Ladies and gentlemen, thank you for standing by. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. [Operator Instructions] Welcome to Avery Dennison's Earnings Conference Call for the second quarter ended June 29, 2019.

This call is being recorded and will be available for replay from 2:00 pm Pacific Time today through midnight Pacific Time July 26th. To access the replay, please dial 800-633-8284 or 1402-977-9140 for international callers. The conference ID number is 21896769.

I'd now like to turn the call over to Cindy Guenther, Avery Dennison's Vice President of Investor Relations and Finance. Please go ahead..

Thank you, Tina. Today, we'll discuss our preliminary unaudited second quarter results. Please note that throughout today's discussion, we'll be making references to non-GAAP financial measures.

The non-GAAP measures that we use are defined, qualified and reconciled with GAAP on pages A-4 to A-8 attached to the financial statements accompanying today's earnings release and the appendix of our supplemental presentation materials.

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 Mitch Butier, Chairman, President and Chief Executive Officer; and Greg Lovins, Senior Vice President and Chief Financial Officer. Now, I'll now turn the call over to Mitch..

Thanks, Cindy, and good day, everyone. Earnings in the second quarter met our expectations, delivering a roughly 12% increase over prior year on a constant currency basis, as we more than offset softer than expected growth with increased productivity. Now, 2019 is obviously playing out a bit differently than we envisioned at the start of the year-end.

As you can see from our results, we are once again proving our ability to anticipate shifting market conditions and are responding swiftly. This agility is enabling us to sustain our earnings growth trajectory and maintain the midpoint of our EPS guidance for the year.

We continue to execute well in driving outsized growth in high-value categories with growth of these products and solutions again outpacing the base business in Q2, and at the same time, our relentless focus on productivity was again a key driver of margin expansion.

In sum, we are making good progress against our key strategic priorities and despite the current environment are on track to deliver our long-term financial targets. Label and Graphic Materials posted roughly 1 point of organic growth for the quarter, driven by pricing with high-value categories again growing faster than the base.

Overall, volumes declined modestly, reflecting softer market demand as well as the previously discussed loss of share in less differentiated categories over the preceding couple of quarters. Recall, this share loss resulted from our disciplined execution of pricing actions near the end of the inflationary cycle.

We've begun to recover that share while sustaining the strong margin we achieved in the same period last year. The slower demand trends we saw in Q1 continued into Q2. We've adjusted our full-year guidance to reflect the softer market conditions through the balance of the year, combined with gradual, focused share gain.

As I mentioned, productivity efforts supported a strong operating margin for LGM in the quarter. We’ve been anticipating the possibility of a general market slowdown.

And so, in addition to some belt tightening, we accelerated restructuring actions that we had in the pipeline to both further improve our competitiveness in each region as well to drive long-term, sustainable expansion of both margins and returns.

Retail Branding and Information Solutions delivered solid organic growth, driven by ongoing strength in RFID while continuing to drive significant margin expansion. RFID grew once again by more than 20%, while the pace of the base business slowed.

The slowdown in the base reflected general market softness, as well as what appear to be some choppiness in timing of retailer purchases in light of trade related uncertainty. While apparel market uncertainty remains, we are well-positioned to win here with our unsurpassed global footprint and differentiated product and service capabilities.

The strong growth in RFID continues to be fueled by apparel, while we made great progress in developing other promising verticals.

Our total pipeline of customer engagements continues to expand, now up by more than 30% from just the beginning of this year with engagements in categories outside of apparel including food, beauty, logistics leading the way.

As the leader in ultra-high frequency RFID, we are positioned extremely well to capture these opportunities with our industry-leading innovation and manufacturing capabilities and the best, most experienced team in the space.

We continue to increase our investments in business development and other resources to drive this growth, as we build out our Intelligent Labels platform to enable a future where every item can have a digital twin and a digital life.

In industrial and Healthcare Materials, sales were flat on an organic basis, driven by the decline in global auto production, which more than offset solid growth in other industrial categories as well as strong growth in our medical business.

And we once again made good progress in the quarter toward achieving our operating margin target for this business. In short, another solid quarter and despite a softer top-line, we are reaffirming our earnings guidance midpoint for the year.

Our strategies to deliver outsized growth in high-value categories are clearly working and our relentless focus on productivity continues to enable us to increase our pace of investment in these categories, increase our competitiveness overall and grow profitably in our base business as well, importantly, continuing to expand operating margin.

We are confident in our ability to achieve our long-term objective to drive GDP-plus growth and top-quartile returns and we will continue to seek opportunities to leverage our positions of strength, commercially, operationally and financially and lean forward even as others may pull back. Now, I'll turn the call over to Greg..

Thanks, and hello, everyone. As Mitch said, we delivered another solid quarter with adjusted earnings per share of $1.72, in line with our expectations, and again up more than 10% on a constant currency basis. We grew sales by 1.6% on an organic basis and currency translation reduced reported sales growth by 4.7 points in the quarter.

Adjusted operating margin increased by 60 basis points to 12.1%. And we realized $12 million of restructuring savings, net of transition costs in the quarter. The LGM restructuring in Europe was largely completed as of the end of Q2, which will drive a significant uptick in savings from this initiative in the second half.

Turning to cash generation and allocation. Year-to-date, we generated $165 million of free cash flow, up nearly $38 million compared to the prior year.

And as we've discussed, we've increased our pace of fixed capital in IT-related spending for two to three-year period to support our long-term organic growth and margin expansion plans, with capital spending expected to be up by about $25 million this year.

We continue to expect capital spending then to moderate from this level over the next couple of years, consistent with our long-term capital allocation strategy. And we continue to return cash to shareholders. In the first half of the year, we repurchased roughly 1.2 million shares at an aggregate cost of $117 million.

We paid $93 million in dividends, including the 12% increase in the dividend rate in April, for a total of $209 million of cash return to shareholders, up 11% compared to the same period last year. And our balance sheet remains strong.

Our current leverage position gives us ample capacity to continue executing our disciplined capital allocation strategy, including investing in organic growth and acquisitions while continuing to return cash to shareholders. We are well positioned to take advantage of any dislocations in the market should they occur over the next few years.

I'll now turn to the segment results for the quarter. Label and Graphic Materials sales increased by 0.9% on an organic basis, driven by prior year pricing actions as volume declined modestly.

Growth in LGM's high-value categories continued to outpace the growth of the base business, once again led by specialty and durables, which were collectively up high single digits on an organic basis. Breaking down LGM's organic growth in the quarter by region.

Both North America and Western Europe declined at low single digit rates, reflecting the market dynamics already discussed. Emerging markets grew at a low single digit rate with China up low single digits and South Asia up high single digits.

Adjusted operating margin for the segment was strong at 13.8%, in line with the same period last year, reflecting the benefit of productivity actions including material reengineering, partially offset by currency-related headwinds and the impact of lower volume.

As I mentioned in last quarter's call, we've covered the cumulative effect of the roughly 18 months of raw material cost inflation that we experienced through a combination of pricing actions and material reengineering.

We're now seeing some modest deflation in our raw material input costs on a sequential basis with comparable sequential declines in both the first and second quarters of the year. Shifting now to Retail Branding and Information Solutions.

RBIS delivered solid top line growth, up 4.4% on an organic basis, driven by faster growth in high-value categories with sales of both RFID and external embellishments up more than 20% for the quarter. Our base business was roughly flat, adjusting for the impact of cannibalization due to RFID.

Adjusted operating margin for the segment expanded by 130 basis points to 12.5% as productivity and higher volume more than offset higher employee-related costs and growth related investments. Turning to the Industrial and Healthcare Materials segment.

Sales were flat on an organic basis, driven by the decline in global auto production as automotive applications globally represent about a third of IHM's sales. Outside of automotive, industrial categories were up mid-single digits on an organic basis.

Healthcare categories likewise grew at a mid-single digit pace with better than 20% growth in medical applications. We continue to make good progress on the margin front in IHM.

Adjusted operating margin increased by 120 basis points to 10.5% driven by productivity and a net benefit of pricing and raw material costs, which more than offset higher employee-related costs. Gains on the pricing side largely relate to strategic adjustments we made as a result of our work to more effectively segment our portfolio.

Focusing now on our outlook for 2019. We have maintained our guidance midpoint for adjusted earnings per share while tightening the range to $6.50 to $6.65. We have reduced our outlook for organic sales growth to a range of 2% to 2.5% in light of the slower market conditions in LGM during the first half that we assume will continue.

We have outlined some of the other key contributing factors to this guidance on slide nine of our supplemental presentation materials, in particular, and just focusing on the changes from our assumptions in April.

At recent exchange rates, currency translation represents a roughly 2.5-point headwind to reported sales growth for the year with a pre-tax operating income hit of $28 million. This is up slightly from the $27 million we had anticipated previously.

We now estimate that incremental pre-tax savings from restructuring, net of transition cost, will contribute about $45 million to $50 million, up $5 million from our April estimate, as we've accelerated a number of actions that were in the pipeline, we've already realized about $17 million in net savings year-to-date and expect the balance of our full-year savings will be split roughly equally between the third and fourth quarters.

And we've narrowed our range on average share count, assuming dilution of 84.5 million to 85 million shares reflecting an assumed pick-up from the Q2 pace of share buyback during the second half.

In summary, we delivered another solid quarter in a more challenging environment, and we are confident in our ability to deliver the earnings guidance we communicated at the start of the year and are on track to deliver on our long-term objectives to achieve GDP plus growth and top-quartile returns on capital, driving sustained growth in EVA.

Now, we'll open up the call for your questions..

Thank you. [Operator Instructions] Our first question comes from Ghansham Panjabi of Robert W. Baird & Co. Please go ahead..

I guess, first off on margins in LGM being flat year-over-year during the second quarter, even with the obvious moderation in volume growth. You mentioned accelerated productivity actions, reengineering et cetera.

Can you just give us more color in terms of what actually benefited you relative to your initial expectations for that specific segment?.

Yes. I think overall there is a couple of pieces. One, we talked a little bit about the stronger growth in higher value segments and that’s helped overall with our margins there as well, as well as some of the share loss that we've talked about over the last couple of quarters, so some of the less differentiated segments.

So, having a generally kind of lower average variable margin than our average would be on that decline.

At the same time, as you mentioned, Ghansham, we've accelerated productivity efforts, combination of restructuring actions as well as kind of short-term productivity actions including belt tightening, as Mitch mentioned a little bit of incentive costs and a little bit of benefit from price deflation year-over-year.

So, really a combination of things with the productivity, as well as stronger growth in high-value segments helping maintain the margin year-over-year..

Okay. That's helpful, Greg. And then, Mitch, back to your comments on RBIS and the comments of the base business slowed.

Kind of looking back, do you think that you benefited from any material extent from a volume pull forward previously that may have impacted 2Q or do you see incremental weakness? I guess, what are customers telling you as you cycle into the back half? And then, also, have you seen any impact specific to RFID as well? Thanks so much..

Sure. So overall as far as pull forward, it's tough to call overall, Ghansham. as far as end retailer behavior has been doing in the first half, there has been just more choppiness, as I commented on. The other big factor just between Q1 and Q2 is really around just timing of holidays and Chinese New Year and everything else.

That aside, Q2 seemed to have a bit of a slowdown in the base, and it's really around just some of the uncertainty, particularly around announced tariffs and then tariffs being canceled, and so forth. So even within individual quarters, we're seeing a bit more lumpiness than we normally see.

Now with that regard, performance athletic continues to be a well-positioned category, they've moved a lot of their sourcing outside of China already, and I'd say the value segment, so think of discounters and so forth are more exposed to what's going on with the China U.S. trade relationships..

Thank you. Our next question comes from Edlain Rodriguez, UBS. Please go ahead..

A quick question for you Mitch.

I mean in terms of LGM like the volume softness you see in the base label business, like what are some of the key end markets where you're seeing that softness?.

Key end market is, for base, if you're talking about paper-based products and so forth, would be variable information label. So e-commerce labels. If you think about the variable information labels for shipping, for near the grocery store and you get a barcode at the deli counter and so forth.

So that's some of the less differentiated categories that we're referring to..

And can you talk about like the progress you're making on regaining like the lost market share in LGM? And again, remind us again like how exactly are you doing that to get that volume back? Is it through pricing or is there something else going on? Just a little more color please..

Yes. We're seeing progress, particularly in North America and Europe where we have clear data on what is going on within the market. We can tell from the volume trends that we're seeing, we're making progress, we've stabilized the share position and began to recapture that share here in Q2. We are focused on doing this in a disciplined and gradual way.

As we said, it will take us a few quarters to recapture that share and how we do it is basically continuing to focus around our differentiated quality and service, that is a key area of focus for us.

And so we're willing to take some risk particularly late in the inflationary cycle knowing that our core fundamental points of advantage continue to play through over time. Having said that, our markets clearly are competitive and less differentiated categories are competitive as well.

So we continue to have a balanced strategy focus around innovation and productivity to remain competitive and continue to have attractive returns within the base categories. I do want to comment real quick also as Ghansham you had another follow-up question around RFID.

So again, just as my comments said continuing to see strength within RFID, RFID is an enabler for continuing to not only provide opportunities for end market demand and managing through the omnichannel, all of the advantages we've talked to in the past, but also around shortening lead times and cycle times which given some of the trade uncertainty also is a great capability for any retailer and brand to have.

So there is not any impact or changing views overall in RFID in any way other than just general recognition that it is the technology of the future within the apparel categories and we're seeing the new opportunities continue to flourish outside of apparel I talked through as well..

Our next question comes from Anthony Pettinari of Citigroup Global Markets. Please go ahead..

In LGM, you identified variable information and shipping labels as maybe a couple of the weaker end markets that you sell into in the quarter.

Apologies if I missed this, but for LGM, is it possible to say which geographies or which regions were particularly weak or strong from a volume perspective in the quarter? I know you gave those volume trends regionally for RBIS..

If you're talking about specifically for VI and shipping label volumes by region, if we saw actually strength in China pretty strong growth within the VI, variable information label category, reflecting just strong growth of e-commerce as well as a little bit of easier comps in that specific category in China.

And then elsewhere, we're actually seeing general slowdown, which reflects a general slowdown we think in economic activity with Europe being the biggest decline. And obviously, there is a piece of share loss in there as well from our business. I'm talking a bit of market..

Got it. Now that's helpful. And then in your comments, you discussed levers you can pull to grow earnings and returns and I think you talked about leaning forward as others pull back.

And I'm just wondering, I don't know if that comment was specifically around M&A, but can you just talk about maybe valuations that you're seeing, is it too soon for kind of the economic slowness that we've seen in some regions to actually impact multiples, conversations you've had with potential targets, any general thoughts on M&A?.

So it's a general comment, overall.

So just around our organic strategy, we've been ramping up our pace of investment for the last few years to drive this outsized growth in high-value segments and we've been leaning forward with continued restructuring activity that you hear us announce periodically, we continue to focus around how to find more productivity to fund those investments, protect the core and expand margins.

So, it's leaning forward on all those strategies. And it's also around just capital allocation of what's leftover with free cash flow as you comment on, and it's M&A. And we find most of what we're looking to companies in the pipeline are privately held, prices tend to be a little bit sticky. We are actively engaging a number of targets there.

We did slow down a little bit of the slow core ships in IHM, we're now going to be ramping that up as well as far as how we core people, but it's in general pipeline is healthy. But the pricing is a bit sticky is what I'd say. And that's why things haven't converted of late.

The other element of the comment is just there is more volatility in general around stock market and so forth and so we aren't well positioned for share repurchases as well. So it's multifaceted, Anthony..

Thank you. Our next question comes from John McNulty, BMO. Please go ahead..

Hi. Good afternoon. This is Bhavesh Lodaya for John. You touched on the RFID opportunities and it's great to see it maintained its strong growth.

As we think about how a tough macro impacts the segment, are you seeing any changes in implementation and/or expansion from your customers where either they may be slowing down things to reduce their spend or alternatively they may be accelerating their adoption to help improve efficiency.

So maybe you can touch on how to think about both those sides?.

I'm not sure I caught the beginning of the question. I think you're asking about RFID and if we're seeing any change in behavior given the current macro and the answer is the only change we've been seeing over the last few years is a continued interest and acceleration.

Again, this enables companies to connect more with their end customers, it enables them to have more efficient retail as well as omnichannel strategies, and it enables them for more efficient supply chain. So, even if things do turn down, it actually says this technology is a key enabler for the success of various companies in that environment.

So we're not seeing any negative shift just a continued acceleration as we commented on both in our revenue as well as in our pipeline of activity..

Okay, thanks.

As a quick follow-up, any updates on the M&A environment, particularly for this segment or outside of it?.

Just we continue to see opportunities for M&A and we are continuing to work the pipeline and that no additional comments beyond what we've discussed. Part of the reason, as you've noticed, we've been below our targeted leverage level.

And so that we have the capacity to both do M&A as well as continue disciplined share buyback and we're well positioned for that and continue to engage in active pipeline..

Thank you. Our next question comes from George Staphos, Bank of America Merrill Lynch. Please go ahead..

Hi. Thank you. This is Molly Baum sitting on for George.

He is traveling today, but one of the questions that he had wanted to ask was, what impact is recycling and other sustainability efforts having on LGM and RBIS both from a volume perspective, but also how is it impacting your product development efforts?.

Yes. So overall on sustainability, we've committed as you all know to a number of set of long-term targets and we're making great progress on that both procuring more sustainable raw materials, reduce the environmental impact of our business and developing more sustainable and innovative products and solutions.

So a key area of focus is around really the recyclability of packaging and it's getting a disproportion amount of our investment dollars as we've talked about, we have innovative solutions out there such as CleanFlake that enable more efficient and effective recycling of plastic containers, that's been growing double digits, and we are continuing to invest a higher amount of our innovation spend specifically in this area, given the fact that we spend a disproportion amount of the industry's R&D spend, we feel we're well positioned for this and see that it will be a slow change overall, but we are well positioned to help lead that change..

And then, I don't know if I heard this correctly. I think one of the comments in terms of RBIS base business being flat. That was adjusting for some cannibalization from RFID. Can you quantify kind of what the impact would have been if you included that and just give a sense for how you expect that to trend going forward? Thank you..

Yes. So, we said the base business in RBIS was roughly flat with the cannibalization. It would be down low single digits if you exclude that impact. So low-single digit impact in terms of the transition from certain tags that used to be without RFID to now price tag, for instance, it would include RFID..

Thank you. Our next question comes from Adam Josephson, KeyBanc Capital Markets. Please go ahead..

Mitch, in terms of the cadence of volumes throughout the quarter, can you just talk about them and how that cadence led to your guidance reduction on organic sales?.

Yes.

So overall just the lowering that we had -- when we had the Q1 performance, we've seen blips for individual couple of months at a time even a quarter and so we weren't calling it as a bigger shift, and with what, how we saw how Q2 came in, we concluded giving a range of guidance that at the low end just shows a pure continuation of the first half growth and at the high end I assume that once we get through the easier comps in Q4 that that growth rate increases a bit, so that's very simple how we came up with the guidance..

I mean, it's just a follow-up to that April through June, did you see any meaningful change in underlying trends?.

Yes. And we were probably strongest in the middle of the quarter and a little bit softer in April and June, so as Mitch said it's been a little bit choppier over the last couple of quarters. So nothing meaningful that I would say and again as Mitch mentioned our comps are a little bit tougher in Q2 and Q3.

So, we’d expect the third quarter to be a little bit on the lower side of our guidance range and the fourth quarter a little bit stronger..

And Greg, in terms of volume versus price, I know in LGM, you were up 1.2 [ph] organically. And I know all of that was price because volume was down.

In terms your expectation for the second half in LGM specifically, are you expecting volume growth embedded in your guidance and what is volume versus price for LGM or anything you can talk about with along those lines?.

Sure. So, I think we talked about a couple of quarters ago, our original expectation for this year was about a 1 point to 1.5 growth when we started the -- growth in price. When we started the year, we were around that 1.5 level.

I think now for the full year in LGM, we're probably expecting to be closer to 1 point, maybe slightly below and most of that year-over-year is carryover pricing from last year and most of that impact was in the first half, so we would see a little bit more volume growth in the back half and a little bit less on the price side..

Thank you. Our next question comes from Jeff Zekauskas, JP Morgan Securities. Please go ahead..

Thanks very much.

Can you talk about July business trends across your three segments?.

Yes, Jeff. This is Greg. There is -- I think July had not much of a read so far, just given holidays in July in the US and then Europe holiday period starting. So I wouldn't say that we make or take much for churn from what we've seen so far this quarter.

So again, what I would say is Q2, we expect to be more or Q3, we expect to be more like the first half, maybe a little bit lighter in terms of year-over-year growth given the harder comp in the third quarter, with that picking up a little bit in the fourth quarter as Mitch indicated earlier given some of the, the share loss and some of the softening markets we saw at the tail end of last year..

And maybe you discussed this before and I missed it.

Can you talk about the volume trends in Label and Graphic Materials in the US, generally, Europe, South America and China for the quarter?.

Yes. So, Jeff, the volume trends, we don't talk about the specific volume trends overall region by region. So, but if you look at within North America. It was growing low single digits organically through the end of '17. And the growth began to moderate a bit in '18 and then moderated fully again here in 2019.

And as we talked about before, Q1, we think we saw a bit of softness that was probably a little bit more share than just the market at least in the beginning of the quarter and now we're seeing all same macro trend you're seeing and we don't yet have share of market data for Q2.

But if you look at the macro trends, it seems that there might be a bit of a softening in Q2 here. Europe had even stronger growth than North America up until early last year, it then moderated, it moderated still further from a market perspective, and it looks like volumes, it actually went negative as an overall market as well in Q2.

And China continued to see growth within the variable information labels tied to e-commerce, it's tough to tell exactly.

There is no clear market data here, but there's just a lot more uncertainty in general, there's growth -- decent growth overall outside of variable information labels in the market, but it's a lot more push and taken just uncertainty I'd say with engagement that we have with our customers.

And then South Asia, we continue to see strong growth, ASEAN a little bit lighter than India, ASEAN basically has tough comps they're going through. India seeing strong growth still although that's moderating a bit. Exports are down coming out of India, which is having a general macro view.

And Latin America, decent growth relative to the environment and you can see what's going on in the environment there. We've got -- had a quite a bit of currency price and so forth over the last couple of years..

[Operator Instructions] Our next question comes from Chris Kapsch of Loop Capital. Please go ahead..

So, I look at the income statement, I see the gross margins roughly flat year-over-year but your SG&A was down 70 basis points year-over-year. I don't think it's ever been below 15%. I get that's partly just sales leverage with the growth over time. But the -- and I get you've mentioned obviously the relentless focus on productivity.

You called out some belt tightening.

I'm just wondering if you could comment on the sustainability of that metric and if there is anything more specifically that you can point to that’s contributing there? Was there like a reversal of some incentive accruals or just the absence of some incentive accruals there that may have distorted that metric? And how should we think about that metric over the balance of 2019?.

Yes.

Chris, I think, as you've seen, we've been kind of pulling down our run rate on SG&A over the last four quarters really with some of the actions that we started taking in RBIS a couple of years ago that continued through last year as well as some of the actions we've been taking in IHM for instance, as in both of those businesses, we look to improve our speed, reduce our complexity while also reducing our cost.

And much of that work has been benefiting SG&A. So, you've seen our run rate come down over the last year and then at the same time, we're also reinvesting some of that savings from those initiatives in the higher value segments as Mitch talked about earlier as well.

So we do expect or I should say this quarter as well, we had a little bit of a benefit from incentive compensation as you mentioned as well, but we do expect overall to be more or less in line with where we've been in the last four quarters as we move forward..

Okay.

And then if I had -- if I could follow up on RBIS, you mentioned external embellishments as a category growing I think over 20% and just curious if that is -- is that something that's happening in the apparel market where retailers are spending more on that or is it something -- is that dynamic -- that metric a function of some commercial efforts that you put in place, perhaps more design efforts with key retail or apparel companies? If you could just talk about what's driving that dynamic? And is that something that you view as sustainable in the market? Thanks..

Yes, part of a deliberate effort and strategy, both commercially to increase our market presence and really to leverage our material science capabilities we have within the company to go from the interior of the garment to the external part of the garment and really trying to capture the overall trend within retail and well apparel specifically on customization and personalization.

So that is a key intent, key driver. We've been investing in it, it's been growing from a very small base over the last number of years well above the average and the key growth right now is largely coming from Europe, where we are seeing growth in the Sportswear, fan sportswear categories and so forth..

Thank you. Our final question comes from Rosemarie Morbelli, G.research. Please go ahead..

Thank you. Good morning and good afternoon rather, everyone. I was wondering, you mentioned Mitch that the performance athletic did well as your customers moved out of China.

So, does that -- did that translate into higher growth, and while you may still, the growth, it is at the lower margin?.

Yes.

So, my comment specific around performance athletic is one, they as a category that is a category that's doing well just in end markets, and two, with regard to some of the sourcing region uncertainty that's out there, it's not a recent item, but over time they migrated more of their manufacturing outside of China already, so it's more of a relative comment from what we see.

So that's what my comment was. And as far as what's going on, I think your second part of your question, Rosemarie, was around just the impact of migrating sourcing. This is something that can cause some near-term disruption in the industry related to some of the choppiness I noted.

We are extremely well positioned for this given our global footprint that we have our long experience of doing business in all the emerging markets that where apparel is made and so this is something that we see as an opportunity should things shift more -- at a more accelerated pace..

And then, I was wondering, you talked about the impact of the trade war on demand for retail apparel -- apparel items.

Looking at the fact that now I believe retailers are beginning to order for the holiday seasons, are you seeing a big change versus what was happening last year?.

There is some of the uncertainty around it for sure. I can't call one way or the other. Now, I will say, I mean there is no -- the tariffs aren't being implemented. So, and there have been broad discussion about for the vast majority of apparel that there won't be really an impact here.

So I think this overall had some early on we were thinking potential delays, but just in general, some of the choppiness that I've talked through, and if you look at just more broadly than that, China, the devaluation of the renminbi has actually made China cheaper to some retailers and brands as well in the meantime.

So there's a number of factors that go into their decisions and we're just seeing general choppiness and it's too early for us to call..

Thank you. Mr. Butier, I see no further questions via the phone lines. I will turn the call back over to you for any closing remarks..

All right. Well, great. Well, thanks everybody for joining the call. And I really want to just thank our team for their commitment and agility in delivering another solid quarter.

We are confident, as you've heard many times, in our ability to achieve our long-term targets, really reflect the resilience of our industry-leading market positions, the relative stability of our end markets and the strategic foundations we've laid. So, thank you very much..

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines. Thank you and have a good day..