Eric Leeds - Head of IR Dean Scarborough - Chairman, President and CEO Mitch Butier - SVP and CFO.

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George Staphos - Bank of America Merrill Lynch Ghansham Panjabi - Robert W. Baird Anthony Pettinari – Citigroup Rosemarie Morbelli - Gabelli & Company Scott Gaffner - Barclays Capital Jeff Zekauskas - JPMorgan.

Ladies and gentlemen, thank you for standing by and welcome to Avery Dennison’s Earnings Conference Call for the Second Quarter ended June 28, 2014. During the presentation, all participants will be in listen-only mode. Afterwards, we will conduct a question-and-answer session. (Operator Instructions).

This call is being recorded and will be available for replay from 12:00 pm Pacific Time today through midnight Pacific Time, June 29th. To access the replay, please dial 1800-633-8284 or 402-977-9140 for international callers. The conference ID number is 21676582. (Operator Instructions).

I would now like to turn the conference over to Eric Leeds, Avery Dennison’s Head of Investor Relations. Please go ahead, sir..

Thank you. Welcome, everyone. Today, we’ll discuss our preliminary unaudited second quarter 2014 results. Please note that unless otherwise indicated, today’s discussion will be focused on our continuing operations.

The non-GAAP financial measures that we use are defined, qualified and reconciled with GAAP on schedules A-2 to A-5 of the financial statements accompanying today’s earnings release. We remind you that we’ll 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 Dean Scarborough, Chairman, President and CEO; and Mitch Butier, Senior Vice President and CFO. Now I will turn the call over to Dean..

Thanks, Eric and good day, everyone. I am happy to report another quarter in line with our expectations for consolidated result as both the top and bottom line. We anticipate solid results for the full year with organic sales growth of roughly 4%, adjusted EPS 12% to 16%, and continued return of cash to shareholders.

The Pressure-sensitive Materials segment delivered organic sales growth of 6% above our expectations for the quarter driven by volume growth in Europe and emerging markets. In addition to delivering another quarter of solid growth in Label and Packaging Materials, we continue to make good progress with Graphics and Performance Tape.

Those of who joined us for our Investor Meeting in May know that these products line represent an important strategic focus for us with opportunities for significant share gain in these relatively high variable margin product line.

Year-to-date, we delivered mid-single digit organic sales growth for Graphics while Performing Tape had another strong quarter with double digit sales growth across all region and in both the industrial and personal care product lines.

Operating margin for the PSM segment was down compared to the same period last year do impact to sub comparison as well as a few other headwinds including transition cost related to the European consolidation.

We have experienced a few challenges associated with the restructuring action but I am pleased with the progress the team has made on this large complex project and we continue to expect $15 million of savings when the project is completed next year.

We are focused on maintaining operating margin for the segment within our recently increased target range of 10% to 11% and we’re targeting the high end of that range over the coming year.

Now turning to Retail Branding and Information Solutions, the team delivered a solid bottom-line result in the phase of some tough market condition from the quarter while top-line growth remains strong with our Europe-based retailers and brand owners driven largely by RFID sales to U.S. based current retailer and brand owners were saw.

A key factor appears to be retailers in the U.S. exercising caution with their orders presumably reflecting the anticipation of weak end market demand.

This top-line weakness has continued into the first two weeks of the third quarter, but I want to remind everyone that year-on-year comparisons do get easier for the segment as we move throughout the second half of the year.

I am pleased to say the sales of RFID products were robust particularly among European retailers and we continue to expect RFID to be a key long-term growth driver for this business.

Notwithstanding the challenging end market condition, RBIS continued to make good progress in executing key productivity initiatives reporting another quarter of strong earnings growth and taking another step forward on the path to our long-term urban target.

As you know, we targeted full point of margin expansion for this business each year through 2015 and recently projected continued margin expansion through 2018. Finally, Vancive Medical Technologies continues to make progress against long-term strategic objectives.

Although sales for its new product platforms haven’t begun to ramp up yet, sales for the core products were up 6% in line with expectations. As we continue to target breakeven profitability for the business by next year. So again another solid quarter for us overall.

But as I said before while I am generally pleased with our progress we won’t be satisfied until we achieve all of our long-term goals. Now I’ll turn the call over to Mitch..

Thanks Dean and hello everyone. In the second quarter we delivered 4% organic sales growth and a 13% increase in adjusted earnings per share reflecting sales growth in pressure sensitive materials and continued margin expansion in retail branding and information solutions.

Adjusted operating margin in the quarter grew 10 basis points to 8.1% at the benefit of our productivity initiatives and top line growth offset the negative impact of higher employee related expenses and products mix. As part of our productivity initiatives we realized approximately $10 million of restructuring savings in the second quarter.

This is net of $3 million of transition costs in pressure sensitive materials due to the consolidation of our European operations. We also incurred restructuring changes of about $40 million in this quarter driven primarily by this one action. Our effective tax rate was 42% in the second quarter and is 30% year-to-date.

Our adjusted tax rate for both Q2 and year-to-date was 33% in line with our expectations as we continued to anticipate the full year tax rate to be comparable to last year. Free cash flow in the second quarter was $85 million versus $105 million last year.

As a reminder last year’s free cash flow was relatively high as it included $26 million of proceeds from the sale of some buildings including our former corporate headquarters in Pasadena. We also had a headwind in the second quarter of this year in connection with the final phase of implementing a new financial system.

During the transition to the new system, we paid certain vendors approximately $40 million in advance of our standard terms. This will not impact full year free cash flow as it is a timing item that will be recovered in the second half.

We expect to deliver free cash flow of approximately $300 million in 2014 versus our previous guidance which had a floor of $300 million for the year.

We have reassessed the possible timing of vendor payments and customer receipts at year-end and no receipts $300 million as a clear floor given the inherent volatility of working capital balances at year-end. Any reduction in free cash flow in 2014 related to these factors would simply represent a deferral into early next year.

With net debt to EBITDA 1.4 times we remained below our long-term targeted leverage position with ample capacity that continues to return cash to shareholders over the coming years.

Along these lines we repurchased 3.1 million shares in the first half at a cost of $153 million more than offsetting delusion and reflecting an increased level of share repurchases in the second quarter. We will continue to be disciplined and opportunistic when buying back shares. In addition, we paid $61 million in dividends in the first half.

Looking at the segments, Pressure-sensitive Materials sales in the second quarter were up approximately 6% on an organic basis again exceeding our expectations. Labels and Packaging Materials sales grew mid single-digits and the combined sales for Graphics, Reflective and Performance Tapes grew low double-digits.

On a regional basis, North America sales for the PSM segment were roughly flat. Western Europe grew mid single-digits and emerging markets grew almost 10%. PSMs adjusted operating margin of 10.1% in the second quarter was 60 basis points lower than the peak margin reported in the second quarter of last year.

During Q2, higher employee related expenses the impact of changes in product mix and a modest headwind from the net impact of pricing and raw material input costs more than offsets the benefit of higher volume and productivity initiatives.

As mentioned earlier we also incurred transition costs related to the restructuring in Europe which reduced margins by about 25 basis points in the quarter for this segment. While retail branding and information solution sales declined about 1% in the quarter, we delivered significant margin expansion in this segment.

RBIS sales reflected weakness from U.S. based retailers and brands particularly in the value segment, largely offset by continued strong demand from Europe based retailers and brands principally from RFID. As expected RFID revenue is growing again as we have now left the tough comps we’ve discussed in the past.

RFID revenue was up 40% in Q2 and 14% through the first half.

Despite the sales decline in the second quarter RBIS again demonstrated continued margin expansion with adjusted operating margin improving 110 basis points to 8.2%, as the benefit of productivity initiatives and other items more than offset the impact of higher employee related expense and lower volume.

The impact of higher employee related expenses was moderated in the quarter due to lower incentive compensation costs in this segment relative to last year. Sales in Vancive Medical Technologies grew approximately 6% in the quarter while the operating loss was reduced by roughly $1 million to $1.7 million.

As for the 2014 outlook, we are narrowing our range of guidance for adjusted 2014 earnings per share from continuing operations to $3 to $3.10. This guidance is based on a number of assumptions including the key factors listed on slide eight of our supplemental presentation materials.

We now estimate approximately 4% organic sales growth which excludes the benefit of an extra week of sales this year. We expect average shares outstanding assuming dilution of between 96 million and 97 million shares reflecting our increased share repurchases in Q2.

As I mentioned, we now anticipate 2014 free cash flow of approximately $300 million and we increased our estimate for restructuring charges by a nickel per share due in part to modestly higher cost for the European consolidation. The rest of our key assumptions remain unchanged from what we shared last quarter.

So, about our second quarter results for the individual segments came in so much different than expected the overall results for the company were in line. We are on track to deliver adjusted earnings per share growth of 12% to 16% for the year.

As we articulated at Investor Meeting in May we are continuing to drive solid organic sales growth, maintaining our cost and capital discipline, and returning capital to shareholders. All of which continues to enable us to deliver double digit EPS growth. Now we’ll open it up to questions..

Thank you. (Operator Instructions) Our first question is from the line of George Staphos, Bank of America Merrill Lynch. Please go ahead sir..

Hi, everyone. Good morning. Thanks for all the details. Good to hear from you. The first question I had, the incremental margins in pressure-sensitive remained fairly negligible. I was wondering if you could provide a bit more color around that.

With the context being, in part, in the past you had taken on additional revenue SKUs that was low in margin, but good from an EVA standpoint.

As you answer that question, help me reconcile that other comment as well, in terms of why it's positive on an EVA basis?.

George this is Dean. One of the factors that in fact to the quarter were transition cost from our European restructuring.

Some of those costs are difficult to predict because basically we were negotiating with the works council and various unions which have ended up being successful for us so some of those we probably had a higher than anticipated cost for transition in the second quarter we would expect in some of that maybe a little bit earlier in the year.

So that’s definitely one factor..

Okay. And can you….

And mix is the other factor here and I think it’s partially geographic mix it’s partially again the mix with some of the products I think I said at last quarter that this is the way I look at the quarter is kind of within the normal but if I exclude the transition cost it’s kind of within the normal band of variation that we had in the business.

So it was lower than we thought it might be in the second quarter..

George and I think the other factor is what mentioned was we did talked last quarter that we saw modest and it is again modest gap between price and raw material input cost and that continued carried over in the Q2 as well which was another factor.

I think overall like you’re saying that the continuation of the trends that we’ve been talking about for the last few quarters and our target is 10% to 11% operating margin for this business. It’s in that range for this year as you see and our objective is to get it to the high end for sure.

But mix and more recently the price inflation I think has a very modest headwind and we’re working off that and kind of reinforces our objective of reducing fixed cost as we go forward..

My follow on, and I'll turn it over and come back, We've been talking about mix as a headwind for a while, certainly, I think since fourth quarter last year probably dates back to third quarter.

If mix is a headwind, by this juncture I would have expected, perhaps, some corrective actions to have been taken with it? Or if it's positive from an EVA standpoint, as you said, can you explain how it can be negative in mix and positive in EVA terms for us? Lastly, again, we've been talking about price cost compression for a while.

At this juncture, should we have not seen from Avery Dennison some effective enough moves to have put that in the rear-view mirror? Thanks, guys, and I'll turn it over. .

If you take out the transition cost in the quarter there would be incremental process in the business and that is EVA positive. So we’re again pleased with the overall trajectory there..

Our next question from the line of Ghansham Panjabi with Robert W. Baird. Please go ahead..

Hi, guys. Good morning. First off, on North American PSM, again, I think you mentioned that the sales were flat in the quarter, maybe Mitch did.

Any sub-categories meaningfully weaker than others? Just curious as to what you think is actually going on in the market there?.

It’s been very choppy Ghansham.

If you look at the growth last year from the market perspective and I can’t share this specific numbers with you, but start we had a very strong first half of 2013 and then we had a soft third quarter, talking about market now, a better fourth quarter and then the first quarter drop and we’ve talked about some of the factors there.

And I would say sort of across the Board, I don’t see one sector or another being impacted. And so, it’s a little bit perplexing to be honest, we continue to be really pleased with hope in every other region. As I look at the U.S.

economy, I realized that that a lot of the economists are feeling pretty robust about the second half that there is something about the fact the GDP will be flat for the first half of this year that’s connecting into their business. So, it’s a little bit perplexing.

We have talked to customers on the anecdotal basis and they’re basically saying things are okay, but they just don’t see a lot of growth or robust forecast from the customer. I like that a little bit -- its interesting that our RBIS business in U.S.

based brands and retailers also were soft and there I think retailers are just being confirmative about what the fall season is going to look this year..

Okay. That's helpful. Then on the flip side of that, you mentioned initially that PSM came in above expectations in total.

Of the other regions that you're exposed to, which one really came in above, was it Europe, the emerging markets, or a little of both?.

Both, I think, Europe has like Mitch mentioned that single digit growth and so -- and the market growth in Europe has continued to accelerate. I just want to tell everybody, we don’t have second quarter numbers yet for the region and from a market perspective, but there continue to be surprise presently above the growth in Europe.

Latin America continued to be strong as well as Asia Pacific, so all those regions actually are far and quite well..

Okay, I will turn it over. Thanks so much..

The one thing I would add is within the emerging market Eastern Europe has a little bit soft still compare to the rest of the emerging market..

Mitch, on that, was there any improvement versus the run rate from the previous quarter, or no? In Eastern Europe?.

No..

Our next question is from the line of Anthony Pettinari with Citigroup. Please go ahead.

Good morning. You discussed higher employee related expenses in both segments.

I was wondering, is that just wage inflation, or is there some new hiring going on? Is it possible to quantify the expense in either segment? Should we expect that to continue to be a headwind in the second half?.

It’s normally inflation. There is no big investment or anything going on. We obviously have so modest investments and stakes for example where we’re seeing high growth and high margin expansion very modest. It’s 95% normal wage inflation. We are always comment on it’s just as being one of the key factors as we talk through it.

But one thing I would comment on is what I said earlier is just that, wage inflation is a headwind for RBS in particular but it was more moderated than we normally see just because the adjustments within incentive comp within that business..

Okay. That's helpful. In your prepared remarks, I think you reaffirmed full-year cash guidance, but if I heard correctly, you said some cash may be deferred or pushed out from 2014 to 2015 at the end of the year.

Did I get that right? If that's correct, is there an order of magnitude of how much that could be on free cash?.

Before we’re expecting modestly above 300 million and we set 300,000 at the four, and now we’re saying approximately 300,000. So there is subtle shift change just because we don’t see that we can guarantee, if you will, 300,000 as a floor in our guidance right now.

And if you recall at the beginning of this year, $30 million moved from ’14 in ’13 more than we expected, it will be commented on that in January during the earnings call and when we just look at it there is just too much volatility when you combine the 53rd week until and so forth, there is a lot of volatility.

It really doesn’t matter at time of cash moving a week or two and so anything short within later Q4 to be coming partly in Q1 at the next year..

Okay that’s helpful. I will turn it over..

Our next question is from the line of Rosemarie Morbelli with Gabelli & Company. Please proceed.

Thank you. Good afternoon, all.

Following up on George's question, when do you think your price increases will catch up on the raw materials and you will close that gap?.

It’s a very modest gap and most of the places that we’ve been raising prices have been due more to currency shifts in markets like South America or India, again where we have currency related inflation. I think that this gap is modest enough that we’ll get it through a focus on mix improvements priced and targeted pricing actions et cetera.

It’s certainly not like it was few years ago where we’re getting ramping inflation..

And what do you see happening in terms of raw material inflation over the next few months?.

The stability, relative to Q1 we had talked about pressures if you heard, we didn’t talk much about pressures year-over-year. We still have some pressures there but as far as sequentially we have seen them ease a little bit. And we’re still seeing it obviously within paper and then specialty chemicals as well.

But relative speaking, little bit of moderation..

Okay, thanks.

Looking at the graphic reflective tapes top line growth of 10% to 11%, what is behind that strength? Is it that you are getting new accounts? Is it new products, just because it is smaller? Do they have a smaller margin than the rest of PSM, and therefore this is why you had margin pressure?.

No actually the graphics and tapes and reflective product category all have higher variable margins than the core label and packaging business. As we said during the industrial presentations these are markets where we had relatively low market share.

And our teams have done a great job of proving some new product innovations and improve quality and service in graphics. Our performance tapes business has seen excellent growth on both the personal care side of the business as well as in industrial business. We had a couple of new adhesive products platforms that we launched a couple of years ago.

And our commercial teams are doing a great job executing, driving lot of new applications both with existing customers and new customers in that business..

Okay.

If this is the case, if you have a stronger growth for your higher margin products, why was label's margin then, they have to have been down? What is behind those margins?.

So while the graphic variable margin was up a lot of that frankly was chewed up by extra transition cost that we had in the European restructuring program which frankly is all about improving our class in that business. So that’s definitely one reason..

And the other thing, if you look at we mentioned last year’s Q2 was a peak quarter. It was 10.7 and the average for the year was up 10.2. And so if you compare against that average Q2 and Q3 are usually little bit higher than the average the mid is like 3 or 4.

But the point is if you adjust this for the transition cost you basically get for those two factors alone you get in roughly flat margins. Product mix we still had one and that’s why we commented on it for 6% top line growth.

We traditionally did a little bit more additional flow through, so we’re just seeing a continuation of the trend within the labels and packaging materials business that we’ve seen in the last few quarters. And it really reinforces the strategy focusing on graphics and tapes..

Thanks. I appreciate it.

If I may ask one quick last question? In terms of Eastern Europe, how big are Ukraine and Russia? Do you see an impact on your business going forward, if it doesn't quiet down?.

It’s a timely question because we literally just opened the new distribution center for pressure sensitive materials in Ukraine. And actually it’s been growing quite nicely now, it’s very, very small. So it really doesn’t have a material impact on materials..

Our next question is from the line of Scott Gaffner with Barclays Capital. Please go ahead sir..

Hi. Mitch, I just wanted to go back to the free cash flow guidance for a second.

Could you just clarify for me, did you say that $30 million of cash at the beginning of 2014 got moved into 2013? Or was it the reverse?.

No that happened and we talk on that back in January and that’s not the reason we’re adjusting our guidance now. I had shared that happened last year and as indicative of the amount of volatility there can be around year-end and it really just moves.

So if you recall we beat our guidance for free cash flow in ‘13 and we attributed $30 million of that just due to timing. And if you saw on Q1 of this year free cash flow was worse than it normally is in Q1 and $30 million of that with that was attributable that reason.

Does that make sense?.

Yes, that makes sense. So, $30 million got pulled from 2014 into 2013, made the free cash flow guidance lower than maybe some of us originally would have anticipated. Now we have free cash flow going from 2014 into 2015..

Maybe….

Maybe, okay. So it’s a maybe..

Scott our first goal year end if you read I think on the 3rd of January and it’s really is hard to project. And as you can see last year we thought we come in around 300 million and we came in 330 million..

So, this is mostly related to receivables within the working capital line in? Is that how to think about it?.

We receive little down pay at lot of terms are end of month. And so those payments can come in couple of days earlier or couple of days late including our own payments..

Alright. Fair enough. When we look at the RBIS business, Dean, I thought you mentioned something about growth in European RFID.

Can you talk about the growth within Europe? Is that maybe more meaningful than we've maybe thought about before? How does sort of RFID break down Europe versus US, as a percentage of that $100 million or maybe its $120 million in sales now, who knows, of that business?.

We probably I think commenting a little bit is that the investor meetings and the take up off RFID in Europe has been faster than in for U.S. brands and retailers. And frankly as anything we see an acceleration of that impact.

And so it’s pretty much when a leader in the category decides to go on RFID so there is a lot of followership so we have definitely seen a stuck up in activity across the board in Europe. The U.S.

so we still a lot of ramp up activities going but there are more vertical retailers in Europe and I think they just have some of that have a very natural well defined business case and they are moving forward so it’s all good I think the same thing will happen in U.S. but it will took that behind a little bit..

Okay. Lastly, I think you mentioned the, you took the restructuring costs higher, modestly higher due to the European restructuring effort.

Are you finding more opportunity, or is the restructuring just costing more to get that done?.

The increase it was roughly half from the European restructuring and a little bit more another action within RBIS it’s going to deliver more savings next year as well..

Our next question is from the line of Jeff Zekauskas with JPMorgan. Please go ahead sir..

Hi, there.

Was your average price mix in the quarter for the Company as a whole up or down? And by how much?.

The price mix for the total company was slight headwind overall and if you look at it the product mix that we’ve talked about within the materials business but then also as you recall we’ve discussed that RBIS business has higher variable margins so when that down and PSM is up that also has a segment mix effect if you will overall..

Okay.

Were you surprised at the RBIS volumes or not?.

Yes, we thought we would have more robust sales especially from North American retailers, so from that perspective. The color to that too very positive lease of price buy continued strength in Europe..

All things being equal, are your expectations for the fourth quarter in RBIS lower or higher or the same in light of the sales and order patterns you have seen so far?.

Jeff we don’t give segment guidance but I will say this and that is that the terms for RBIS get easier through the back half the year. And a lot of this frankly will be determine how that tool sales they’ll prepare.

And if the current consumer confident index is an indicator that people are going to buy more apparel than and the sales are robust at back to school I would anticipate that retail as we feel little bit better about putting more items in stock.

If you look at just apparel sales generally as a category in the first half of the year they haven’t been very good the year-over-year sales comps just haven’t been very good. So I think there is just a little bit of conservatism that’s in there..

And Jeff if you look at the range of our guidance we don’t give guidance by segment if you look at the range of our guidance the low end is roughly a continuation of some of the trends that we saw in Q2 and the high end is somewhat an improvement from that. So that’s carefully in line with the range of the guidance..

I wasn't trying to crowbar a forecast out of you. All I meant was that -- no, that normally if the second quarter is weaker, the fourth quarter tends to be a little bit weaker, or that is what I call --..

It’s really different season and I remember back in 2012 we had a really tough first half and then we had a really robust second half for RBIS in terms of volume growth. And because of the seasonality in the business every major seasons is considered to be -- the whole new outlet for retailers..

Okay. I think there are $3 million in transition costs included in the pro forma operating income in pressure sensitive in the second quarter.

Does that go to, I don't know, $1 million in the third quarter and then it disappears?.

The timing is in precise when the transition cost flow through but we’re expecting a few million more between Q3 and Q1 next year. So if that moderates..

It moderates, okay.

In terms of cash restructuring outlays, if you hadn't said it before, how much have you paid so far in the first half of the $50 million you intend to pay this year?.

Of the 50 million we have not paid that much, so lot of it’s ahead of us still in the coming couple of quarters..

40?.

I don’t have that right in front of me Jeff, sorry. But I can provide that for you off line..

Okay.

What's pricing in RBIS like, or as you look forward? Is that pretty flat or is there a negative mix there as well?.

No it’s fine, recalling that business, it’s a custom business. So there is a constant weak pricing as new programs come up. So I think anything the team has done a good job of continuing to improve the variable margins in the business. So I feel actually pretty good about that.

What we’re really focused on getting more volume growth because if we had 3% sales growth on top some of the productivity that we delivered in the quarter it would have been pretty incredible result.

And so as we look again at the back half of the business I think the good news is that easier, it’s our commercial teams are targeting to take some additional market share, really help us and we fell again pretty good about some of the programs in RFID and external establishments ramping up..

Avery is often a good bellwether of which way the global economy is going.

Does it feel to you like the global economy is accelerating or staying the same or slowing down? Or do you not have a sense?.

Well that’s a big responsibility Jeff. I would say….

I won’t hold you to it..

Well that’s probably good. The one market that has uncertainties still for me and I am a bit confused is North America. Every other market seems to be doing just fine, frankly and I am pleased with it. Our teams are executing well. And things have just started.

In North America the slowness in pressure sensitive typically would say that we have a softness coming and again I looked at the market growth rates it’s been choppy. We’ll have a quarter that’s flat again and then on this case we know we’ll have some weather related effects in pressure sensitive in the first quarter.

And the second quarter really didn’t rebound as much as certainly the economy we’re talking about. And so we just hadn’t seen that kind of rebound yet..

Our final question is a follow up from George Staphos with Bank of America Merrill Lynch. Please go ahead Mr. Staphos..

Thanks. Hi, guys. I think I know the answer to this, but I just want to confirm.

If we looked at your average pricing in pressure-sensitive year-on-year on a per-unit basis, would it be safe to say that pricing was down year-on-year, recognizing that mix is probably a big chunk of that? How would you answer that question?.

George we actually just comment on the net trend between raw material costs and price trends. And you actually see quite a bit of difference region by region, significant input cost inflation in some regions, largely due to currency that require price increases and in other regions you may see the opposite.

So we’ve been commenting on net from an impact and we talked about it being neutral for about four or five quarters consistently until Q1. And we’re now seeing a modest headwind from that..

George let me just add a comment here. And Mitch said it before, so I know we’ve been talking about this and this quarter looks more severe than I really feel in.

For two reasons we had the highest operating margin ever in Pressure-sensitive Materials last year second quarter as you know moderated a bit in the back half of the last year, but still above the 2015 target range we just have for the business and this year we have the combined impact of for the same mixed range, but the transition cost on top of it -- so I believe that we’re going to continue to operate Pressure-sensitive business focused on innovation, continuous innovation, focused on growing our graphics and performances tape business at higher margins.

And we’re going to be in that 10% to 11% margin range again targeting the upper end.

I think if also looking catalyst or breakthrough that will certainly come when we complete the European restructuring program because we’ll get a big lift next because we get the benefit of the restructuring of course we would have the transition cost in the P&L at the same time..

Sure. That makes sense. Again, I'm not trying to flag one way or another a concern we have or not, I'm just trying to get at the data best we can to model it. So, I appreciate your patience with our line of questioning. The targeting of --..

I am trying to sound confident. Hopefully, I didn't come across as impatient..

No, understood. In terms of the targeting of the 11%, I'm assuming that's not for the full year next year. You're hoping to get towards 11% as the year progresses, so maybe second half of next year would be where you're beginning to -- where you're approaching that on a quarterly basis.

Would that be a fair pictorial?.

Actually what we said was for 2018, we wanted to be in the 10% to 11% range and we’re targeting the high end of the range. So I don’t –.

I thought you said....

(Multiple speakers) we're happy to give next year guidance, but we’re going to maintain at in the 10 to 11 shooting for 11. That’s what we said..

No problem, Dean. I thought you said during your prepared remarks that you hope to be approaching 11% in the next year off of these programs. I must have misheard you there..

No, definitely, we were -- that’s a longer term goal and if you recall last time we said a target range, we exceeded with it in middle of the quarter. I know again, I am real confident about the 10 to 11 and we’re going to stretch for the high end, so it will be great if we had high end of the range next year but we’re not predicting that right now..

Understand. No problem on that.

Can you remind us, what is it about the comps getting easier for RBIS that we should remember? Obviously remember RFID, but is there anything we should reflect on as we're modeling out our volume comparisons?.

Yes, I think the value segment for us in North America was particularly strong in the first half of 2013 and then got a bit softer in the second half. So just to remember having strong comp there so the comps just getting easier, I think that’s the main factor..

Okay, and last, and I think you touched on this before, July trends, it sounds like in PSM have been more or less the same from what we saw in the Q2. Could you affirm that or correct, if it need be? Within RBIS, how have early 3Q trends looked like? Thanks, guys, and good luck on the quarter..

Thanks. I think the trends consistent with our guidance range and pretty consistent with how we came out of the sector quarter. And as just remind everybody that July is a really tough month for us and then August tends to be definitely impressive by Europe holiday.

So September always is the key month and that would start, really some of the retailers star to order and purchase for that Q4 season in September as well. So that’s really good season and how going it’s going to go..

Actually, one last one and I'll finish up with here. Historically, if we go back to the 1990s and even early 2000s, if I recall, free cash flow for the Company would accelerate in the second half versus the first half. In turn, that was often a reason why the Company could accelerate repurchases of its stock.

Are there any lessons from that as we look out to 2014? Or would you not draw any conclusions, you're just going to be disciplined and opportunistic about repurchase? Thanks, guys, and again, good luck in the quarter..

Thank you, George. We will continue to be disciplined and opportunistic and we don’t look at the seasonality of our free cash flow as a key driver of when we would repurchase shares.

We are under levered as I had mentioned and to have ample capacity between our cash flow and our current leverage position and we will continue to be disciplined and opportunistic, George..

Mr. Scarborough, there are no further questions at this time. You may continue with your presentation or closing remarks..

Thanks everyone. Well, I would like to conclude by saying our playbook is working. We are delivering mid single digit organic sales growth driven by emerging markets, innovation, and share gain.

We are executing productivity actions and driving capital efficiency we’re on track to improve our returns and we’re returning cash to shareholders and we will continue on this path. Thanks for joining us and we look forward to speaking with your again soon..

Operator:.

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