Avery Dennison (AVY) Q2 FY26 earnings call: guidance and Q&A

Requested more granularity on the 2026 growth outlook for Intelligent Labels, specifically how views on major end markets (apparel, general retail, food, logistics) have changed.

Management expects continued growth ramp in H2, with solid growth in apparel/general retail from new program rollouts. Logistics will face continued share/volume challenges due to lapping 2025's outsized gains. Food is expected to contribute more meaningfully in H2, driven by a significant retailer rollout and new customer activity.

“Our anticipation has always been that we would continue to see our growth ramp in the second half of the year.”

asked by Ghansham Panjabi · answered by Deon Stander

Sought clarification on the magnitude of the prebuy effect in Materials Group (5 points in Q2, 1 point in Q1) and if it implies a 6-6.5% destocking over the rest of the year, particularly in Europe.

Confirmed ~5 points of organic growth in Q2 from inventory build, totaling ~2.5% for H1. This is expected to unwind in H2, largely offset by positive pricing actions. The prebuy was concentrated in Europe and Asia due to inflation and supply concerns.

“I think I mentioned earlier about half of our organic growth in Q2, we would estimate, is related to inventory build. So in total, closer to 5 points of growth in the first half or added net first half, about 2.5% growth for the whole half of the year.”

asked by George Staphos · answered by Gregory Lovins

Asked about price-cost dynamics in H2 given high single-digit cost expectations, and the sustainability of high Solutions Group margins.

Q2 saw high single-digit sequential inflation largely mitigated by mid-single-digit price increases. Expects low single-digit sequential inflation and price increases in Q3. Solutions margins benefited from significant productivity, volume rebound in apparel, and some one-time benefits; expects some moderation in Q3 but H2 margins still above prior year.

“When we look at the second quarter from a price cost perspective, and I'll talk sequentially. We saw high single-digit inflation from Q1 to Q2. And we had mid-single-digit price increase from Q1 to Q2 to help mitigate that.”

asked by John McNulty · answered by Gregory Lovins

Inquired about the expansion themes for Intelligent Labels in the food category (e.g., baked goods, frozen food) and the nature/magnitude of employee cost inflation.

Initial IL food focus was bakery, now expanding to protein, with further perishable items to follow. Retailers recognize the ROI of digitizing stores, driving IL adoption. Employee cost headwinds are from normal wage inflation and a larger impact from incentive compensation normalizing from below-target payouts last year.

“I think the way I'd characterize it, Jeff, is the initial focus has been really around bakery. It's a more simple one to implement. But we are, as you know, working through protein now, which has been more technically difficult to do, but that's where we brought our innovation to bear where I think we continue to sustain advantage.”

asked by Jeffrey Zekauskas · answered by Deon Stander

Asked for a breakdown of the 3-4% organic growth guidance, suggesting H2 pricing up 3-4% and a 3% destocking headwind, implying flat underlying volumes.

Underlying volume mix trends are relatively similar in H1 and H2 (low to mid-single digits). The destocking headwind in H2 is largely offset by positive year-over-year pricing actions, as the company is no longer lapping prior-year deflation.

“I think second half is somewhat similar from a volume mix perspective, but we have the destocking impact coming in and it's a headwind in the second half, largely offset by the fact that price now, we're no longer lapping the deflation from prior year.”

asked by Joshua Spector · answered by Gregory Lovins

Asked if inventory stocking continued into Q3, if apparel/retail RFID growth was tied to pre-buys, and confirmed the $0.50 Q2-Q3 sequential EPS headwind.

Stocking continued through May, with June normalizing, and destocking signs seen in early July. No stocking impact on solutions or Intelligent Labels. Confirmed the $0.50 sequential EPS headwind for Q3, representing the reversal of the $0.25 Q2 benefit.

“From the sequential headwind, basically, the roughly $0.25 benefit we got from our customers increasing their inventory in Q2, our outlook would be that assumes a roughly $0.25 headwind then in the third quarter. So that's the 50% -- or $0.50 Q2 to Q3 sequential headwind that we'll have from an earnings perspective.”

asked by John Dunigan · answered by Gregory Lovins

Asked if the reinstatement of full-year guidance was a one-time action to clarify prebuy impact or a return to regular full-year guidance.

The reinstatement reflects confidence in performance despite uncertainty around destocking timing. The intention is not to fluctuate between guidance time horizons but to maintain a consistent approach going forward.

“Our intention is not to go back and forth between different guidance time horizons in the future, though. So we're obviously not talking about 2027 guidance here, but our intention would be to stay with one approach as we go forward.”

asked by Anthony Pettinari · answered by Gregory Lovins

Asked if AI is an enabler and accelerator for Intelligent Labels or a competing technology.

AI is seen as an accelerator for IL. It helps process the vast amount of item-level data generated by IL, enabling more surgical decisions and expanding ROI for customers, creating a flywheel effect for more IL adoption. The company is investing in AI for internal efficiency, innovation, and growth.

“Yes, I believe it is. Absolutely. And maybe I'll just give you a slight context that I still think the biggest secular trend we're going to see over the next 5 or so years is the continued digitization of industries and of items.”

asked by George Staphos · answered by Deon Stander