-single to mid-single digit growth in both North America and Europe in the quarter
And roughly consistent with that, across the year-to-date, little bit of a challenge earlier in the year in North America, but for the last couple of quarters, relatively consistent, from that perspective, low single-digit growth
Share issuance
Probably have to follow back up with you, Jeff, on that one
I don't have that off the top of my head
