Avery Dennison (NYSE:AVY) reported second-quarter results marked by accelerating organic growth, higher margins and strong free cash flow, while reinstating full-year guidance despite expected customer inventory destocking in its Materials Group during the second half.
Chief Executive Officer Deon Stander said organic sales rose 8% year over year, adjusted earnings per share increased 19%, and adjusted free cash flow exceeded $360 million. The company reported adjusted EPS of $2.89, while adjusted EBITDA margin expanded 50 basis points to 17.1%.
Inventory Pre-Buys Lift Materials Results
The company said customer inventory pre-buying, particularly in Label Materials, contributed materially to second-quarter growth as customers responded to rising raw-material costs and supply concerns in Europe and parts of Asia.
Chief Financial Officer Greg Lovins said approximately half of the company’s 8% organic growth in the quarter was related to inventory building. The activity added an estimated $0.25 to second-quarter earnings per share. For the first half, Avery Dennison estimated customer stocking added roughly five points of growth, or about 2.5 percentage points of growth for the six-month period.
Materials Group organic sales increased 10%, driven by high-single-digit volume-mix growth and low-double-digit pricing realization. Excluding the estimated benefit from customer pre-buys, underlying organic growth in the segment remained in the mid-single digits, Lovins said.
High-value Materials categories grew in the mid-single digits, led by low-double-digit growth in specialty and durable labels and high-single-digit growth in Intelligent Labels. Industrial tapes posted low-single-digit growth, while graphics and reflective products were comparable with the prior year.
Materials Group adjusted EBITDA increased 17%, with margin expanding 20 basis points. The company cited volume, productivity, pricing and raw-material cost management as drivers, partly offset by an unfavorable product mix and higher employee-related costs.
Avery Dennison experienced mid-single-digit year-over-year raw-material inflation in the second quarter, including high-single-digit sequential inflation. The company expects high-single-digit year-over-year raw-material inflation in the second half, though Lovins described the environment as uncertain.
Solutions Margins Expand as Sales Return to Growth
Solutions Group organic sales rose 3%, with both high-value categories and base solutions posting low-double-digit growth. Embelex, the company’s embellishments business, recorded low-double-digit growth, supported by core market expansion and World Cup demand.
Intelligent Labels in Solutions grew in the low single digits, while Vestcom declined slightly as the company lapped a major customer rollout in 2025. Base solutions returned to low-single-digit sales growth, according to Stander.
Solutions Group adjusted EBITDA margin reached 18.6%, up 150 basis points from a year earlier and 220 basis points sequentially. Lovins said the improvement reflected productivity initiatives, reversal of prior-year tariff-related network inefficiencies and a favorable net price-cost impact. He said the company expects some margin moderation in the third quarter but still anticipates second-half margins above prior-year levels.
Intelligent Labels Outlook Varies by End Market
Enterprise-wide Intelligent Labels sales increased in the low single digits during the second quarter. Apparel and general retail sales rose about 10%, driven by program expansions in apparel and a recovery in general retail. Logistics sales, however, declined by double digits as the company faced difficult comparisons with outsized share gains in 2025 and softer customer demand.
Stander said the company continues to expect Intelligent Labels growth for 2026 to exceed its 2025 growth rate. He expects apparel and general retail to produce strong full-year growth and said food-related activity should accelerate in the second half as the company begins a rollout with its largest U.S. grocery retailer and expands programs with other customers.
In food, Stander said initial deployments have focused on bakery, while the company is advancing protein pilots. He said larger commercial deployments can have varying timelines, but the company expects a rollout with Walmart to begin in the second half of 2026. Other customer pilots are expected to contribute more meaningfully in 2027 and beyond.
Stander also described artificial intelligence as a potential accelerator for Intelligent Labels, saying AI can help customers extract more value from item-level data generated across supply chains, retail operations and consumer use.
Full-Year Guidance Restored; Third-Quarter Pressure Expected
Avery Dennison reinstated full-year 2026 guidance, forecasting adjusted EPS of $10 to $10.30 and organic sales growth of 3% to 4%. Reported sales are expected to grow 5% to 6%, including an estimated 1.5 percentage-point benefit from currency translation and a 1-percentage-point contribution from the Taylor Adhesives acquisition, partly offset by a nearly half-point fiscal-calendar headwind.
The company expects the majority of Materials Group inventory destocking to occur in the third quarter, with a smaller carryover into the fourth quarter. Lovins said the company’s outlook assumes approximately a $0.25 headwind in the third quarter after the $0.25 benefit from inventory building in the second quarter, producing an estimated $0.50 sequential earnings headwind from the reversal.
For the full year, Avery Dennison expects customer inventory management to have a largely neutral effect on earnings. Its earnings outlook also incorporates productivity and restructuring benefits of more than $60 million, offset by wage inflation and the normalization of temporary 2025 savings, primarily related to incentive compensation.
The company generated $365 million in adjusted free cash flow during the quarter and ended the period with net debt to adjusted EBITDA of 2.3 times. Avery Dennison returned more than $210 million to shareholders during the quarter through $76 million in dividends and $138 million in share repurchases, bringing year-to-date shareholder returns to roughly $350 million.
About Avery Dennison (NYSE:AVY)
Avery Dennison (NYSE:AVY) is a global materials science and manufacturing company specializing in labeling and packaging solutions. The company develops pressure-sensitive materials, tags and labels, and adhesive technologies that help brands and businesses enhance product identification, branding and supply-chain performance. Avery Dennison’s offerings range from industrial and retail labeling to high-performance tapes, films and graphics materials used across multiple end markets.
The company operates through several key segments, including Label and Graphic Materials, which supplies pressure-sensitive materials for consumer goods; Retail Branding and Information Solutions, offering apparel tags, RFID inlays and digital product identification; Pressure-Sensitive Materials, providing specialty tapes and adhesives; and RF Technologies, focused on advanced RFID and IoT labeling solutions.
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