Adhesive manufacturing company Avery Dennison (NYSE:AVY) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 1.5% year on year to $2.22 billion. Its non-GAAP profit of $2.37 per share was 1.9% above analysts’ consensus estimates.
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Avery Dennison (AVY) Q3 CY2025 Highlights:
- Revenue: $2.22 billion vs analyst estimates of $2.22 billion (1.5% year-on-year growth, in line)
- Adjusted EPS: $2.37 vs analyst estimates of $2.33 (1.9% beat)
- Adjusted EBITDA: $365.1 million vs analyst estimates of $355.5 million (16.5% margin, 2.7% beat)
- Adjusted EPS guidance for Q4 CY2025 is $2.40 at the midpoint, below analyst estimates of $2.45
- Operating Margin: 11.9%, in line with the same quarter last year
- Organic Revenue was flat year on year vs analyst estimates of flat growth (70.1 basis point miss)
- Market Capitalization: $13.96 billion
StockStory’s Take
Avery Dennison’s third quarter results were met with a notably positive market response, reflecting both operational resilience and strategic execution. Management attributed the quarter’s performance to margin expansion in the Materials Group, continued growth in high-value categories like specialty durable labels, and sequential improvement in apparel volumes. CEO Dion Stander highlighted, “We fully mitigated direct cost increases through strategic sourcing adjustments and select pricing surcharges.” Despite some ongoing headwinds from customer inventory adjustments and trade policy changes, the company’s diversified product mix and operational discipline helped sustain profitability this quarter.
Looking ahead, Avery Dennison’s guidance factors in cautious optimism, with management expecting improved organic sales growth and stronger year-over-year earnings in the next quarter. The company’s outlook is shaped by ongoing investments in high-value categories and recent partnerships, particularly the rollout of intelligent labels with Walmart in fresh food. CFO Gregory Lovins pointed out, “We expect slight improvements in organic sales growth and continued year-over-year EPS growth in the fourth quarter,” while noting that wage inflation and network inefficiencies remain persistent cost pressures. Management believes ongoing innovation and expanding market opportunities, especially in food and logistics, will be critical to sustaining growth.
Key Insights from Management’s Remarks
Management emphasized that growth in high-value categories and strategic wins in intelligent labels offset weakness in certain core segments, while ongoing trade policy changes and network inefficiencies continued to weigh on results.
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High-value category expansion: Avery Dennison saw strong growth in its specialty durable labels, adhesives, and films, which management cited as positive mix drivers for both revenues and margins. These high-value categories now account for 45% of total business year to date, highlighting the company’s shift toward higher-margin opportunities.
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Apparel segment recovery: Although base apparel volumes remained down low single digits, management saw sequential improvement and low single-digit growth in high-value apparel categories, particularly Embellix and VESCOM, aided by World Cup-related demand and new customer rollouts.
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Intelligent Labels momentum: Enterprise-wide intelligent label sales grew 3% year over year. The Walmart partnership to deploy RFID (radio-frequency identification) in bakery, meat, and deli departments was highlighted as a key milestone, with management expecting it to serve as a catalyst for broader adoption in the food market.
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Mitigating tariff impacts: Ongoing trade policy uncertainty continued to impact both apparel and general retail segments. However, management stated that direct cost increases from tariffs were fully offset by strategic sourcing and pricing surcharges, limiting margin pressure.
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Materials Group margin focus: Margin expansion in the Materials Group was achieved through operational productivity and modest volume/mix growth, despite isolated inventory management adjustments by certain customers. Management expects these impacts to be short-term and for high-value categories to rebound in subsequent quarters.
Drivers of Future Performance
Avery Dennison’s outlook is shaped by the expansion of intelligent labels, ongoing trade policy uncertainty, and continued investment in high-value categories.
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Food sector as growth engine: Management expects the Walmart partnership and ongoing collaboration with Kroger to accelerate intelligent label adoption in the food segment, which they estimate to have a $200 billion unit addressable market. CEO Dion Stander described this as a “critical validation” of the technology’s value proposition, with rollout expected to ramp sequentially through 2026 and 2027.
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Trade policy and cost pressures: Persistent tariff-related uncertainty, especially in apparel and general retail, remains a headwind. CFO Gregory Lovins noted the company is “well prepared for a range of macro scenarios,” but highlighted that wage inflation and network inefficiencies from shifting production continue to pressure margins.
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Capital allocation and acquisitions: Avery Dennison’s recent acquisition of Taylor Adhesives and disciplined capital returns are expected to support long-term growth. Management indicated the bolt-on deal strengthens their adhesives portfolio and brings clear cost synergies, while ongoing investments in production capacity will be carefully timed to match demand from large customer programs like Walmart.
Catalysts in Upcoming Quarters
In the coming quarters, the StockStory analyst team will closely watch (1) the pace and scale of intelligent label adoption with major retailers such as Walmart and Kroger, (2) normalization of inventory management and recovery in high-value categories like graphics and performance tapes, and (3) the impact of ongoing trade policy developments on apparel and general retail. Progress in executing productivity initiatives and realizing cost synergies from acquisitions will also serve as important indicators of operational discipline.
Avery Dennison currently trades at $176.97, up from $163.44 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).
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