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Ladies and gentlemen, welcome to Avery Dennison Corporation's earnings conference call for the first quarter ended on 03/31/2026. 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 1 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 Corporation investor website. I would now like to turn the call over to William Gilchrist, Avery Dennison Corporation's Vice President of Investor Relations. Please go ahead, sir.

Thank you, Lucas, and welcome to Avery Dennison Corporation’s first quarter 2026 earnings conference call. Please note that throughout today’s discussion, we will be making references to non-GAAP financial measures. Non-GAAP measures that we use are defined, qualified, and reconciled from GAAP on Schedules A4 to A8 for the financial statements accompanying today’s earnings release. I 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 M. Stander, President and Chief Executive Officer, and Gregory S. Lovins, Senior Vice President and Chief Financial Officer. I will now turn the call over to Deon.

Thanks, Gilly, and hello, everyone. We delivered a strong start to 2026, with first quarter organic sales up 1%, driven by mid single-digit volume/mix growth, and adjusted EPS up 7% year over year. These results once again demonstrate the benefits of our diversified portfolio and our strong productivity and cost control management. Our performance this quarter was a clear display of our resilience, as stronger Materials Group results offset a softer Solutions Group performance. Growth in our base label materials business more than compensated for temporary softness in certain high value categories. As we have seen in past cycles, geopolitical uncertainty has triggered a significant shift in raw material inflation. While we do not know how long this inflationary pressure may last, we are responding proactively, implementing price increases and driving material reengineering where necessary to offset these pressures. Our history of successfully managing through inflation cycles gives us high confidence in our ability to protect our profits. Furthermore, our proven ability to manage security of supply to meet customer demand remains a distinct competitive advantage, helping to ensure we remain the partner of choice for our customers if supply chains were to tighten. We continue to take decisive actions to drive both earnings growth and business resiliency by leaning into our proven playbook. Firstly, our focus remains on investing in innovation and service-led differentiation to drive growth through share gains and expand new business opportunities. To this point, we recently signed an agreement to invest an incremental $75 million in Williard, a move that deepens our long-standing partnership and strengthens our enterprise-wide Intelligent Labels platform. This investment includes a dedicated joint go-to-market team to accelerate adoption across retail, food, and logistics. It also positions us as the preferred inlay commercial partner, leveraging our leadership in design and manufacturing to bring commercial scale to Williard’s complementary technology. Secondly, we are maintaining our commercial and operational agility by taking swift commercial, procurement, and cost actions to stay ahead of inflationary pressures. Thirdly, we are extending our scenario planning, a strength of ours, and driving greater productivity and disciplined cost management to protect our bottom line through a wide range of scenarios. Turning to our segment results. Materials Group delivered reported sales growth of 11% over the prior year. On an organic basis, sales grew approximately 2%, driven by mid single-digit volume and mix growth that was partially offset by deflation-related price reductions. The quarter’s performance once again highlighted the strength of this business. We saw strong growth in our base categories, which grew mid single digits and provided a critical offset to a quieter quarter for our high value categories, which were down low single digits. Within our high value platforms, Graphics and Reflectives declined mid single digits, and Performance Materials were down low single digits, reflecting a combination of difficult year-over-year comparisons, customer order timing, and softer auto end market sales. We anticipate these high value categories to return to growth as we go through the year. In label materials, we observed some customer prebuying during March that has persisted into April. While it is difficult to predict the exact amount and timing of the unwind, we currently expect this volume to largely unwind during the second half of Q2. Our teams remain focused on aligning production levels and cost structures with the shifting demand, utilizing our framework for managing stocking cycles. From a profit standpoint, adjusted EBITDA was up low double digits and margin up a 10 basis point increase compared to the prior year. This was a direct result of our team’s execution. We leveraged our operational rigor as well as contributions from raw material engineering initiatives. These efforts effectively countered the headwinds from a less favorable product mix and high employee-related costs, ensuring we grew the bottom line while continuing to serve our customers. In the Solutions Group, reported sales for the quarter decreased 3%, with sales down 1% on an organic basis. The quarter was defined by the steady performance of our high value categories, which grew low single digits and continue to serve as the long-term growth driver of this segment. Within the high value categories, VESCOM and Embellix both delivered solid mid single-digit growth, which was partially tempered by Intelligent Labels, which was down low single digits. In our base categories, sales were slightly worse than expected, down mid single digits. From a profitability perspective, adjusted EBITDA margin for the quarter was 16.4%, down 80 basis points compared to the prior year. While we realized clear benefits from operational efficiencies and a net benefit from pricing and raw material costs, these gains were more than offset by high employee-related costs, lower base category volumes, and our investments in future growth. We remain committed to these investments, as they are critical to ensuring innovation-led differentiation, which translates to strong long-term growth and margin expansion. Turning to our enterprise-wide Intelligent Labels platform. Sales were down low single digits compared to the prior year, a result that came slightly below our growth expectation. However, this headline number really reflects a tale of two different dynamics across our end markets. In our largest category, apparel and general retail, we saw encouraging performance. Despite the high hurdle of a pre-tariff comparison from 2025, sales were up low single digits. This growth was fueled by successful program expansions, demonstrating that adoption in apparel continues to expand. Conversely, we saw a more pronounced headwind in logistics, where sales were down low double digits. This is largely a reflection of softer logistics customer demand and managing inventory during this customer’s transition to an updated chip. We remain focused on the long-term adoption curve here, and as we navigate these varied market timings, we are continuing to position the platform for the retail and food rollouts we have planned for the back half of the year. Looking ahead, we continue to expect 2026 growth for our enterprise Intelligent Labels to outpace 2025, with performance more heavily weighted towards the second half of the year as major programs scale. In apparel and general retail, we expect to deliver full-year growth, while our food category is set for an inflection as our rollout with the largest U.S. grocery retailer across bakery, meat, and deli ramps up in the back half of the year. Finally, in logistics, we are lapping outsized volume and share in 2025 and proactively managing this by expanding pilots with new partners throughout 2026. Turning to our outlook for the second quarter. We anticipate earnings growth at the midpoint of our guidance range with organic sales growth of 0% to 2%. Our performance will once again be driven by the levers within our control: scaling our differentiated solutions in both our high value category and base businesses, accelerating pricing to offset increased raw material inflation, maintaining a relentless focus on productivity and cost management, and effectively deploying capital to drive earnings. In summary, our first quarter performance, as well as our ability to grow share and earnings, demonstrates our differentiation in a dynamic environment. We are focused on the underlying secular growth drivers that inform our strategy, as well as the business resiliency actions to manage through cyclical pressures and inflationary shifts with agility. The proactive actions we are taking to ensure supply chain resilience and accelerate innovation-led differentiation, evidenced by our deepened partnership with Williard, further strengthen our competitive moat. Our proven strategies, market-leading resilient businesses, agile teams, and disciplined capital allocation approach drive confidence to continue to deliver growth in 2026 and beyond. I want to extend my sincere gratitude to our global team for their focus on creating value for all our stakeholders, their agility, and their continued dedication to excellence. Over to you, Greg.

Thank you, Deon, and hello, everybody. In the first quarter, we delivered strong adjusted earnings per share of $2.47, up 7% compared to prior year. Earnings growth was driven by higher volume, productivity, and favorable foreign currency translation, partially offset by higher employee-related costs and targeted growth investments. As Deon mentioned, the quarter benefited from customer prebuys ahead of price increases, particularly in the last few weeks of March, which we estimate was an approximate $0.05 tailwind to earnings in the quarter. First quarter reported sales were up 7% over prior year, with organic sales up 1% as strong volume/mix was partially offset by deflation-related price reductions. Reported sales also benefited from approximately five points of growth from foreign currency translation and one point of growth from the Taylor Adhesives acquisition. Adjusted EBITDA margins were 16.4% in the quarter and comparable to prior year. We generated strong adjusted free cash flow of $104 million in the quarter, primarily driven by an improvement in working capital compared to prior year, as well as continued disciplined capital expenditures. And our balance sheet remains strong, with quarter-end net debt to adjusted EBITDA ratio of 2.4. Our capital allocation during the first quarter remained consistent with our established framework, and we returned $133 million to shareholders through a balanced combination of $72 million in dividends and $61 million in share repurchases, with the majority of the repurchases completed in March. These actions underscore our commitment to returning capital while preserving financial flexibility and balance sheet strength to define our capital allocation approach. Turning to the segment results for the quarter. Materials Group organic sales growth came in 2% higher year over year, as mid single-digit volume/mix growth was partially offset by low single-digit deflation-related price reductions. Organically, base categories grew mid single digits, more than offsetting high value categories, which were down low single digits. Turning to label materials, we believe we successfully gained share during the quarter while also benefiting from customer purchase timing ahead of price increases. From a regional perspective, volume/mix in North America was up mid single digits, while Europe delivered approximately 10% growth. In emerging markets, Asia Pacific also grew approximately 10%, and Latin America grew high single digits. Organic growth in our high value categories in Materials Group was down low single digits overall, with low single-digit growth in specialty and durable labels, which was more than offset by a mid single-digit decline in Graphics and Reflectives, and a low single-digit decline in Performance Materials, which includes our performance tapes and adhesives businesses. Regarding the Taylor Adhesives acquisition, the business continues to perform in line with our expectations. Materials Group adjusted EBITDA was up 12% compared to prior year, with margins up 10 basis points. The expansion reflects our continued strong execution on leveraging productivity, the net benefit of pricing and raw material cost, inclusive of material reengineering, and strong label volumes, partially offset by employee cost, mix, and investments. Regarding raw material cost, we experienced low single-digit year-over-year raw material deflation in the first quarter. That deflation shifted to inflation as we went through March. We saw impacts on commodities which are linked to petrochemical prices. Our teams are leveraging our proven playbook to navigate the inflation spike through strategic sourcing and the implementation of pricing. Overall, we are anticipating high single-digit sequential inflation in the second quarter. Shifting to Solutions Group. Organic sales were down 1%. High value categories grew low single digits; base categories declined mid single digits. This reflects continued softness in apparel demand as we lap a strong pre-tariff baseline in 01/2025, as well as ongoing inventory management from our customers. Within high value categories, VESCOM was up mid single digits, driven by the continued benefit from new program rollouts, and Embellix was up mid single digits, driven by both the World Cup and industry growth. Intelligent Labels fell low single digits on lower logistics, industry, and general retail. Solutions Group adjusted EBITDA margin was 16.4%, which was down 80 basis points year over year, continuing to benefit from our productivity focus and net pricing and raw material costs, but these were more than offset by higher employee-related costs, lower base category volumes, and ongoing growth investments. Turning to our outlook for the second quarter. We anticipate reported sales growth of 2% to 4%. This sales growth includes organic growth of 0% to 2%, approximately 1% from currency translation, and approximately 1% from the Taylor Adhesives acquisition. We expect adjusted earnings per share in the range of $2.43 to $2.53, representing approximately 3% growth year over year at the midpoint. This earnings growth is driven by benefits of productivity actions more than offsetting headwinds from wage inflation and growth investments; the anticipation of destocking, which is projected to impact label material volumes in the latter half of the second quarter; and the normalization of 2025 temporary savings, largely from incentive compensation expense; and a net benefit from combined currency, share count, interest, and tax. We have also outlined key contributing factors for our full year 2026, which are largely unchanged from our prior outlook, on slide nine of our supplemental materials. We continue to expect an approximate $0.25 EPS benefit from the combination of favorable currency, which largely benefited Q1, and a lower share count, partially offset by a higher adjusted tax rate and interest expense. We have increased our expectations for restructuring savings, anticipating greater than $55 million as we continue to lean into our productivity levers. And we remain committed to strong adjusted free cash flow, targeting roughly 100% conversion for the year with fixed and IT capital spending of approximately $260 million. Assuming current economic conditions persist, we anticipate sequential increases in earnings throughout the year, in line with our recent historical seasonal patterns and excluding the impacts of destocking from the prebuy timing. In summary, we delivered a strong start to the year, achieving adjusted EPS growth of 7% compared to prior year. These results reflect our ability to drive volume and productivity while navigating a dynamic environment. We are well positioned to offset the latest round of significant inflation by leveraging our procurement excellence and proven pricing discipline. We generated $104 million in adjusted free cash flow this quarter and returned $103 million to shareholders. We continue to operate within our disciplined capital allocation framework while maintaining a strong balance sheet. With that, we will now open up our call for your questions.

Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please raise your hand now using star 1 on your telephone keypad. If your question has been answered and you would like to withdraw your registration, please press the pound key. To accommodate all participants, we ask that you please limit your question, and then return to the queue if you have additional questions. Please stand by as we compile the Q&A roster. Your first question comes from the line of Ghansham Panjabi from Robert W. Baird. Ghansham, please go ahead.

Thank you, operator. Morning, everybody. So on Intelligent Labels, how did that play out relative to your initial expectations for Q1? And also, has your view on 2026 core sales for this business changed just given the events over the past couple of months or so?

Hi, Ghansham. Q1 played out slightly lower than we had anticipated, mostly on the logistics volume that we saw both at the customer level and some changes as they were managing through inventory in preparation for a new chip they were having. While we have not given an outlook for the rest of the year, I still believe we are going to see growth through the whole of 2026 relative to 2025 overall, Ghansham. In particular, we are going to see the second half of the year when some of the new programs ramp, particularly in food. We talked about the Walmart ramp for us in the second half of the year. We also have a number of other apparel programs that were planned and a couple of new ones that are also coming along as well. Overall, while it is difficult to know how the second half of the year will play out from a macro perspective, I feel good about our ability to drive those new programs and have them roll out, and hence we will start to see an expansion in growth rate as we go through the year.

Your next question comes from George Staphos from Bank of America Securities Incorporated. George, please go ahead.

Thanks very much. Hi, everyone. Good morning. Thanks for the details. I wanted to peer into the revenue bridge for the quarter. You said sales growth is put at 2% to 4%. Organic is 0% to 2%. We have one from FX and one from Taylor, so it suggests there is not a lot of impact, if we are not misreading this, from pricing. Can you talk about how the work you are doing to offset cost pressure will materialize in terms of pricing in Q2 and perhaps more in Q3 given lags? Relatedly, any common denominator in terms of the weakness in volume we saw in the high value categories in Materials? Thank you.

Thank you, George. I will start with the first question. I think you are talking about the second quarter outlook. We are seeing high single-digit sequential inflation in Q2. We are implementing price increases pretty much across the globe to manage through that, with low to mid single-digit price impacts, so we would expect, sequentially from Q1 to Q2, to offset that inflationary pressure. From a year-over-year perspective, we still have some carryover deflation, which is part of what drove pricing down, as I talked about in the first quarter—down low single digits in Q1 versus prior year—really driven by carryover pricing with the deflation that we were seeing last year. Some of that carryover price down offsets some of that price increase in the second quarter, but we would expect a slight overall net price increase in Q2 versus prior year.

The only other thing I would add is that historically, when we talked about price and inflation, we have seen about a quarter gap. As we have gone through the last few cycles, our ability to manage pricing, sourcing, and inflation is much improved, and we do not anticipate any real gap in the timing of how we manage inflation and the pricing we put through. In terms of your high value category question on Materials Group overall, there were some idiosyncratic reasons in the first quarter, particularly on Graphics and tapes, which were down largely due to the really strong comp in the first quarter of last year, some intra-quarter inventory dynamics with some distributors, and some end market sales softness reflected in our Graphics business. Our anticipation is that as we go through the year, we are going to see a return to growth for those categories and overall volume increase.

Your next question comes from Jeff

Thanks very much. You are estimating flat earnings per share in the second quarter relative to the first quarter. Normally, the second quarter is seasonally stronger. I understand there is a little bit of prebuying and you called that out as being a nickel, but usually the seasonality is stronger than that. So is what is restraining second quarter earnings growth the timing of the raw material inflation that you will get back later? And then in the third quarter, you are usually seasonally weaker than you are in the second, but you will have growth in Intelligent Labels and a little bit more price. In the third quarter, are we beginning to go up or flat or down? Where do we stand?

Thanks, Jeff. On your first question, as I mentioned, we had about a nickel benefit of prebuy in Q1, which then comes out of the second quarter and creates really a $0.10 swing from the first quarter to the second quarter. Historically, we have had somewhere around $0.10 to $0.15, depending on the year, of sequential seasonal benefit, as you mentioned, largely offsetting that. Looking at other factors, I would say we have a very slight price/inflation lag impact, but that is largely offset by productivity increases as we move through the year as well. Overall, it is really the seasonal benefit offset by the prebuy impact that is largely driving that. For the rest of the year, as we mentioned, we do expect continued sequential earnings growth as we move through the year. Prebuy impacts, as you said, would lower Q2 and should be a benefit from Q2 to Q3. We expect continued improvements in high value category growth as we move through the back half of the year, continued earnings impacts from share buybacks, and continuing to drive productivity growth. We would expect to continue to see sequential improvements in earnings as we move through Q3 and Q4.

Your next question comes from John McNulty from BMO Capital Markets. John, please go ahead.

Good morning. Thanks for taking my question. Maybe just dig a little bit more into the IL business. Logistics was weak, it sounded like on two things: customer volumes and then the chip change. Presumably, the chip change is a temporary thing and you get that back. Can you help us think about how much of it was just from general weakness in volumes versus that chip shift? And then as a secondary related question, the investment that you just made in Williard—if you can give us some thoughts on how you can leverage that opportunity and how that maybe brings that business more meaningfully to you over time.

John, the majority of what we saw in logistics softness is down to end customer demand volumes, and I think you have seen that publicly announced today as well. There was some degree of impact on the chip timing, but it will largely be resolved by the time we get through the second quarter. On logistics, recall what we talked about in our last call: we drove outsized growth and share in 2025, and this year we are going to be lapping that. That growth and share came because a large number of our competitors were not able to service the account as anticipated, and we stepped in to provide support. Our planning and expectation is that it will normalize in time. We have yet to see that in the first quarter, but that is our planning and expectations at the moment. We are also expanding positive pilots in logistics with other logistics providers. Turning to Williard, I am really pleased with the investment in this complementary technology. They have been a partner of ours for a long time, and we are deepening that relationship, specifically with a joint go-to-market and our role in providing support as the largest manufacturer and designer from our scale and network. Williard is reliant on Bluetooth, so it is not RFID in the way that you think about it, and it is largely applicable when you think about condition monitoring—when items need sensing related to changes in temperature, humidity, and light. This is where the technology really comes to bear. We have always talked about having a portfolio of sensors that are applicable to each business case. Think about this being really applicable in food, pharmaceutical, and some logistics at case and pallet level where you need more of that condition sensing technology. Our view as we move forward is twofold. It opens up total addressable market further for our Intelligent Labels platform overall—we think that condition monitoring is probably another 75 billion units in the long term—and at the same time, it gives us a position of strength as we think about our breadth of solutions that we can provide in partnership to all of our customers moving forward.

Your next question comes from the line of Joshua Spector from UBS. Josh, please go ahead.

Hi. Good morning. I wanted to just clarify two things. On the price/cost side, Greg, I think you talked about it being a slight negative in Q2. Is all the cost flowing through in Q2, or do you have something else to deal with in Q3 based on what we see today? And then in your answer to Jeff’s question earlier around your comments about sequential earnings growth through the year—you had the qualifier about historical earnings seasonality—but I heard you answer that you think earnings would be up in Q3, and then seasonally you are normally up in the fourth quarter. Is that the right way to think about it, or would you characterize it differently?

On price/cost, I mentioned a slight headwind in Q2 from timing. We are continuing to see inflation increase as we move here into April and early May, so we are continuing to do price increases. Some regions are seeing higher inflation than others and are even entering a second round of pricing action. There may be a slight headwind, but overall, pricing is pretty closely matching inflation as we go through the second quarter. There will be some carryover sequential inflation in Q3, so inflation that we are seeing somewhat in the middle of the second quarter will flow into the third quarter as well. We will see a little bit of sequential inflation impact then, as well as a sequential price benefit from Q2 to Q3. We are not giving second-half guidance, but our expectation is to continue to drive significant productivity—we increased our restructuring outlook as we gave in the slides today—continue to drive high value category growth, and continue to allocate capital to increase earnings. Our focus is on continuing to drive sequential improvement as we move through the quarters.

Your next question comes from the line of John Dunigan from Jefferies. John, please go ahead.

Thanks for all the details, Deon and Greg. Really appreciate it, and congrats on performing well in a pretty tough environment. I wanted to ask on the Intelligent Labels business—you talked about the headwind from the logistics share gains that you had last year, but I think you mentioned that you did not really see any of that giveback in Q1. How much should we pencil in for a headwind year over year here in 2026?

John, we are not forecasting the remainder of the year, but we are anticipating and planning for some of that outsized volume and share that we gained in 2025 to be lapped if things normalize. We are working to offset that with additional pilots we are expanding with some of our other logistics customers. The biggest part of our overall IL program during 2026 is going to be our food program as we roll out with Walmart during the second half of the year. Recall I said we thought it would be somewhere in the high single-digit to low double-digit equivalent value across a two-year period on our total 2025 IL revenue. We are still planning to see the start of that significant ramp during the second half of this year. Because of that announcement, we have also seen more inbound from other food retailers and food supply chain players who are interested in understanding how they can leverage the technology. I am encouraged by two pilots that are running—one in North America and one in Europe—with large grocery retailers, as well as a supply chain part of the direct-to-store delivery for one of our retail customers, which is a different use case. Overall, from a food perspective, we are seeing direct ramp, and then in apparel, we will continue to see new programs roll out—a couple that are already in flight and two that will start later in the second part of the year. The other piece that I am encouraged by is the traction we are seeing with innovation technology in this area. We spoke last year about the rollout with the Inditex Group based on our loss prevention and visibility solution. We now have a second customer, another footwear brand, that is starting to use that as we go into the second half of the year, so not just new customers, but extending technology to drive new use cases as well.

Your next question comes from Mike Roxland from Truist Securities. Mike, please go ahead.

Thank you, Deon, Greg, Gilly, for taking my questions. Deon, just to follow up on John’s question, it sounds like you are expecting or pretty confident in Intelligent Labels ramping in the back half of the year relative to the first half. To the extent you can comment, how do you think about the cadence of IL over the duration of the year? To hit your guide for 2026 in terms of growing beyond 2025, it implies some lofty growth which seems like it is going to be more 2H weighted than 1H weighted. And then, secondly, any update on your key logistics customer and the deployment internationally?

Mike, you are right. We are going to see a significant ramp in the second half of the year, and sequentially our run rate of growth will improve as we go from here through the second half of the year. That gets us to growth above 2025 by the time we exit the end of the year. As it relates to our logistics customer, we are continuing to work with them on the international expansion, and that is going relatively well according to plan. The second piece we are doing—you probably saw some commentary in the press—is that not only are we focused on the last-mile fulfillment centers where we have been very active over the last couple of years, but as they orientate to first mile—this is the shippers themselves, their own franchise stores, and other customers—we are involved in providing support in that regard as well. Ultimately, in logistics you are going to get a combination of business models: some will choose to focus on last mile first, others will focus on first mile. We are seeing that with two or three other logistics players as we go through some of the pilots as well.

Next question comes from Matt Roberts from Raymond James. Please go ahead, Matt.

Good morning, everyone. Thank you for the time. Deon, a couple times throughout the call you referenced the playbook for cost reduction and specifically for inflationary pressures. Given you all have a unique window into a wide range of end markets and into how your customers are thinking about pricing going forward, whether that is in food, apparel, or other categories, how are your customers looking to offset their own cost via price, and what impact do you expect that to have on the volume outlook going forward? You talked about extended scenario planning. How far are we from reaching a threshold of consumer elasticity, if you will, after years of price increases at retail?

Sure, Matt. Relative to our assumptions at the start of the year, it is clear that inflation will be higher than we had originally planned, and the economic indicators are lower than when we started the year. What is difficult for us is to estimate the impact, timing, and consequence of how that may play out in the second half. We are expanding our scenario plans and widening them further to make sure we are prepared for all eventualities in the volume environment that may or may not play out. The biggest part of why I feel confident in our earnings growth trajectory as we go through the year—just to reiterate—is because we are going to continue to accelerate productivity. You have seen we updated our restructuring to $55 million, with the largest part playing out in the second half of the year. We know our high value categories will continue to expand as we go through the year—not just because Materials Group had some idiosyncratic challenges in Q1 that will improve, but also because our IL growth will ramp in the second half. Finally, we have the impact of share count reduction that will help us in the second half as well. Looking at our end markets overall, it varies by region and within end markets. In our materials label business, customers in regions with stronger inflation have been more cautious; some have been doing prebuying—particularly in Europe, some in Asia, and a little emerging in North America. On the end market side, retailers and brands are thinking about consumer confidence. CPG volumes have been muted for the last couple of years, and encouragingly at the start of this year we have seen a couple of CPGs indicate they are seeing some volume growth. That could be a positive benefit for us despite inflation. In apparel, sentiment has been soft for a long time—it went through tariff challenges last year—and now apparel customers are thinking about what inflation may mean for end market demand; it is a discretionary purchase. That said, apparel imports continue to be very low; apparel inventory-to-sales ratios are at the lowest since 2021, and as we go through the year we may see some upside as things normalize. We continue to work with customers on back-to-school sourcing and ultimately into holiday. Our assumptions are that if we do not see any further deterioration in the macro environment from where it is now, we would anticipate sequential earnings growth as Greg called out as we go forward through the year.

Your next question comes from Anthony Pettinari from Citi. Please go ahead, Anthony.

Good morning. Just following up on Intelligent Labels. Understanding the big ramp is in the second half of the year, was there anything notable in terms of the exit rate in the first quarter? Was that stronger or weaker? It seems like comps could get potentially easier in Q2. Did you see any acceleration in March or April?

Nothing that stood out dramatically, Anthony. In the second quarter, we should see easier comps on our apparel and general merchandise because, if you recall, tariffs really took hold in the second quarter of last year when we saw a negative outcome then as well. As I look at where we are now, our current run rates in April reflect on both businesses a continuation of what we saw during March overall. Apparel continues to be solid from what we can see initially, and for our materials business, particularly our labels business, we continue to see some of that elevated activity which Greg spoke about, and we are unwinding as we get through the second quarter.

Your next question comes from Hillary Cacanando from Deutsche Bank Securities. Hillary, please go ahead.

Hi. Thanks for taking my question. In terms of capital allocation, you bought back $61 million in shares this quarter. Given that your leverage is stable at 2.4 times, how should we think about the pace of buybacks for the remainder of the year, particularly balancing against your investment pipeline?

Thank you, Hillary. We continue to follow our playbook on share buybacks, taking a return-based approach using a grid. In a period where we see share price increase, we may pull back a bit on the pace; in a period like we saw in March where the share price decelerated, we increased our pace. The vast majority of our Q1 share buyback actually came in March, and April continued at a relatively similar pace. It will depend on how things play out through the year, and we will continue to take a return-based approach accordingly. Overall, we feel good about the capacity we have to continue investing in the business organically—CapEx and innovation-related investments—and investments like Williard to help increase our future growth rates, as well as looking at opportunities for both M&A and continuing share buybacks. We feel good about our capacity across all of those fronts and will continue to take a balanced, disciplined approach.

Your next question comes from George Staphos from Bank of America Securities Incorporated. George, please go ahead.

Thanks very much for taking the follow-on. Two quick ones. First, can you elaborate further on how you are expanding the scenario planning? Is it just pulling more levers on the productivity and maybe ramping the buyback as the market has allowed you, or are there any other elements you can share in terms of how you are expanding the playbook? Secondly, in terms of prebuys—recognizing you are in business to serve your customers—what are you doing to prevent too much prebuying that gives you a bit more of a destocking that has to be managed into Q2 and perhaps into Q3?

Thanks, George. In terms of expanding our scenarios, you touched on major drivers. We look to understand where there are additional productivity opportunities for us in lower volume scenarios or, alternatively, if volume continues to grow. The other element is innovation: when we have new products or solutions in the pipeline, can we accelerate them to get to market quicker? Our teams are also focused on what it takes to continue to win and drive share with customers—both new and existing—through commercial excellence backed by innovation, quality, and service delivery. Those relationships present opportunities to increase our share of wallet. Typically, in more uncertain or inflationary environments, particularly if supply chains are challenged, we see migration back to market leaders because customers trust the security we provide, and that may represent another upside in terms of share gains.

I think some of that addresses the question on prebuy as well. There are two primary reasons that customers do prebuy: to ensure certainty of supply and to manage price increases they see coming in the market. Our global scale is a big competitive advantage when it comes to ensuring certainty of supply—leveraging our procurement excellence and sourcing strategy. We learned a lot from the challenges of 2021 and 2022, expanded our supplier and sourcing strategies, and feel good about our ability to ensure certainty of supply. That helps limit the impact of prebuys getting too large. What we are seeing here is a much lower scale than what we saw in 2021–2022, when we saw three or four quarters of inventory building before the destock happened in late 2022 and early 2023. Right now, it is about a month or so of inventory build. We are going to continue to manage that very closely and see how it plays out as we move through the quarter.

Mr. Gilchrist, there are no further questions at this time. We will now turn the call back to you for any closing remarks.

Thank you, Lucas. On behalf of everyone at Avery Dennison Corporation, I want to thank everyone for joining today’s call and for the continued interest in Avery Dennison Corporation. This concludes today’s conference call.